Qiren ZHOU:Straits in Downward Adjustment: Impressions from the 2010 Davos Forum

 date:2010-4-11 9:47:00          

Straits in Downward Adjustment: Impressions from the 2010 Davos Forum

Qiren ZHOU

Professor, Dean of National School of Development

Prof. Zhou attended the 2010 World Economic Forum in Davos during Jan.27 -31. He summarized his experiences and observation of the event in the speech. The unemployment issue looming large during the world economic recovery was identified to lie behind all the apparent controversies in Davos. He interpreted the issue in a global perspective, and related it to the fundamental economic trend since the end of the Cold War. Its implication for China was also discussed.

Zhou discovered the world economic landscape depicted by statistics “could hardly add up with” the feelings of most people. On the one hand, statistics show the world economy including the developed countries has experienced recovery and real growth. Forecasts generated by various international organizations, the Purchasing Manager's Indices and major stock indices have generally revealed a bright outlook. On the other hand, most western dignitaries and renowned economists attending the Davos forum felt poorly with the current economic situation. The fundamental cause for the disparities is the serious unemployment issue facing the developed economies despite signs of recovery.

Why have the developed economies experienced recovery with little employment growth? Prof. Zhou accounted for this phenomenon by summarizing the basic pattern of the world economy after the Cold War. It was described as “a world of two sea levels”. The higher level consists of the developed economies like the US, the western Europe and Japan. The lower level consists of the former planned economies like China, India and the USSR. When the lower sea level began to open up to the higher one, it generated increasing flow of capital from the higher level to the lower one, and accordingly, growing flow of competitive products in the opposite direction.

It brings huge benefits for consumers in the developed economies, but troubles for the producers there, because they find themselves in the great straits of adjusting their real wage downwards. The adjustment process brings lots of frictions, troubles and conflicts, which China is now facing. There is a choice for Chinese, to maintain the lower sea level or to raise it with a relatively quicker pace. The latter is beneficial for both parties. Then, how should China raise the lower sea level? It requires a more global view in the study of exchange rate, monetary policy, fiscal policy and etc.


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