The majority of developing countries have given up on any kind of "catch-up" strategy and replaced it with a strategy of relative advantage that fits their situation. Only in this way will their business be self sufficient, develop their economies, make the most of their resources and raise the level of production technology. At the same time, it is under the strategy of relative advantage that only low-income labor can obtain employment. With the accumulation of capital, the marginal value of output and income of labor will continue to rise.
——From an interview with Justin Lin, NPPCC Committee Member and Director of CCER at Peking University
There are always some principles and methods that are universal, whether political or economic.
In December 1936 when Mao Zedong wrote Strategic Problems of the Chinese Revolutionary War, he systematically examined all the strategic problems related to the revolution. Seventy years later, researchers of the Chinese economy face some of the same conundrum --- they have so many complex and varied economic theories to muddle through. Behind these complex socio-economic phenomena, people are thinking most about what kind of economic theory best fits China and what is the best choice for its development?
Justin Lin: a tireless, prudent economist
September 4th – In Mr. Lin's office, we spoke of the awesome task of China's economic development. It was more than ten years ago that he organized the China Center for Economic Research in Peking University's beautiful Langrun Garden for just this purpose.
Before revealing the answer, he laid out two problems that are now being faced: first, investment is high, but there are not many job opportunities; second, efficiency is low as is return on investment. These are both factors inhibiting sustainable development.
High investment and low employment means that socio-economic reform is not able to be enjoyed by a larger number of people. Low efficiency and return on investment as well as slow profit accumulation are adverse to re-investment and re-production. How should these problems be resolved? Justin Lin has some thoughts:
First, in an active environment, the development strategy chosen by a country will influence equality and efficiency. Secondly, developing countries do not consider their own natural resources, going against relative advantage by trying to "catch up"and supporting non-self-supporting industries, thus distorting all aspects of economic life. This lowers the employment opportunities of those with the lowest income and keeps their salaries low. If developing countries with market-based economies use this strategy, not only will they be inefficient, but income will be unequally distributed. If developed countries go outside their natural abilityby developing capital or technology intensive industries, their income distribution will also worsen. Of course, developed countries use a policy of protecting labor intensive industries in order maintain employment. This may effect efficiency, but it does help to equalize income distribution. Thirdly, it is only when countries follow a strategy of relative advantage that it companies will be self-supporting and not require the support of the government and the economy will not be distorted.
Lin has his own "prescription" for these ailments. China should focus on industries where it has an advantage, taking advantage of the relatively low cost of labor. China should develop labor intensive industries and capital and development of intensive sectors of production in technology. Because creation of jobs is good for both the rural and urban areas and these sectors are the best choice for creating jobs. Focusing on industries that are in line with China's relative advantage will do the most for competitiveness, capital retention as well as upgrading current production, ultimately "catching up" with developed countries.
(Source: Renmin Zhengxie Bao)