Saturday, February 23, 2008

北京 Blogging

In Beijing for a couple weeks trying to pry some microeconomic datasets out of the hands of the rapacious gatekeepers of information inside China's various bureaucratic institutions. (Speaking of which, a special thanks to the good peoples at TOR, without whom this posting would not be possible). So far not too much luck, but will keep on plugging. Whatever happened to, "From each according to his ability, to each according to his need?"

Been meeting interesting people, though, including from the China Center for Economic Research at Beijing University (北大). CCER is China's premier economic research center, and most famously the institution created by Justin Lin, who just happens to be the newly appointed World Bank Chief Economist. Lin first defected from Taiwan to mainland China--or, Big Red, as I like to call it. Legend has it he was a model cadre, but then defected again (so to speak) to the call of neoliberalism in the University of Chicago's economics PhD program.

Most importantly, though, is Professor Lin's view on development economics, which I would describe as classical Washington Consensus plus. The "classical" part denotes his unwaivering belief in market specialization along lines of comparative advantage and expansion of comparative advantage-based trade. The "plus" denotes his view that government industrial policy has a role to play in creating institutions and promoting activities that support and conform to development of industries in which a country is comparatively advantaged. Lin calls these "comparative advantage following" development strategies. You can read all about it in his recent Alfred Marshall Lecture at Cambridge University.

There are a lot of problems with Lin's views, but most importantly that the position he supports contradicts most of the empirical stylized facts from successful late developing countries. The distinction could not be more clear in what Dani Rodrik presents in a recent paper (pdf). In fact, it seems that what makes development happen is the opposite of specialization: economic diversification. This creates a basis for development of rich economic linkages that fuel the economy's engine and lead to innovation. Of course, to get here, much industrial policy building necessary institutions to solve "coordination problems" where micro incentives are incompatible with desired macro outcomes for investment, technological development, and long-run stable growth. These stylized facts, along with many theoretical underpinnings that I won't go into here, comprise a basis for a new approach to the role of governments in economic development: or, Industrial Policy 3.0, as I like to call it.

So while Lin's entree to the World Bank scene marks a shift, it is not clear how much in the right direction the shift is in terms of understanding the reality of economic policy problems facing developing countries. Significant, of course though, is his appointment as the first economist from a developing country. This probably says more about institutional and international politics playing out above Lin's pay grade. After all, what better way to let some steam out of the international pressure to reallocate voting shares at the Bretton Woods institutions than to throw a bone to China? Certainly, like getting the Olympics, it is great "face" for China. But Lin's research agenda still conserves the intellectual basis of the international economic stratification on which the rich countries (and China's coalescing capitalist-cadre elites) power rests.

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