Joseph Stiglitz: Development in defiance of the Washington consensus

[Guest guest]

" Zepp " <zepp

Wed, 12 Apr 2006 22:15:24 -0700

[Zepps_News] Joseph Stiglitz: Development in defiance of the

Washington consensus; How China gets it right

 

 

 

 

http://www.guardian.co.uk/china/story/0,,1752851,00.html

 

Development in defiance of the Washington consensus

 

China has carried off the world's largest reduction in poverty by

grasping that market economies cannot be left on autopilot

 

Joseph Stiglitz

Thursday April 13, 2006

The Guardian

 

China is about to adopt its 11th five-year plan, setting the stage for

the continuation of probably the most remarkable economic

transformation in history, while improving the wellbeing of almost a

quarter of the world's population. Never before has the world seen

such sustained growth; never before has there been so much poverty

reduction.

 

Part of the key to China's long-run success has been its almost unique

combination of pragmatism and vision. While much of the rest of the

developing world, following the Washington consensus, has been

directed at a quixotic quest for higher GDP, China has again made

clear that it seeks sustainable and more equitable increases in real

living standards.

 

China realises that it has entered a phase of economic growth that is

imposing enormous - and unsustainable - demands on the environment.

Unless there is a change in course, living standards will eventually

be compromised. That is why the new plan places great emphasis on the

environment.

 

Many of the more backward parts of China have been growing at a pace

that would be a marvel, were it not that other parts of the country

are growing even more rapidly. While this has reduced poverty,

inequality has been increasing, with growing disparities between

cities and rural areas, and coastal regions and the interior. This

year's World Bank world development report explains why inequality,

not just poverty, should be a concern, and China's plan attacks the

problem head on. The government has for several years talked about a

more harmonious society, and the plan describes programmes for

achieving this.

 

China recognises, too, that what separates less developed from more

developed countries is not only a gap in resources, but also a gap in

knowledge. So it has laid out plans to reduce that gap.

 

China's role in the world and the world's economy has changed. Its

future growth will have to be based more on domestic demand than on

exports, which will require increases in consumption. Indeed, China

has a rare problem: excessive savings. People save partly because of

weaknesses in government social-insurance programmes. Strengthening

social security (pensions) and public health and education will

simultaneously reduce social inequalities, increase its citizens'

sense of wellbeing, and promote consumption.

 

If successful, these adjustments may impose enormous strains on a

global economic system that is already unbalanced by America's huge

fiscal and trade imbalances. If China saves less - and if, as

officials have said, it pursues a more diversified policy of investing

its reserves - who will finance America's trade deficit of more than

$2bn a day? This is a topic for another day, which may not be far off.

With such a clear vision of the future, the challenge will be

implementation. China is a large country, and it could not have

succeeded as it has without widespread decentralisation. But

decentralisation raises problems of its own.

 

Greenhouse gases, for example, are global problems. While America says

that it cannot afford to do anything about it, China's senior

officials have acted more responsibly. Within a month of the adoption

of the plan, new environmental taxes on cars, petrol and wood products

were imposed:

China was using market-based mechanisms to address its and the world's

environmental problems. But the pressures on local government

officials to deliver economic growth and jobs will be enormous. They

will be sorely tempted to argue that if America cannot afford to

produce in a way that preserves our planet, how can they? To translate

its vision into action, the Chinese government will need strong

policies, such as the environmental taxes already imposed.

 

As China has moved toward a market economy, it has developed some of

the problems that have plagued the developed countries: special

interests that clothe self-serving arguments behind a veil of market

ideology.

 

Some will argue for trickle-down economics. And some will oppose

competition policy and corporate governance laws. Growth arguments

will be advanced to counter strong social and environmental policies.

Such allegedly pro-growth policies would not only fail to deliver

growth; they would threaten the entire vision of China's future.

 

There is only one way to prevent this: open discussion of economic

policies to expose fallacies and provide scope for creative solutions

to the challenges facing China. George Bush has shown the dangers of

excessive secrecy and confining decision-making to a narrow circle of

sycophants.

 

Most people outside China do not fully appreciate the extent

to which its leaders, by contrast, have engaged in extensive

deliberations and consultations as they strive to solve the enormous

problems they face.

 

Market economies are not self-regulating. They cannot simply be left

on autopilot, especially if one wants to ensure that their benefits

are shared widely. But managing a market economy is no easy task. It

is a balancing act that must constantly respond to economic changes.

 

China's plan provides a road map for that response. The world watches

in awe, and hope, as the lives of 1.3 billion people continue to be

transformed.

 

· Joseph Stiglitz, a Nobel laureate, is professor of economics at

Columbia University and the World Bank's former chief economist

© Project Syndicate

www.project-syndicate.org

 

--

" Now, by the way, any time you hear the United States government

talking about wiretap, it requires -- a wiretap requires a court

order. Nothing has changed, by the way. When we're talking about

chasing down terrorists, we're talking about getting a court order

before we do so "

-George W. Bush, April 20, 2004

 

Pay your taxes so the rich don't have to.

 

http://www.zeppscommentaries.com

For news feed, http:////zepps_news

For essays (please contribute!) http://zepps_essays