Is Chinese economic growth Solow catch-up growth?

by on October 24, 2015 at 6:45 am in Economics, History | Permalink

Forget about the current troubles, or for that matter the current innovations, I’m talking about the earlier golden years.  It seems obvious to many people that Chinese growth is Solow-like catch-up growth, as the country was applying already-introduced technologies to its development.

But how many other economies have grown at about ten percent for so long?  Was there not a secret ingredient added to the mix?

Increasing returns to scale?  Understanding the importance of having networks which allow an employer to assemble so many engineers so quickly for a new project?  Something about Communist Party governance which enabled the corruption to be channeled productively into building more infrastructure rather than holding up progress?  Tiger Mom parenting combined with a relatively meritocratic exam system?

I do not find it unreasonable to postulate that two to three percentage points of that yearly growth were in fact due to innovation and increasing returns to scale in some manner.  Note that most of these innovations are useful only at China’s (previous) ppf and they are less valuable to the West, or perhaps simply not transferable.

More radically, is there some “natural,” culture-neutral rate at which innovations trickle down from the world leaders to the poorer countries?  The diversity of growth rates would seem to indicate not.  Is each country then not innovating — with varying degrees of success — by building its culture-specific net for catching and transmitting global innovations throughout the nation?

In which case we are back to catch-up growth not being entirely well-defined.

1 Dan in philly October 24, 2015 at 7:03 am

Why not also the massive number of people there, most of whom started so far below their potential productivity that a 10% increase per year could be achieved effortlessly? At some point a critical mass of fulfilled potential will be achieved and growth will slow, or has slowed, but the world’s most populous country might see that happen later rather than sooner.

2 J.P. October 26, 2015 at 1:10 pm

This has been my thought as well. In the Solow model the key thing for diminishing returns is the ratio of capital to labor. With such a large population it should take many years of capital accumulation to reach a ratio where diminishing returns becomes noticeable.

3 EB October 24, 2015 at 7:16 am

China’s high growth experience is an example of how large the size effect of a shock can be in relation to its substitution effect. The relevant unit of analyse is not the Chinese economy but the world economy. Once Deng Xiaoping turned the red lights off (although he didn’t turn the green lights on), millions of workers integrated into the world economy, not by migrating to the rest of the world but by working and investing at home (yes, foreign companies were allowed to provide technology, machines and organization and they did it).

4 Handle October 24, 2015 at 7:45 am

In addition to the “apparently disparate national capacity to absorb, disseminate, and leverage cutting-edge knowledge” (hmm…) it’s also possible China got very lucky with the timing of being a country with a reliable workforce and domestic policy environment optimized to absorb develped-coutnry outsourcing just when outsourcing boomed and peaked, but before subsequent labor force transitions started to reverse the trend.

5 derek October 24, 2015 at 7:45 am

A list.

Taiwan and Hong Kong. The basics of a functioning capitalist economy existed and with a letting go spread into the coastal cities.

A vigorous, smart and extraordinarily successful expat community, with the same effect.

A newly globalized world, the financialization of the Western economies allowing a credit expansion, opening up an enormous market for almost everything.

Their competitors in manufacturing sluggish and tied up with rules that made them ripe for the picking. The regulatory regimes that add years to project implementation as well as all the layers of economic rents and the reactive clamping down to maintain them. Show up in a Chinese city with some cash and a market and go back with a story of how quickly and inexpensively you could get to market, leading to a stampede.

The intersection of technology and entrepreneurial vigor. What took years to build and implement is now simply an order to Siemens, a floor and some power.

An authoritarian iron fist willing to take the newly acquired wealth, leverage it to the hilt, harness the millions of available eager labor, and bulldoze the existing city to build a new one. I heard stories of a smallish town by Chinese standards, 10 million or so, with acres of two three story residences, unheated with barely working infrastructure being renovated, starting with a road network, power plant, sewage and water, then block after block of housing knocked over and new high rises taking their place. No property rights, no legal system, just a well fed local apparatchik to buy off.

It has been a pretty good run. There aren’t very many places with a billion or so people living in poverty, a scared Communist authoritarian government willing to do what is necessary to survive and smart enough to let their people go.

If India were China the dead bodies you see would be petty bureaucrats who said no instead of some poor sod who died of violence or disease.

6 wiki October 24, 2015 at 8:11 am

+1 Seems hard to argue that it’s mostly increasing returns when Taiwan, HK, and South Korea had comparable rates for many decades without any plausible source of increasing returns. Moreover, a huge part of early Chinese growth was concentrated in a few coastal cities. I believe there was a period well into China’s catchup in the 1980s when Taiwan’s industrial exports were still larger on an absolute basis.

7 Nathan W October 24, 2015 at 9:06 am

For better or worse, I think in part this is a reflection of Leninism, and more so Stalnist thinking, which has a willingness to actively suppress current consumption for the purpose of increasing future economic capacity. It is not at all a market solution, but there is a certain logic to it.

8 Ray Lopez October 24, 2015 at 10:19 am

@Nathan W – surely you mean Lenin’s NEP? Which is a market solution of sorts. Communism however does do better than capitalism during wartime, when there are specific goals in mind. That’s one reason capitalist countries “turn communist” during war. But, as TC says, China is doing something besides pure Marxism, otherwise places like Vietnam would be on pace with China, which it is not.

9 Thiago Ribeiro October 24, 2015 at 11:43 am

Vietnam is doing much better than virtually any other poor country.

10 Ray Lopez October 24, 2015 at 12:41 pm

@TR-but it’s not doing better than China, which is my point.

11 Thiago Ribeiro October 24, 2015 at 1:10 pm

No one is. And China is bigger, always was the top cat there with its tributaries, never totally controlled by European powers. There may be some cultural/circumstantial differences, but it is not clear to me that China’s system and Vietnam’s are that much different. Both practice the same flavor of Market Leninism, I think.

12 Nathan W October 24, 2015 at 2:01 pm

Ray – Vietnam opened up much later, and also had to rebuild after a massive war. Also, it may suffer from some issues relating to scale and size of the domestic market.

13 derek October 24, 2015 at 12:03 pm

No it doesn’t. Soviet Russia couldn’t defend itself.

14 E. Harding October 24, 2015 at 12:29 pm

LOL. Then how did it defeat Germany?

15 derek October 24, 2015 at 12:02 pm

What are you talking about? Construction of cities is consumption. So is infrastructure.

The government run enterprises are not the engines of growth either.

The economic activity created by the growth in manufacturing allowed the authoritarian state to fund its building projects. For a while at least.

16 rayward October 24, 2015 at 7:58 am

It was the perfect storm: an enormous investment, led by the government, in industrial facilities and equipment in China combined with western firms willing to sacrifice domestic labor for much cheaper Chinese labor. The irony is that firms in capitalist countries would rely on labor in a communist country to generate the profits that would result in so much inequality in the capitalist countries. The mind reels.

17 rayward October 24, 2015 at 10:49 am

Of course, it could be part of a communist plot: China collaborates with capitalist firms to betray labor in the capitalist countries and shift production and jobs to China, knowing that the lure of unparalleled profits and wealth would blind the capitalists to the adverse consequences that would lay ahead, generating large profits for the capitalist firms and contributing to excessive inequality in the capitalist countries, which in turn creates social, financial, and economic instability in those countries, thereby undermining the capitalist countries and elevating China to a world power.

18 James Beckman October 24, 2015 at 8:03 am

I agree with much of what has been said above. China had a controlled economy with vast numbers of underemployed workers who could support both domestic & foreign firms which were responding to an enormous external demand for manu- factures. Using the earned foreign currency, the Communists could invest in manufacturing inputs as well as inputs for their infrastructure/construction miracle.
Both the enormous demand for exports & imports were sustainable for decades, which is no longer the case. A new story is being written.

19 Nathan W October 24, 2015 at 9:07 am

In Guns, Germs and Steel, Jared Diamond suggests that it is a cultural willingness/flexibility to adopt and adapt new technologies and ideas, that allows them to get with the times rather than staying in the backwaters.

There are a lot of reasons for China’s success, but I would add to the mix that strong confidence in Chinese identity, traditions (despite the Cultural Revolution and massive break with history in the post-WWII era), language, etc. made it easier for China to jump headfirst in engagements with new technologies and ideas.

Countries which have not been able to effectively incorporate new technologies and ideas presumably fail to do so for a large variety of reasons, including historical path dependence, geography, poor/ineffective political and economic institutions, etc. But similarly (or rather contra), countries and cultures which feel insecure in their ability to maintain their cultural roots, political independence, etc. may legitimately feel that they are unable to maintain their cultural roots while embracing new technologies and ideas.

For a very weak example, consider a Quebecois national identity which revolves around language. Quebec imposes very real economic costs on its economy by insisting on strong formal preferences for French language, but to them it is worth it. Compare the case of Quebec, which formally erects massive relative barriers to English language education, to the case of China, where English language education is deemed an extremely high priority in public education (usually obtaining much worse results than in Quebec, but nevermind that, I’m talking about perspectives and openness here). The Quebec example shows that fear of cultural assimilation, the francophone island in the anglophone sea, is a very real and legitimate part of the discourse in Quebec, whereas in China, it is absurd to think that the act of prioritizing foreign language education could possibly threaten the long-term viability of Chinese language.

For a more extreme example, consider an Amazonian jungle tribe or African tribes of bushmen, which may be completely unwilling to adopt or adapt to new technologies, ideas, political systems, and most especially rejecting communitarian social structures in favour of individualism and markets.

In short, cultures which feel threatened by extinction in adopting modern ways may easily and consciously reject adoption of new technologies and ideas, whereas cultures which have great confidence to maintain their basic identity and traditions while incorporating new stuff will more easily look at the global list of ideas, institutions and policies, and pick and choose those which work best for them.

However, I think a lot of places that have so far proven unable to adopt new technologies would be quite happy to lose much of their cultural roots in exchange for all the potential material benefits of the modern world, and other classic explanations relating to history, economics and political institutions are more relevant.

20 spencer October 24, 2015 at 9:50 am

Sure you are not describing the “Tea Party”?

21 JWatts October 24, 2015 at 11:59 am

The Tea Party is a movement started in response to the housing bail outs and generally lobbies for reducing the Federal deficit and lower Federal spending. So, they were/are strongly against TARP, ARRA, Obamacare, etc. I don’t think there’s anything other than an implausibly remote connection between what Nathan W wrote and the Tea Party movement.

22 Nathan W October 24, 2015 at 2:18 pm

I think he was saying something about not being willing to adapt with the times, but it seemed pretty tenuous. The economic side of Tea Partiers sometimes makes a good case, but there are a lot of real nuts in their camp too.

23 derek October 24, 2015 at 12:10 pm

A parochial American in all it’s glorious ignorance.

If you start a business in Quebec and name it you have to ask the Regie de la Langue Francaise if it is adequately french. You don’t see that level of bureaucratic silliness in anywhere but the most enlightened jurisdictions.

24 captain credulous October 24, 2015 at 1:15 pm

This is great stuff, Nathan W. So primitive tribes are primitive because they haven’t learned that communism beats markets yet. Can you maybe give me a couple talking points, so when I present this to my friends they don’t punt my testicles?

25 Gochujang October 24, 2015 at 1:24 pm

I thought the confidence part was good, but tribes do not exactly reject communitarian social structures. They have them in the native form. (Usually with distributive rules which reward initiative while encouraging sharing.)

26 captain credulous October 24, 2015 at 2:37 pm

If you mean the confidence with which Nathan uttered one of the most confused renderings of human history I’ve yet heard, yes it was impressive.

27 Nathan W October 25, 2015 at 3:19 am

When there’s only 500 of you, you might be more worried about losing your roots than when there’s 1.3 billion of you.

28 Nathan W October 24, 2015 at 9:10 am

I remember in classes around 2005 or so, learning about this idea of economic catch-up, and being taught that it was intuitively appealing but that the data failed to confirm the theory and therefore it must be considered as wrong. Explanations such as “rich countries tend to trade with rich countries because they both produce things that each other wants to buy” tended to be favoured.

I tried to point out many times, across many classes, that higher growth rates in the developing world DID imply that this finally proved relevant and that it simply took a while for things to get going, but I don’t think it was until years later that these professors would have started to take it seriously again.

29 Ray Lopez October 24, 2015 at 10:44 am

@Nathan W – “catch up growth” is an old idea, so I think what you are describing is your professors espousing Krugman et al’s “rich countries trade with each other” meme, and de-emphasizing “ketchup growth” (sic). Also, strictly speaking, your being proved right now is not the way the Scientific Method works. I personally don’t think economics is scientific, but, if it was, then your professors are right and you were wrong, at the time, but, as more data came in, then your thesis was proved right ultimately (and no doubt, pace Kuhn’s thesis, your professors fully agree that you are correct today, based on present data), but that does not mean at the time, back then, that you were right, since you had no data to prove your thesis correct. (BTW, as I say, I don’t think economics is a science so I think your intuition was correct at the time, but my point is if economics is a science, then you were ‘wrong’ back then, even if proved right now.).

30 Nathan W October 24, 2015 at 2:28 pm

The current data in 2005 made it plain as day that it was already happening, but sometimes academics are too deep in their research which focuses on literature, generally a few years old by the time it’s published, to open their eyes and see what’s happening in the present. I tried to say so many times “but they are growing twice, three times as fast as we are”, but no, they would say “so and so published a few years back i some prestigious journal thoroughly debunked that, there is no catching up happening”. “But look at the last five years” I would say, but of course published literature at the time had not yet incorporated the new data, and they seemed disinterested in the present reality around them.

Totally agree about your comments that neither perspective in different times doesn’t represent the scientific method.

31 Gus Levy October 24, 2015 at 5:05 pm

The more remarkable thing is how all these professors were unable to recognize when they were in the presence of an eclipsing talent.

32 Nathan W October 25, 2015 at 3:24 am

Na, just asking them to sit back from the literature for a moment and open their eyes.

33 Tom Warner October 24, 2015 at 9:31 am

I’d say Solow catch-up growth is a loose enough concept to allow wide variation. The innovation of containerized shipping was of course big, and the economies of industrial concentration as well. And there’s something to the re-emergence of submerged cultural economic proficiencies view.

34 Gochujang October 24, 2015 at 10:10 am

Catch-up growth is a fair name, but part of the story has to be worldwide recognition that there are more models than Communism and Market-Democracy. China played with the idea of Market-Authoritarianism and made it work. That did slash global poverty, even if peasants are not really Free To Choose.

Now, how do we in moribund Market-Democracies get some of that catch-up growth?

35 Ray Lopez October 24, 2015 at 10:21 am

This book is relevant to TC’s thesis: “Diffusion of Innovations – Rogers, Everett M”, in it he describes how culture can be either a retarder or a catalyst for adopting new technologies. He shows this on a case-by-case basis, using real world examples. Well worth a read and I’ve finished the first two chapters, going through it slowly now for over a year.

36 Gochujang October 24, 2015 at 10:22 am

I am not a liberal, but I am having an anti-conservative moment here.

Consider that the self-described dominant party (“more governors” etc.) has spent so much more time trying to dispel the true story of the internet than trying to repeat it.

We throw out our own examples of success.

Surely we are well below potential growth.

37 honkie please October 24, 2015 at 7:08 pm

Well if the de facto dominant party would just take the initiative in creating the next internet, we’d be all set!

38 Gochujang October 25, 2015 at 12:16 pm

Did you notice that DARPA self driving car competitions led the commercial ventures by a few years?

DARPA seems to get away with that more than other branches of government.

Anything that must take a Congressional path faces an immediate “government should not” stone wall.

39 honkie please October 25, 2015 at 2:44 pm

Probably true.

40 8 October 24, 2015 at 10:34 am

Before Deng opened China, it had the GDP per capita of Sub-Saharan Africa. Neighboring countries filled with Chinese people, such as Hong Kong, Singapore and Taiwan, were far ahead and entering a boom period. Chinese expats were (and are) market dominant minorities across Southeast Asia. On that evidence alone, one should expect Mainland China would eventually catch up.

41 T. Shaw October 24, 2015 at 10:42 am

I do not believe that 6.9% growth is so low.

Unexpectedly the Obama hope machine in six years achieved “well below potential growth.” Would’a thunk: in addition to over six years of genius rule and (what?) $9 trillion in Federal deficit spending and the Fed creating printing (what?) $4 trillion in market liquidity.

42 E. Harding October 24, 2015 at 12:32 pm

Think of the whole rest of the First World. The slowdown wasn’t just something that happened to the US.

43 T. Shaw October 24, 2015 at 3:01 pm

True. The whole rest of the First World similarly is stuck in low-gear growth/recovery despite somewhat lesser heroic efforts. I had been watching Iceland, a very small player, that handled its “too big to fail” banks differently (international bond investors, not only Icelanders, participated in bank losses) than everywhere; and, I think, Iceland is looking (employment and growth) pretty good in comparison.

True. Things could be worse. The civilian labor participation rate could be 42% (not 62% lowest in 40 years), and median middle class disposable income could be $18,000 (not $8,000) less than it was decades ago.

I’m wondering if the big-government lever-pullers and central planners could have redistributed that humongous flood of money elsewhere.

44 E. Harding October 24, 2015 at 3:14 pm

Truly a fantastic recovery. Interesting how Iceland boomed in 2007 and busted in 2009-10.

45 T. Shaw October 24, 2015 at 3:04 pm

PS: How did you miss my Solow pun?

46 Nathan W October 24, 2015 at 2:30 pm

I wonder where things would have gone without $9 trillion in deficit spending (some of which reflected lower tax receipts)?

47 E. Harding October 24, 2015 at 3:05 pm

Same as actually happened.

48 Todd Kreider October 24, 2015 at 10:44 am

Japan had about 20 years of very rapid growth and then strong growth for 15 years after that.

49 E. Harding October 24, 2015 at 12:47 pm

Notice the sudden burst between 1965 and 1974.

50 Mike in Shenzhen October 24, 2015 at 11:36 am

Hi Tyler. As the NBA regular season is starting up, I’d appreciate one of your basketball posts so that we can signal our status by addressing hoops topics with pseudo economic/scientific theory.

I’ll go first. Are the Knicks and Lakers suffering from a form of the natural resource curse (and the accompanying nepotistic and dysfunctional organizations) or have small market teams caught up due to advanced technology and changes in institutional arrangements.

51 Ray Lopez October 24, 2015 at 12:49 pm

I’m not a basketball fan anymore, but if indeed the three-pointer is a disruptive technology perfected by the GS Warriors, then what will happen is that the “leading companies” in market share, like the big city teams, will adopt this technology and ‘buy out’ the innovators. In this case, they’ll buy their talent and/or steal their technology. Since you can’t patent a game strategy (like taking more threes, etc), then GS Warriors will fade away. Actually, it reminds me of the Bullets (that was a real team) when they got beaten by a bunch of three-point artists–was it Seattle Supersonics or GS Warriors? Without Googling it, I think the former–back in the late 1970s, before the three-point shot. But since the rules were different back then, it did not pay to copy this strategy, and the Bullets (and most big city teams) went back to just giving the ball to your big man in the paint (Elvin Hayes, lol, ‘triple teamed’ and still scoring! Wes Unsel, a sort of pre-Charles Barkley…knee high socks. Dr. J with a big old ‘fro. I stopped watching basketball after that, what’s the point if you’ve seen perfection?)

52 mpowell October 24, 2015 at 6:43 pm

Lakers are suffering from idiot son inherents franchise syndrome. Same as Knicks actually.

53 Ed October 24, 2015 at 12:47 pm

Amazing (but unsurprizing) that TC ignores the obvious: The dramatic, government enforced drop in the fertility rate that free resources, including women, for investment and production.

54 survey says October 24, 2015 at 1:08 pm

Worst-composed insult of the day.

55 Ed October 24, 2015 at 5:42 pm

Guilty of bad spelling, but it’s a point of argument not an insult – and one nobody has laid a finger on.

It’s almost impossible to find a country that has explosive economic growth that did not have a big drop in fertility, and hard to find countries which have sharply limited fertility without seeing a strong growth spurt.

56 E. Harding October 24, 2015 at 6:26 pm

“It’s almost impossible to find a country that has explosive economic growth that did not have a big drop in fertility”

-You’ve got the causation reversed, man. And you’re right, it is almost impossible, except with oil states. Because in the long run, income growth leads to fertility decline (though not the short run; cf. Ukraine).

“It’s almost impossible to find a country that has explosive economic growth that did not have a big drop in fertility, and hard to find countries which have sharply limited fertility without seeing a strong growth spurt.”

-Moldova. Mexico. Nicaragua. Kyrgyzstan. Venezuela. Zimbabwe. South Africa. Brazil. Your focus on fertility is ridiculous.

57 Ed October 25, 2015 at 1:36 am

China, Korea, Vietnam, Thailand, Singapore, Japan, Germany, etc.

Take a look at fertility vs. per capita GDP at Gapminder:

Yes, a few countries are managed badly enough, or affected disastrously enough, not to grow despite low fertility, but even Moldova has grown strongly in recent years (in per capita gdp). Brazil and Mexico saw fairly strong growth after fertility went below 3.0, but the real magic number is 2.0 Look at the data and the time frames.

58 E. Harding October 25, 2015 at 12:58 pm

“Yes, a few countries are managed badly enough, or affected disastrously enough, not to grow despite low fertility, but even Moldova has grown strongly in recent years (in per capita gdp).”

-Not for a former Soviet Republic.

And all those successful countries you mention had strong real wage growth. Falling fertility can’t create that.

Brazil and Mexico have been economically stagnant since the 1980s, with Brazil experiencing something like 3-4% per capita growth between 2003 and 2010, and Mexico having no such boom. In any case, Brazil has returned to stagnation.

59 E. Harding October 24, 2015 at 2:46 pm

That would only raise RGDP per capita by ~30%, at the very most. Not big enough to make much of a difference.

60 E. Harding October 24, 2015 at 2:47 pm

And it would have a negative effect on real wages, which have risen tenfold in China since the 1970s.

61 Ed October 24, 2015 at 5:43 pm

Show some math and data to back up your fantasy claims.

62 E. Harding October 24, 2015 at 6:17 pm

No, you use your head a little. Most of China’s growth has been growth in real wages. How could any demographic changes result in a tenfold increase in real wages? It’s impossible. So shut up about demographics.

63 Ed October 25, 2015 at 1:40 am

For E. Harding

China’s growth in real wages was a result of investment, investment made possible by limiting family size and hence freeing resources and women to invest in technology and growth.

64 Nathan W October 25, 2015 at 3:33 am

Harding – communist China explicitly followed through on the one-child policy in order to increase per capita capital, believing that having too many children was what was keeping people poor. In addition to increasing per capita levels of capital, parents will invest more in the quality, rather than quantity, of children, thereby contributing to higher average human capital.

You are correct, I think, to suggest that wealth usually precedes decline in fertility, but I think it’s not the right way to see the causality. I propose that the causality is this: when women are more educated and have access to labour market opportunities, they delay first child birth and prefer to have fewer children in order to manage their careers. Having fewer children implies more capital per capita, and their contributions on the labour market imply higher GDP per capita.

The argument is that it is not wealth that causes fertility to decline per se, but rather, it is that the same factors which contribute to both the decline in fertility and the increase in wealth: education of girls and good labour market access for women.

65 E. Harding October 25, 2015 at 1:02 pm

Guys, the industrial revolution resulted in a fertility boom at first, not a fertility bust.

“Having fewer children implies more capital per capita”

-But not per worker, as having fewer children allows more women to go into the labor force.

66 Alain October 24, 2015 at 1:30 pm

Isn’t this similar to the economic miracle of the four Asian tigers? All five countries had great human capital, what many consider good work ethics (Confucianism), and leaders that mostly embraced free markets.

This isn’t an attempt to diminish the accomplishments of the leaders of China, what they did was unprecedented in scale, which I am sure caused significant issues that needed to be navigated. But this seems like catch up growth combined with solid human capital.

67 Mark Thorson October 24, 2015 at 1:32 pm

I think the mainspring driving Chinese prosperity is the nature of the Chinese people. They have a lot in common with Jews — always starting businesses, making deals, placing a high value on education, striving to get ahead. Now that the Communist government isn’t holding them back, it’s only natural there would be an explosion of economic growth.

68 Brian Donohue October 24, 2015 at 3:21 pm

So…the real mystery is 1450-1970?

69 E. Harding October 24, 2015 at 4:13 pm

China had very primitive and regressive institutions at the time.

70 carlolspln October 24, 2015 at 4:13 pm
71 Barkley Rosser October 24, 2015 at 1:36 pm

South Korea also had a Chinese rate of growth for quite an extended period, as did Japan.

I would label the catch-up growth idea as Gerschenkronian rather than Solow.

72 EB October 24, 2015 at 3:40 pm

Please explain the difference, if any, between the two and why China could be a G-case rather than a S-case. Thanks.

73 Roger October 24, 2015 at 3:12 pm

Long answer…

A society is a complex adaptive problem solving system.

The solutions and system (complex) take the shape of services, products, processes, institutions, norms, culture, ideas, know how, how all mixed together.

Some societies can solve problems on net much, much better than others (reflected very imperfectly in living standards, life outcomes and GDP)

Any solution, idea, institution or technique created in one place can make it easier for others to copy, mimic, riff off of, adapt, recombine, or use as scaffolding to build something new. See Romer or Braumol on specifics in appropriate economics-speak.

However, the same idea or institution imported into a different society is itself different. The parts need to work together (see Acemoglu or North for examples).

History shows a pattern of “leaders” making breakthrough progress. Blazing the trail. This is probably a bit of a statistical artifact as there are probably mini clusters of leadership scattered across nations, industries, firms and even individuals. The data also shows that followers can draft on the trail blazing of the leaders. Again, it’s much easier to mimic, adopt or adapt solutions once another has proven what works and doesn’t. It isn’t necessarily easy though, and history shows that those societies with more cultural, institutional similarities to the trailblazers (Netherlands, then GB, then America, have an easier time adopting and adapting and drafting.). The pattern as demonstrated by Romer is a convergence of variable speed on the leaders. The further behind one is, the faster the potential convergence, but also the greater the likelihood that one is trapped by something within the system which is flat out FUBAR (some say culture, some institutions, some genetics, some exploitation, some mindsets, etc)

Short answer. China always had great potential. It was the leading state for much of the past two thousand years. A dysfunctional non open access political and economic system caused them to miss any catchup growth. Once they tweaked this, they opened up a flood gate of potential problem solving capability. Much of it is borrowed and adopted, but not all, and what is copied still needs to be fine tuned. Even catch up is a creative process.

I would suggest similar growth potential for North Korea too. I would say the problems run deeper for Africa and the Muslim states. Much deeper.

74 Steve Sailer October 24, 2015 at 7:17 pm

I thought about this a lot in 1981. My general view back then was that China would do well because China is full of Chinese people.

75 E. Harding October 24, 2015 at 10:48 pm

You also had Taiwan as an example. But the Chinese people hadn’t done much for centuries before that.

76 Steve Sailer October 24, 2015 at 11:08 pm

And Hong Kong and Singapore. And the Chinese in the U.S. (I was at UCLA in 1981) and elsewhere. The only place the Chinese weren’t making money was in China.

77 E. Harding October 25, 2015 at 1:05 pm

Hm. You’re right. Malaysia also had lots of overachieving Chinese.

78 Nathan W October 25, 2015 at 3:28 pm

Market access, combined with a global network facilitated by language ties with overseas Chinese in many of the main trading cities of the world, in addition to valuing actual education instead of faith-centred schooling?

79 Donald A. Coffin October 24, 2015 at 7:54 pm

Elsewhere, an argument that it is very standard Solow-growth, and (implicitly) that Cowen doesn’t understand it:

80 William D. Markle October 24, 2015 at 9:11 pm

Prior comments noted. Did not hurt in the least that China was in the
right place at the right time, late 70’s, for export funded growth.
Containerization. Chinese growth prior to that time was relatively poor.

The US was in a similar position with respect to the Industrial Revolution –
plenty of land and resources, population and institutions available to be

81 TallDave October 25, 2015 at 12:59 am

China is still too poor for those question to matter, they’ve only managed to turn a particularly insane local flavor of Marxism into a crony capitalist version with literally breathtaking disregard for the environment. They’re no better off than really dysfunctional leftwing kinda-sorta democracies like Venezuela, at least not yet.

When they pass Mexican standards of living, then ask how it happened.

82 Nathan W October 25, 2015 at 7:29 am

If you focus on the east coast, by most measures standard of living is quite good. Car ownership and fancy cell phones abound, people wear current fashion and can afford to dine out many days a week, take several weeks of holidays a year, place their children in good schools, etc.

I think it is not correct to use average indicators, which include the relatively less developed interior and west regions, in assuming that China has not developed much.

83 Tom G October 25, 2015 at 4:25 pm

Commie haters, like TallDave (and ME! I hate commies; I live in Slovakia now, commies are terrible) need to be honest about China’s success. Far more development of poor people than democratic cronyist India, w/o India’s advantage of English, altho India, too, is developing better than Africa.

Perhaps because of IQ? Chinese, like Jews, seem to do well in all countries that allow them to be businessmen — and in America, test high in IQ and SAT scores. I was expecting to see this as an option for the explanation — when smart, hard working (second cultural element!) folk are allowed to start businesses in a “market” oriented economy, with lots of infrastructure investment by the gov’t, that country develops fast.

The thing about “market smarts” is that such folk learn mistakes sooner and correct them with modified, more profit oriented behavior change, sooner. (Sexy-) Macro econ does too little in looking at corrections of micro- one-firm “mistakes”. Was Carly’s push for HP to buy Compaq a mistake? (I think not. Others disagree. What are the metrics?)

Reasonable infrastructure investment, even with crony corruption making the gov’t folk immorally rich, provides huge benefits to the market economy, if a market with prices is allowed to work. The super-rich commies controlling big companies DID want to get rich — by SELLING a lot of stuff. This made them better than Venezuela or Detroit gov’t folk.

I believe the East Coast of China is already fairly ahead of Mexico City, which itself is also doing pretty well.

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