Professor Wang Yong at the Symposium on "From Poverty to Prosperity: 40 Years of China's Economic Growth"
Author: Wang Yong, Ph.D., Department of Economics, University of Chicago, Associate Professor, Academic Vice Dean, and Doctoral Supervisor, Institute of New Structural Economics, Peking University. He has worked in the Department of Economics and the World Bank at the Hong Kong University of Science and Technology.
Source: Double Degree in Economics, National Development Institute of Peking University - Voice of Langrun
The Center for New Structural Economics at Peking University was established on February 14, 2015, and it was like a new economic wind, blowing waves and discussions in the economic circles at home and abroad, and it is still the same today. The concept of "new structural economics" proposed by Professor Lin Yifu has long taken root in Peking University, but our students with double degrees in economics have just come into contact with the field of economics and may know very little about this localized economic concept. Therefore, we are very honored to invite Professor Wang Yong, Vice Dean of the Institute of New Structural Economics of Peking University, to tell us the story of him and new structural economics.
What is New Structural Economics?
New structual economics was first initiated by Professor Lin Yifu and emphasizes the development strategy of comparative advantage.
After serving as the World Bank's Chief Economist from 2008 to 2012, Mr. Lin not only relied on China's experience in reform and opening up, but also sublimated his understanding to the global scope and proposed a new structural economics. He studied the development paths of developing countries in Africa and other regions, hoping to find the general economic development of developing countries, summarize the similarities and differences of economic structures at different stages of development, discover what factors are the driving forces that lead to changes in a country's economic structure, what role markets and governments play in this process, and so on. Based on these findings and Mr. Lin's long-term experience in teaching and research, he summarized and expanded this theory.
To put it simply, new structural economics is the use of modern economic research methods, especially neoclassical economic research methods, to study how the economic structure of an economy changes endogenously and dynamically in the process of development, and what are the factors that determine these economic structures, and what meaning they have for a country's economic development in the process.
When the Institute of New Structural Economics was established, the commemorative handprints left by the start-up team, including teachers and classmates such as Lin Yifu, and even Mr. Lin's drivers, all had handprints
Professor Wang Yong went on to introduce that the new structural economics emphasizes three points: efficient market, promising government, and sentient community.
First, the effectiveness of the market needs to be discussed. Modern economic theory originated mainly in developed countries, which have mature market economies. Many economic studies of developing countries adopt this theory, ignoring what stage of development a country is in, and only referring to what developed countries have, what their own countries lack, and what they lack to make up for what they lack. This theory ignores the endogenous nature of the differences in different stages of development, for example, the Great Steel Smelting and the Great Leap Forward ignored the development stage of China's economy at that time, and blindly pursued output and industry to align with developed countries, which violated the law of economic development. This kind of thinking is still prevalent in many countries. "The new structural economics is not what is missing to make up for anything, the starting point is to first look at what I have, according to what I have, and then think about how to do it well and gradually improve it." The so-called "what" is its own endowment structure. The proportion of production factors such as capital, land, and labor in a country is not the same, and the most suitable industrial structure should be determined according to endowments, whether it is labor-intensive or capital-intensive.
Second, government decisions should also be consistent with endowment structures, for example, poor countries should first establish labor-intensive industries, "making shoes, shirts, and clothing, rather than building big airplanes in the first place." With the development of the economy, capital continues to accumulate, labor costs rise, the relative price of capital falls, and the industry upgrades, so labor-intensive becomes capital-intensive.
At this time, the corresponding financial structure will also change. Whether it is small banks, large banks, stock markets or venture capital, their optimal proportions are different according to the changes in industrial structure, and the characteristics of financial services needed at different stages of development are also different. Most of the theoretical "catch-up" thinking misleads developing countries, because it does not emphasize that at different stages of development, a country's industrial structure, financial structure, trade structure, and technological structure should be different. New structural economics mainly highlights the differences in economic structures in important dimensions at different stages of development, and studies what can determine how these structures change in nature and what the dynamics are. On this basis, observe what role the government plays and what role the market plays. It is a wrong idea to blindly align with the government strategies of developed countries.
Finally, the so-called sentient community refers to the fact that there are no formal government organizations in the community, but there are charities and so on, which hope to help the groups in need and improve the level of welfare. This research should be specifically in the field of sociology, and economics is mainly the study of efficient markets and promising government. The two are interactive: the price of the market can accurately reflect the scarcity of factors, guide the correct upgrading of industries and the correct allocation of resources; but the market in developing countries is not complete, and the market is effectively premised on the premise of the government, which requires the government to cultivate the market and supervise the market. At the same time, the government is based on the effectiveness of the market, and the government cannot do everything and cannot cross the line.
Relationship with development economics
As for the relationship between new structural economics and existing development economics, Professor Wang Yong proposed that many people regard new structural economics as the third wave of development economics. Development economics is a subdiscipline of economics that emerged after the end of World War II, mainly studying economic development. The first wave of thought was old structuralism, the second wave was neoliberalism, which is now the more mainstream idea, and the third wave is new structural economics.
In fact, new structural economics is very relevant to development economics, but it is not limited to the field of development economics. It includes macroeconomics, international economics, industrial economics, financial economics, and at the same time can add the dimension of the stage of development, so it is not limited to development economics.
Relationship with regional and country studies
One of the aims of the Institute for New Structural Economics is to provide strategic advice to developing countries. Teacher Wang Yong introduced that in addition to the teaching team, the Institute of New Economic Structure now has a think tank team, a domestic think tank group and an international think tank group. The domestic think tank group applies the theory of new structural economics and cooperates with various ministries and commissions of local governments in China to help local governments achieve structural transformation, industrial upgrading and development. The International Think Tank Group assists other developing countries and provides policy advice to their central governments to help developing countries achieve economic development and industrial transformation.
The theory of new structural economics has been supported in many african countries, and Mr. Lin Yifu has won the Presidential Medal of Freedom in several countries in Africa. The current Prime Minister of Poland also pointed out that the theoretical basis of the economic reform of the new Polish government is new structural economics, so in fact, the influence of new structural economics on international policy has been great.
In the field of regional and country studies, the research conducted by Chinese scholars is still in its infancy, and it is difficult to combine interdisciplinary fields. The theme of Wang Yong's doctoral dissertation is the economic comparison between China and India, which can be said to be a high-quality research result in regional country research in the economic field. Professor Wang Yong has a special interest in the economic comparison of the two countries, which brings us many unique insights. For example, China and India are the two most populous developing countries, but if you look at the two countries as samples in more than 200 economies in the world, you will often find that these two countries are usually outbound, unlike other countries. It is argued that it is okay to remove two of the more than 200 points, but to remove these two economies ignores 40% of the world's population, so they need to be discussed in particular. When comparing the two countries, it becomes clear what role the governments of major powers should play, what different political systems will lead to, and what they mean for the structure of the economy.
Teacher Wang Yong pointed out that the perspective of cross-border comparison is very important, and it will help Chinese people to capture what aspects of China are particular in the world from the perspective of habitual habituation. Secondly, such a comparison helps us to find out what kind of differences different countries will have at different stages of development, and even different countries at the same stage of development have differences in many dimensions, and it is very meaningful to explain the differences in the structure of these dimensions. For example, comparing China and India, the two countries are still in the development stage of the population of the country, but there are great differences in trade volume, FDI and other aspects: on the one hand, in 2008 and 2009, when China's trade volume was greater than India's, india's entire country's trade volume was not as much as that of Zhejiang and Jiangsu provinces combined, but why did India become the first member of the WTO in 1995, and we only entered in 2001? On the other hand, with so many people in India speaking English, labor costs are cheaper, but why does China trade more than India, and why does China absorb more foreign direct investment (FDI)? Therefore, if we look at the specific practices of developing countries, we will find that the current mainstream theory does not explain these things very well.
To explain what the Chinese government is doing right, it is not necessarily the right thing to assume, so a regional perspective is very important. New structural economics is not only satisfied with explaining China, but hopes to summarize the theory of generalization of experience, which can help us explain the economic phenomena of developing countries at different stages of development, and also help these countries to better carry out industrial upgrading, structural transformation and economic growth.
Further, interdisciplinary collaboration is required for regional studies. We used to be a net inflow of FDI, and now there are more FDI outflows than inflows. Chinese after stepping out of China, the attitude towards Chinese doing business and the work quality requirements of government personnel have increased a lot, and we need to understand local cultural customs and abide by local laws and cultural traditions, which is also closely related to the Belt and Road Initiative. This is the new challenge we face in the new stage of development.