The World Bank and China’s Development Research Center released a report calling for China to make a number of economic reforms in order to develop a more sustainable economy. This was widely reported in the New York Times, Washington Post, and Seattle Times. It claims that China cannot sustain growth unless it does a long laundry list of things. Why the Chinese would listen to outgoing World Bank President Robert Zoellick is a bit puzzling since he was part of senior management at Goldman Sachs just prior to joining the World Bank and thus likely has Goldman’s interests, not China’s interests, at heart.
Recommendations they made that I agree with include the following:
-change the household registration system
-collect property taxes
-tackle rising inequality
-encourage private enterprise
-address environmental degradation
-build world class universities
-create better safety nets
-emphasize innovation
Recommendations that I don’t agree with include the following:
-diversify ownership of strategic state-owned industries (I disagree because too many different voices with conflicting objectives and agendas lead to gridlock and short-term thinking. If private companies don’t agree with SOEs, they can start their own companies to compete against the SOEs.)
-let market forces create a bigger role in bank lending (The U.S. deregulated our financial industry which led to staggering decreasing productivity and increasing wealth inequality. If the Chinese follow this route, it will make their existing inequality even worse.)
This report, again, illustrates the one-sided view that certain American policymakers like to propagate. Why ask China to become more market-oriented when the U.S. doesn’t follow the same prescriptions? After all, the U.S. props up its largest multinational banks, it provides gigantic subsidies to companies like GE who paid zero taxes, it has long-term multi-year government contracts with defense companies like Lockheed that cost taxpayers trillions of dollars, and has government entities like DARPA (Defense Advanced Research Projects Agency) that invest in private companies with military applications like erasing human memory technology and Facebook. Besides, shouldn’t the World Bank be more concerned with the anemic growth of the U.S. and other western nations than fast growing China? Where is that report???
Ultimately, the Chinese need to expand their middle class in order to keep the growth sustainable. That is the bottom line, and the way to get there is through better income distribution. This is a problem not just in China, but in the U.S. and most nations around the world.
