Early in the morning, mill bell knocks
A person gets out of bed and gets dressed.
Male takes his breakfast, walks out in the morning light
It’s the job, the functioning, just the working life
– Bruce Springsteen
Except for the other tried economic models, the South Eastern trade design is the worst.
Although Winston Churchill was actually speaking about something else, we will use his quip in relation to development economics because the original has n’t been as well-aged.
While some may show at how Japan, South Korea, Taiwan and, of course, China exported their approach to treasures, it was, in fact, an exhausting, grueling and brutal method that has left lasting injuries. Financial growth is not really supposed to occur in this manner.
The South Asian trade type is swimming inland, playing the video game on difficult function, running up the down escalator. What kind of creation strategy calls on poor nations to scrimp and save only to lend the money to wealthy clients so they can buy one’s goods?
East Asia had to fight the Lucas conundrum. East Asia triumphed not because the import business model worked so well; because East Asia is East Asia, it triumphed.
The study that money does not flow as predicted by classical economics from wealthy to bad is the Lucas conundrum. In principle, as investment experiences diminishing results in rich economies, it will move to poorer economies which also have low-hanging fruits.
In practice, however, wealthy countries have hoovered up money from developing markets, leaving much of the earth starved for expense.
East Asia, starting with Japan, was able to grow despite the Lucas dilemma. After WWII, Japan’s Ministry of International Trade and Industry ( MITI ) husbanded the nation’s meager resources to invest in strategic industries – steel, autos, electronics, semiconductors etc.
The nation gradually accumulated investment by reinvesting retained earnings into Treasurys with export earnings, bit by bit.
This demonstrated both the selfless and selfless actions of the Chinese people as well as the management skill of MITI. It also demonstrated the effectiveness of the export-driven development model.
In contrast, as post Japan grew up by its own bootlaces, Europe received Marshall Plan cash injections, which is how it is supposed to function.
Societal effects were undoubtedly affected by the two post ideologies. To pursue national rejuvenation through Kaizen ( continuous improvement ) for corporate Japan, two generations of salarymen gave their families, health, and private lives.
Germans, with access to American money, were able to get a more relaxed pace – enjoying shops, barefoot dining, the Beatles and Serge Gainsbourg’s dirty tunes. A line can certainly be drawn from Japan’s striking development model to its present afflictions – low birthrates, social anomie, otaku youths.
The Asian Tigers followed suit, resulting in even more spectacular outcomes and paying the same amount of. Ultimately, the biggest player came on the scene running a version of the model that, because of China ’s size, is causing Western politicians to mash panic buttons.
The US had long since abandoned Japan’s export growth model and is now desperately trying to target China with its efforts, fair and foul.
Venture capitalist Eric Li recently remarked that China’s biggest economic issue is that it ca n’t go out and buy itself a lot of colonies. Another development strategy that has proven to be extremely successful is imperialism. However, it has left behind like the East Asian export model, as well as some lasting scars. Overall, overworked salarymen are probably less objectionable than colonial ills.
Economicists turn themselves into pretzels in an effort to discover the origin of the Lucas paradox. But is it all that mysterious?
C’mon, folks, America is a giant landmass with a temperate climate, coasts on both the Atlantic and the Pacific Oceans. America is stunning, with expansive skies, amber grain waves, and purple mountain majesties above the fruited plains.
America, America, God shed his grace on thee, it ’s a fat bird of a country from sea to shining sea! America has always exchanged assets for labor, whether through settler colonialism, slavery, immigration or trade.
When there is this America thing (you get Canada, Australia, and New Zealand ), which is hardly extant for a single Sinic dynasty, hoovering up people and capital from all over the world, classical economic theory will not work correctly.
The East Asia development model is the only one possible in this context, not only is it the least bad one available. And it works because East Asians ( insert racist theory here ) are able to pull it off, not because it is so simple to hump to lend to wealthy customers.
Capital would flow according to the laws of classical economics in a world where natural resource endowments are evenly distributed and giant landmasses had not just been opened up for economic exploitation.
Given the realities of history, the Lucas paradox arises because perfect laboratory conditions are not possible. However, we may be at a point where theoretical outcomes will start to take hold in the real world.
We are at a point where development economics can reshape traditional economic theory because the imperial development model has been abandoned in recent years and the export model has not ( insert racist justification here ) been transposed elsewhere.
Janet Yellen, the US Treasury Secretary, recently visited China, which sparked a round of controversy in the Anglo press over industrial overcapacity there.
Senator Sherrod Brown has already called for their ban, claiming that the Chinese electric vehicles ( EV ) are an existential threat to the US auto industry. ”
When Western progressives are presented with low-cost, made-in-China solar panels as the solution, they are mired in cognitive dissonance over long-trumpedeted climate commitments.
This entire overcapacity issue is yet another giddy example of Western solipsism. As Asia Times ’ David Goldman likes to say, “China’s just not that into you. ”
When the US imposed “voluntary ” export quotas on Japan in the 1990s, it constituted 40 % of the world’s car market. That has fallen to 13 % in 2023.
Given geopolitical realities, China does not export cars to the US, and it is likely to veer off in favor of building factories there for regional markets. Around 35 million cars were sold in developed markets ( North America, EU, Japan, South Korea, Australia ) in 2023, unchanged since 1990.
In developing nations sold 80 million cars in 2023, an increase of 80 million from 1990. China has been and will likely continue to direct its export capacity to developing economies – ASEAN, Gulf States, Russia, Central Asia, LATAM, the Indian Subcontinent and Africa.
China ’s car exports map larger trends. Exports to developed economies have doubled in the past five years, now surpassing exports to developed nations. Not only are China ’s exports not a threat to industries in the Global South, but “overcapacity ” in China is entirely necessary for their development.
The Global South should not accumulate capital through the backbreaking East Asian export model and cannot do so through imperialism. They are in luck because China ’s “overcapacity ” is exactly how development should work under classical economics.
Excess capital in China should flow to developing economies in the form of loans and investments along with capital goods – 5G base stations, railroad equipment, electrical systems, commercial trucks and, yes, cars. This is the entire theoretical foundation of Belt and Road Initiative ( BRI ) by President Xi Jinping.
Without “overcapacity ” in China, the Global South would have access to neither capital nor capital goods. It is mathematically impossible for the West to provide development assistance to the Global South on an appreciable scale given its current account deficit and capital account surplus.
Because the US does not suffer from “overcapacity, ” long-forgotten initiatives like the Blue Dot Network and Build Back Better World ( B3W ) die on the vine. ”
Is it conceited to think that China is inundating developing markets with manufactured goods? Development models based on capital inflows require definitional trade deficits from developing nations. The inflow will be used to purchase capital goods required for industrialization. This is the Lucas paradox resolved.
The Industrial Party faction appears to have embraced the Communist Party of China. The Industrial Party is a political identity that breaks with the cynical left-right divide and believes that China’s future will be determined by industry, science, and technology.
Industrial Party precepts, while not necessarily an economic ideology, are able to comprehend the necessity of China’s “overcapacity” and that China is tasked with reversing the Lucas paradox.
Wang Xiaodong, a vocal Industrial Party champion recognized the trends as far back as 2011, exhorting China to globalize its industrialization :
We must leave and meet the world. Not only do we want our products to “go global, ” we also want our industrialization to go global, and our high-quality talent to go global. We have the power to cause industrialization everywhere. Many of our scientists and technicians will travel around the world to work, bringing with them civilization, a dignified existence, and relief from poverty. One thing that Westerners have been powerless to accomplish is this.
China ’s Commerce Minister Wang Wentao has dismissed Secretary Yellen’s accusations of overcapacity as groundless, insisting that China ’s industries are just more competitive. Because China appears unlikely to compromise, both the US and the EU are likely to erect trade barriers.
In the end, the conflict between China and developed economies is ultimately a sideshow. The flow of Chinese capital and goods to the global south will be what will actually happen.