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The rapid buildup of advanced technology, investment in human capital, and a shift of labor from low to high productivity sectors have enabled China to continue double-digit economic growth for more than 25 years, according to Nobel laureate Robert Fogel, Charles R. Walgreen Distinguished Service Professor of American Institutions.
“This is a growth rate that far exceeds any experience of any country in the world,” Fogel said at the 2008 Chicago Conference on China’s Economic Transformation at Gleacher Center on July 14.
Fogel delivered his remarks in response to “The Economic System of China,” a video presentation of from Steven N. S. Cheung, professor of the School of Economics and Finance at the University of Hong Kong. Cheung was one of more than 30 researchers to present papers discussed at the five-day conference, cosponsored by Chicago GSB, the Law School, and the Coase Foundation.
Fogel was asked to deliver opening remarks by Ronald Coase, Nobel laureate and Clifton R. Musser Professor Emeritus of Economics at the Law School, who for many years had a joint appointment at the GSB. Coase proposed the event to present academic research on China’s unexpectedly massive growth since 1978.
The fundamental basis for economic growth is technological change, Fogel said. “China is growing at a very rapid rate because of the speed in which it is able to incorporate more advanced technologies into its country,” he said.
China has an advantage over the United States. “We cannot grow any more rapidly than technological change permits us to grow,” Fogel said. “But China has been in the process of modernizing its economy, which means it has been adapting for Chinese circumstances the technologies that have already been developed in the rich countries of the world.”
China’s rapid buildup of advanced technology has been made possible by both internal and external financing, he said. “No doubt foreign direct investment has been very important—not so much in the dollar amount, but in the fact that each of these dollars represents very high levels of advanced technology,” Fogel said. “But by far the most important source of financing has been the internal investment—capital raised from within the Chinese economy.”
China has recently invested in human capital at extraordinary rates compared to its previous history, he said. Between 1996 and 2003, students of higher education tripled in number in China, Fogel said. It took the United States several decades to triple the size of its student body in higher education, he said.
Most Chinese labor has focused on agriculture and rural economies, where productivity is low, even with great advances in Chinese agriculture, Fogel said. A full one-third of the growth in Chinese per capital income can be explained simply by the transfer of labor from low-producing sectors to service and industrial sectors, he said.
Fogel predicted China will account for 40 percent of world GDP by 2040, mostly due to a rise in per capita income to $85,000 from less than $4,000 in purchasing power parity in 2000. “China will be a very rich country,” he said. “Meanwhile, the European Union, as defined in 2000, will have half that per capita income in 2040.”
Although some argue that China cannot continue to grow until it becomes a liberal democracy, many countries have gotten rich without doing so, Fogel said. “Liberalism was not a necessary prerequisite for modern academic growth,” he said. “Despite the decline of Europe as a global economic power, I have a pretty optimistic view of the future of liberal democracy, because there are very important Asian sources of liberal democracy.”
In the conference’s opening remarks, Coase said he was one of the few people to agree with Cheung’s unpopular 1982 prediction that China would eventually adopt capitalism. “But I thought in terms of 100 years, maybe even 200 years—certainly not 25 or 30 years,” he said.
“What happened in China was a complete surprise to me—its scale, its character, and its speed,” Coase added. “The fact that I was surprised shows that I didn’t understand what was going on. I therefore determined to hold a conference that would uncover the facts about this extraordinary series of events. We sought out those best able to inform us—academics, bureaucrats, government officials, businesspeople who would tell us what happened.”
–Phil Rockrohr