Will China quadruple its income by 2020? Nobel Prize laureate Fogel says yes. I am not so sure.

Nobel Prize laureate Robert W. Fogel is very optimistic about China. Based on his analysis in "Why China is likely to achieve its growth objectives", China should have no problem quadrupling per capita income by the year 2020.

His assumptions are:
(1) Annual growth rate of 8% is not miracle, it is just normal based on experiences of other Asian countries that shared the same factor endowment, saving rates, and institutional system as China when they were catching up with the rest of the world.
(2) Money-losing SOEs and insolvent banking system is not a problem. The problem will mechanically reduce by 50% as the economy doubles its size every decade. They will become less important after private sector dominates the economy.
(3) The government is increasingly sensitive to public opinion and issues of inequality and corruption. And there is popular confidence in the government, which makes political instability unlikely.

Most of these are rather endogenous. If the economy is doing well, certainly we would see all of professor Fogel’s predictions are self-fulfilling.

But hope is not a method! When one billion people’s welfare is at stake, we simply should not rely on luck. If there is any economic and financial setback in the economy at national level, however small it is, we are going to see all of Fogel’s assumption self-destroying: SOEs, banking system will become bigger problem, and social unrest will explodes. It is alwasy a gamble, if you go through, you win, if you don't.... (Nevertheless, sometimes I kind of agree that this is what a developing country needs; since you don't have much to lose.)

Professor Fogel is particularly pleased by the increasing level of public debates on economic polices in China. He mentions that “Debates over governmental polices at all levels are as vigorous and wide-ranging at the meetings of the Chinese Economists Society as they are at the American Economic Association.”  Come on! Since when talks in meetings of Chinese Economists Society (a society consisted of mainly Chinese economics professors in North American universities) has any say in policy-making?

There are many problems ahead. We shouldn’t pretend that they are not serious enough.

Why China is Likely to Achieve its Growth Objectives (PDF file)
Abstract : In 2002, the Chinese Communist Party announced a goal of quadrupling per capita income by the year 2020. Starting at income levels of the year 2000, this would require a growth rate of 7.2 percent per annum in per capita income or close to 8.0 percent in GDP. Such unresolved and emerging problems as growing income disparities, increasing pollution, pressures on infrastructure, the inefficiency of state owned enterprises, and political instability are often cited as reasons to doubt the attainability of the CCP’s goal. However, China’s progress in addressing fundamental constraints that might limit rapid economic growth augurs well for the success of its economic goals. Although there are disagreements about economic policy among top leaders, the continued transformation into a market economy and the promotion of increasing local autonomy in economic matters are not in doubt. In education, China has substantially increased the percentage of its workforce receiving a college education, and continuing growth in this investment in human capital could account for a large portion of the desired growth rate. In addition, the value of improvements in the quality of economic output unmeasured by GDP, such as advances in the quality of health care and education, could raise reported growth rates by as much as 60 percent. Finally, the government’s increasing sensitivity to public opinion and issues of inequality and corruption, combined with improving living conditions, have resulted in a level of popular confidence in the government that makes political instability unlikely.

Comments

[China Law Blog]

I agree with you both. I THINK all of Fogel's assumptions will come to pass, unless of course, they don't. The assumptions all make complete sense, but too much can happen in fifteen years to bank on anything.