Consumption-led growth model for developing countries likely to be an illusion

Comments on Meiyan Wang and Fang Cai "Migrant workers key driver of Chinese consumption", 10/12/2015

It makes perfect sense to provide the same public services and social security to rural-urban migrants. A main question is whether the national and local governments have the means, mainly the revenue to do so. If they have then it will be all fine. If they don’t, then the question is how they can have the revenue to do so.

There should be a national policy mandating a deadline for achieving the equality between rural-urban migrants and the permanent residents, recognising the differential capacity between different regions. The central government may also need to use its financial power to assist some regional governments in the process.

Personally, though, I am a bit sceptical about the consumption-led (more generally a demand driven model) rapid economic growth model for a developing economy. If consumption can lead the development of a developing country, then every country could do it easily. The basic logic is that you have the income in hand first before you can consume.

I think it is conceptually easier to have production-driven through a combination of investment and productivity enhancing, supply-driven model (using international trade to balance the difference between production and consumption). While the current surplus capacities in some industries in China represent a serious problem and may take years to be overcome, businesses and the government need to consider how to raise productivity in many other sectors. Surplus in the capacity of some industry can occur in any countries: the current international mining and oil industries are examples.

Having said that, there will be an effect on growth if the rural-urban migrants are afforded equal services as their permanent counterparts.

Convergence in income and divergence in growth

Comments on Martin Wolf “In the grip of a great convergence”, 5/01/2011, http://www.businessspectator.com.au/bs.nsf/Article/China-US-economy-inflation-interest-rates-pd20110105-CT3VY?OpenDocument&src=sph

I think the divergence and convergence story should bring benefits to all nations, just like voluntary and free trade is beneficial to all trade partners involved.

So, while the currently advanced economies may be in a relative decline, they will also benefit from the relative and absolute rise of the large and rapidly industrialising economies.

This should strike a key note on all nations.

And it is in this win-win outcome that all should embrace and celebrate the convergence of income.

PS: I share Wolf's view that the current information and communication technologies mean that China and India can acquire the knowledge base that has underpinned the industrialised economies; and there are unlikely events that will stop the current convergence trend for the foreseeable future.

Duel aims of Malaysia's NEM interesting, but realistic?

Comments on Shankaran Nambiar “Malaysia’s New Economic Model as a rebalancing strategy”, 5/06/2010, http://www.eastasiaforum.org/2010/06/05/malaysias-new-economic-model-as-a-rebalancing-strategy/
It seems that rebalancing has been very fashionable and now become a buzz word.

Despite that, I would like to go against the fashionable trend and focus on the other point the author of the post did not discuss much.

I note that Shankaran Nambiar stated that "Malaysia’s New Economic Model (NEM) serves to address two crucial issues that confront the nation. First, Malaysia for some time now has had its feet caught in the ‘middle income’ trap. It is now keen to graduate to a high income status, joining the likes of Singapore, Taiwan and Korea."

Shankaran Nambiar seems to argue that high aggregate savings in Malaysia in the past or at present are abnormal and are only normal in economies where uncertainties are high. High savings, of course, are seen by some as sins that caused global imbalances that need to be rebalanced.

Shankaran Nambiar somewhat appeared to be caught in a difficulty that the GFC seems to imply the death of export driven growth model and yet Malaysia is too small in terms of population to become a sufficient market for it to grow.

I somehow seem also being caught by Shankaran Nambiar's difficulty, but for different reasons.

I was wondering if Malaysia's NEM has duel aims to both catch up with Korean, Hong Kong and Singapore and rebalance, then whether the paths of the latter's growth where high savings and export driven growth may have played an important role have any relevance to the NEM.

It seems to me that Malaysia needs to be much more creative to create a new growth model that is supposed to be better than the models of the other three.

That is my difficulty with Shankaran Nambiar's ambitions duel aims that implies a high degree of uncertainties, perhaps even much higher than that implied by the high savings.

High consumption share not prerequisite for high growth

Comments on Alan Kohler “Why China won't save the world”, 13/11/2009, http://www.businessspectator.com.au//bs.nsf/Article/China-economy-government-democracy-pd20091113-XQRKS?OpenDocument

Alan, you should ask Arthur Kroeber to learn a bit more about economic growth. It appears that he needs that badly.

It is interesting that Arthur Kroeber is based in Beijing but does not know much about Beijing, not to mention China.

He may be a westerner to pay $US70 for a haircut, but if I go to China I could get a cut for less than $US3.

It is appalling he got it so wrong on PPP.

Second, many economists, Arthur Kroeber probably included, don't seem to have a grasp of a simple mathematics and economic growth model, especially in a developing economy where the capital stocks are much lower and need to increase many times to catch up with the developed world.

There is no economic law that requires a high share of consumption as the only model of growth.

That is a pity of economics and a pity for so many economists.

They are likely to be surprised by what can really happen in China with a low share of consumption for possibly another two decades.