Economist's View: Larry Summers: History Lessons for China

リンク: Economist's View: Larry Summers: History Lessons for China.

Larry Summers looks to history for lessons China can use to limit the chances that it follows Japan into a "lost decade of deflation and considerable deterioration in its international relations":

History holds lessons for China and its partners, by Lawrence Summers, Financial Times (free): A rising Asian power has emerged as an export powerhouse and enjoys rapid, export-led growth fuelled by extraordinarily high savings and investment rates. Its technological capacity is upgraded at prodigious rates and its businesses threaten an ever greater swathe of industry in Europe and the US. Its high level of central bank reserves and burgeoning current account surplus lead to claims that its exchange rate is being unfairly manipulated.... Its financial system is ... heavily regulated in ways that favour domestic institutions and has close ties to government and industry. Rapid productivity growth holds down product prices but asset price inflation is rampant.

US congressional leaders demand radical action to contain the economic threat. Delegations of senior US economic officials engage in “dialogue” ..., warning of the congressional demons who stand ready to act if “results” are not achieved quickly.

All of this describes what is happening in and with China today. It also describes the Japanese economy in the late 1980s and early 1990s before its lost decade of deflation and considerable deterioration in its international relations. While there are obvious differences, notably China’s much lower level of development, the similarities are striking enough to invite an effort to draw some lessons for China and its partners from the earlier Japanese experience. [...read more...]

After discussing the lessons to be learned from the causes of Japan's difficulties, including policy errors made by Japanese officials, he notes that pressure on other countries to reform their economic systems and policies can be counter-productive:

These lessons contrast sharply with those drawn by some observers in and out of China, who attribute Japan’s deflation and consequent poor performance to its willingness to accede to US pressure for exchange rate appreciation. ...

[There is a] need for modesty regarding economic policy dialogues that seek to create pressure for change. Events and national and political decisions, not international communiqués, shape economic outcomes. The impact of events beyond the control of governments – the collapse of Japan’s asset markets, information technology’s spur to US productivity growth, the Asian financial crisis – dwarfed the issues debated in economic dialogues.

Even where government policies might have significant impact, there is no evidence that Japan in the 1980s and 1990s made any changes in domestically sensitive structural policy areas such as housing finance, social security or retail regulation in response to the US Structural Impediments Initiative or its successors. Policy in areas of this kind is shaped by domestic politics; if heavy-handed pressure makes it easier for special interests to invoke nationalism as they resist change, high-profile dialogues can be counter-productive. In a world where goodwill is scarce, heavy-handed dialogues engender resentments that spill over into other spheres. ...

Posted by Mark Thoma on February 25, 2007 at 11:11 AM in China, Economics | Permalink | Comments (42)