Lighting the lamp to read the sword (Observing the great era of the economy)

Author: Zhou Qiren
Publisher:
Publish Date: 2006-01-01
Features: The scene seems to be a line from a poem written by Xin Qiji: "Drunk, lighting the lamp to read swords, in dreams, the camps are filled with horns." Thus, we agreed with the editor that the column should be named "Lighting the Lamp to Read Swords," used to publish some observations and reflections on the economic era. Historical experience shows that "poverty breeds change" is easy, but it is difficult to change after achieving some success. The real danger lies in making mistakes in the opportunities of the great era and taking the wrong path. —Zhou Qiren
This book compiles several articles on economic knowledge, all of which elaborate on observations and reflections on the economic era from a macro perspective. The book is divided into eight sections, covering topics such as corporate stories, monopoly issues, political issues in the economy, agricultural land market research, and economists, among others. "The Great Economic Era" is a term coined by Zhang Wu Chang. I have heard him speak of it before, and the more I listen, the more I think, and the more I read, the more I realize that the professor's so-called "economic era in human history that has never appeared before" is becoming increasingly clear. In the fall of 2004, I began to lecture on it to my classmates at Peking University, and they responded positively, after which I wrote the column articles included in this collection. I have always enjoyed observing small economic phenomena and conducting hands-on research. I never expected to receive guidance from the professor, to suddenly look up and see a great era. It is a very "macro" economic phenomenon—billions of laborers competing in the global market. Among them, "Made in China" shines brightly and occupies a place on the world stage, no matter how much it is underestimated. What has happened? People say, cheap labor. Yes, China and all developing economies have cheap labor. However, if cheap labor alone could give a competitive edge, would all developing economies have succeeded long ago? Taking China as an example, labor costs were even lower during the planned economy era. In 1980, the salaries of urban state-owned workers were less than 1% of those in Europe and America, while farmers' incomes were even lower, negligible. But back then, where could one see "Made in China" everywhere? Opening up is important. If the economy is not open, if products with different costs are not put on the same product market to compete, even if labor is cheap, it is not a competitive advantage. Closing oneself off, and having cheap labor, is just another way of being poor behind closed doors! Opening up also means significantly reducing information costs. The techniques and secrets of production, the styles and designs of products, and the methods of organizing business activities are easily spread in open markets. Information can be shared, which is particularly beneficial for latecomers. However, people's ability to accept information and knowledge needs proper incentives to be fully realized. Yes, the "availability" of technology and economic information is one thing, but whether people choose to use it, and whether they make the most of it after obtaining the information, is another. When I went to the countryside, I saw the same farmer working differently on his private plot of land compared to the state-owned fields, and I realized the extreme importance of "incentives" for economic growth. Looking at China's experience, if the economic system had not been reformed, reformed, and reformed since the 1980s, would China's products have the international competitiveness they have today? Thinking through these points carefully, I believe that understanding the economy simply requires three variables: First, factor costs, including the prices of labor, land, energy, and other economic factors; second, organizational and institutional costs, which are the costs of establishing, enforcing, and operating the rules and institutions that organize economic factors; and third, the quality of economic factors, especially the technical and knowledge level of human resources. In economic competition between enterprises, regions, and countries, lower factor costs and institutional costs are preferable, while higher factor quality gives an advantage. If an economy has relatively low factor costs, rapidly decreasing institutional costs, and steadily improving factor quality, it will inevitably stand out on the international stage. This is the path to the rise of all latecomers. In the past, the United States in this way; later, Japan and Germany, and then the "Four Asian Tigers" also followed suit. Starting from the 1980s, it was China's turn. If there is anything special, it is that China's population is particularly large, and labor and other factor costs are particularly low due to long-term poverty. Reform and opening up broke the constraints of the old system, leading to a rapid decline in institutional costs. Additionally, the ability of Chinese people to learn in a market environment is truly remarkable! No one denies that the absolute gap between China and developed countries is still huge. However, in developed economies, everything is expensive, and factor costs are indeed too high. A solid legal foundation and well-developed market institutions are certainly advantages, but they also leave little room for further reducing institutional costs. The true competitive advantage of developed economies lies in their abundant stock of human capital in technology and knowledge, which allows them to drive economic growth through long-term innovation. However, when it comes to technology and knowledge, with the fundamental improvement of global communication conditions, the principle of "information sharing" clearly favors latecomers. The trend of world affairs is clear. The competitive edge of Europe, America, and Japan lies in their ability to continuously create unique products—holding the "unique advantage" is key. China and other open developing economies? They have fewer unique products, but as long as others can do what they do, they can fully leverage their "cost advantage" to win orders, squeeze competitors, and capture markets. The great battle between "unique advantage" and "cost advantage" is bound to be lively in today's world. Experts see the big picture. I believe that under open conditions, "cost advantage" dominates the economic offensive. The evidence is simple: economies with cost advantages are now even more enthusiastic about free trade than developed countries! This is a rare opportunity in the great economic era, one that has never been seen before. This brings a serious challenge: will we miss this historical opportunity? Good performance, strong momentum, and a bright future do not guarantee that the opportunity will be seized. Historical experience shows that "poverty breeds change" is easy, but it is difficult to change after achieving some success. The real danger lies in making mistakes in the opportunities of the great era and taking the wrong path. All troubles are reflected in institutional costs. Like all cost curves, institutional costs will inevitably rise again after falling. Market size expands, and transaction costs increase accordingly, which is unavoidable. Non-market economic organization costs have always been high. If gradual reforms stop or stagnate, this part of institutional costs will become even higher. Combined, the actual trend of all institutional costs and the ways to reduce them are crucial. This is also a key focus of this book's observations on the great economic era, and readers should not miss it. The articles in this book mainly come from three columns I have written over the years: "Qi Ren's Articles" in 21st Century Business Herald, "Lighting the Lamp to Read Swords" in Economic Observer, and "Economics in Life," co-authored with Xue Zhaofeng in the Chinese edition of Financial Times. I would like to thank the editors and readers of the three newspapers, especially Zhang Dongsheng, Yin Lian, and Zhang Lixian, for their patient efforts in urging me to write and their meticulous editing work. Without them, I would not have been able to write three articles every two weeks. Similarly, without Lin Junxiu and Ren Xuhua of Peking University Press, these articles would not have been compiled into a book so smoothly. Finally, I am particularly grateful to Zhang Wu Chang for writing the title of this book, which instantly gave this small book "collectible value." Perhaps he knows how much I owe him, so he simply granted all my requests.