Shining the Lamp on Swords -- Observing the Grand Era of the Economy

Author: Zhou Qiren
Publisher:
Publish Date: 2006-01-01
Features: The scene seems to be described in a poem by Xin Qiji: "Drunk, lighting the lamp to examine the sword, waking from dreams, the horns blow across the camps." Thus, we agreed with the editor to name the column "Lighting the Lamp to Examine the Sword," for publishing some observations and reflections on the great 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 great economic era from a macro perspective. The book is divided into eight sections, covering topics such as enterprise stories, monopoly issues, political problems in the economy, research on farmland marketization, and economists, among others. "The Great Economic Era" is a term coined by Zhang Wu Chang. I had long heard him speak of it, and the more I listened, the more I thought, and the more I read, the clearer the outline of the professor's "economic era in human history that has never appeared before" became. In the fall of 2004, I began to lecture on this topic to my classmates at Peking University, and they responded positively. Then, I successively wrote the column articles included in this collection.
I have always enjoyed observing small economic phenomena and conducting hands-on research. Unexpectedly, with the guidance of the professor, I looked up and truly saw 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 holds a significant place in the world stage, no matter how much it is underestimated. What 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 already succeeded? Taking China as an example, labor costs were even lower during the planned economy era. In 1980, urban state-owned workers' salaries were less than 1% of those in Europe and America, while farmers' incomes were even lower, negligible. Yet, at that time, where could one see "Made in China" worldwide? Opening up is important. If the economy is not open, products with different costs are not put into 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 merely a synonym for poverty in isolation!
The more important meaning of opening up is to drastically reduce information costs. The techniques and secrets of production, the styles and varieties 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 it is "needed" and whether efforts are made to apply the information to economic activities after obtaining it are entirely different. When I went to the countryside, I saw the same farmer working differently in his private plot and in 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 enjoy today? After thinking through these points thoroughly, I believe that understanding the economy simply requires three variables: , 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; 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 prevails. If an economy has relatively low factor costs, rapidly declining institutional costs, and steadily improving factor quality, it will inevitably stand out on the global stage. This is the path to the rise of all latecomers.
Back then, the United States was like this, rapidly catching up with Britain. Later, Japan and Germany, and then the "Four Asian Tigers" also followed this path. 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 particularly rapid decline in institutional costs. Moreover, the ability of the Chinese to harness their learning potential in a market environment is truly remarkable! No one denies that China's absolute gap with developed countries remains vast. 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 in global communication conditions, the principle of "information sharing" undoubtedly favors the followers of developed economies. The trend of world affairs is clear. The competitive edge of Europe, America, and Japan lies in their continuous creation of unique products—they hold the reins of the "unique advantage." China and other open developing economies? Few unique products, but as long as others can do what they do, they can definitely leverage their "cost advantage" to the fullest, win orders, squeeze competitors, and capture markets. The great showdown between the "unique advantage" and the "cost advantage" is bound to be lively in today's world. Experts see the big picture. I believe that under open conditions, the "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 severe challenge: will we miss this historic 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 may decline but will inevitably rise again. 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. Added together, 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. Readers should not miss it when reading.
The articles collected in this book mainly come from three columns I have written over the years: "Qiren's Articles" in The 21st Century Business Herald, "Lighting the Lamp to Examine the Sword" in Economic Observer, and "Economics in Daily Life," co-authored with Xue Zhaofeng in the Chinese edition of The Financial Times. I thank the editors and readers of the three newspapers, especially Zhang Dongsheng, Yin Lian, and Zhang Lixian, for their patient efforts in urging the publication and meticulous editing. 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 grants all my requests.