Expanding markets: The source of economic prosperity

Author: Yi Xianrong
Publisher:
Publishing Date: 2002-04-01
Features: This book is a collection of more than 50 commentaries on economic essays by Dr. Yi Xianrong, published in various Hong Kong newspapers and magazines during his postdoctoral research period at the University of Hong Kong (second half of 2000 to the first half of 2001). The author attempts, from the perspective of an economist's conscience and drawing on the wisdom of prominent economists worldwide, to describe, explain, and analyze the complex economic phenomena and social issues in Hong Kong, mainland China, and the world, aiming to provide readers with alternative viewpoints. The book is approximately 200,000 words. Target Audience: Leaders and cadres of Party, government, and enterprise units, theoretical publicity workers, faculty and students of economics majors in colleges and universities, managers and operators of domestic and foreign enterprises, and economics enthusiasts.
How Can Governments Promote Economic Growth?
In the words of Nobel laureate in Economics Douglass North, "How can governments promote economic growth?" This is a paradox, or what is known as the "government paradox." That is, governments are both the driving force behind social economic growth and the root of social economic decline. Historical experience has shown that in different countries or different periods within the same country, varying government structures lead to different economic performances. North believes that the rapid development of the United Kingdom from a remote island nation into a global economic powerhouse after the Middle Ages, while Spain, once a powerful maritime empire, declined, was largely the result of government actions. However, what kind of government can promote social and economic growth, and what kind contributes to decline? Or, what does a good government look like? What conditions must it meet? These are the questions addressed in the highly controversial Government Quality report, written by a research team led by Shleifer, a young Harvard economics professor who won the American Clark Economics Award in 1999 and is now renowned in the field of economics.
In their report, Shleifer and his colleagues argue that a good government should effectively protect property rights, minimize intervention in the market economy, have high administrative efficiency, be enthusiastic about providing public goods, maintain a relatively large government size, and grant citizens greater political freedom. However, the impact of governments on the economy is multifaceted. How can the quality of government influence on the economy be measured? Shleifer and his team propose five categories of indicators to assess government quality.
First Category: Degree of Government Intervention
This includes the property rights protection index, the commercial regulation index, and the highest marginal tax rate. A good government should minimize intervention in private economic activities, using clear property rights arrangements to define private economic behavior rather than imposing excessive government regulation. A high marginal tax rate is also an important indicator of a good government. This is because if a government can collect high taxes, it demonstrates that taxpayers support the government in providing various necessary public goods. If taxpayers do not endorse their government, such a government can only collect taxes at a lower rate. Moreover, no government has the ability to tax indefinitely. The amount of tax a government can collect largely depends on public voluntary compliance and the public's recognition of the government's legitimacy.
Second Category: Government Efficiency
This includes the corruption index, bureaucracy, tax coercion, and the ratio of government civil servants to per capita GDP. When a government intervenes less in private economic activities, its efficiency tends to be higher, bureaucracy and corruption are reduced. Excessive government intervention not only lowers efficiency but also creates more opportunities for officials to "create rent" and extort bribes from the public, leading to rampant corruption. Traditional views hold that high salaries can combat corruption, but Shleifer and his team's research shows this is not the case. In governments with high levels of corruption, greedy officials, on the one hand, will adopt various methods