Shine the light and observe the great era of the economy

Author: Zhou Qiren
Publisher:
Publish Date: 2006-01-01
Features: The scene is as if it were a line from a poem written by Xin Qiji: "Under the influence of wine, I pick up the sword to gaze at it; upon waking, the horns sound from the connected camps." Thus, after discussing with the editor, we decided to name the column "Picking up the Lamp to Gaze at the Sword," which would feature some observations and reflections on the economic era. Historical experience shows that "thinking of change when in poverty" is easy, but it is difficult to change after achieving some success. What is truly dangerous is to make mistakes in the opportunities of the great era and take 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 business stories, monopoly issues, political problems in the economy, research on agricultural land entering the market, and economists, among others. "The Great Economic Era" is a term coined by Zhang Wu Chang. I have long heard him speak of it, and the more I listen, the more I think, and the more I read, the clearer the outline of what the professor calls "an economic era unprecedented in human history" becomes. In the fall of 2004, I began to lecture on this topic to my classmates at Peking University and received positive responses. Then, I gradually wrote the column articles included in this collection. I have always enjoyed observing small economic phenomena and conducting hands-on, practical research. Unexpectedly, with the professor's guidance, I happened to 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 brilliantly and holds a significant place on 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 overcome competitors, would not all developing economies have already succeeded by now? 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 the United States, while farmers' incomes were even lower, almost negligible. Yet, at that time, could one find "Made in China" anywhere in the world? Opening up is important. If the economy is not open, 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 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 organizational methods of commercial activities are easily disseminated 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 there is a willingness to use it, and whether efforts are made to apply the information to economic activities after obtaining it, is another. When I went to the countryside, I saw the same farmer working differently on his private plot of land versus the state-owned fields, and I realized the extreme importance of "incentives" for economic growth. Looking at China's experience, would the international competitiveness of Chinese products today exist if the economic system had not been reformed, reformed, and reformed since the 1980s? After 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 determines the winner. If an economy has relatively low factor costs, rapidly declining 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, relative to Britain, caught up so swiftly; later, Japan and Germany, and even later, the "Four Asian Tigers," followed suit. Starting from the 1980s, it was China's turn. If there is anything special, it is China's enormous population size, which has kept labor and other factor costs particularly low due to long-term poverty. Reform and opening up broke the constraints of the old system, causing institutional costs to decline rapidly. Additionally, the potential of the Chinese people to learn in a market environment is truly remarkable! No one denies that the absolute gap between China and developed countries remains vast. However, in developed economies, everything is expensive, and factor costs are truly exorbitant. 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 innovation for the long term. However, when it comes to technology and knowledge, with the fundamental improvement of global communication conditions, the principle of "information sharing" undoubtedly favors the followers of developed economies. The trend of the times is clear. The competitive edge of Europe, America, and Japan lies in their ability to continuously create unique products—holding sway over the "unique advantage" is their forte. China and other open developing economies? They have fewer 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 the most lively and inevitable in the world today. Experts see the way. I believe that under open conditions, the "cost advantage" takes the economic offensive. The evidence is simple: now, economies with cost advantages are even more enthusiastic about free trade than developed countries! This is a rare opportunity in the great economic era, one never 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 "thinking of change when in poverty" is easy, but it is difficult to change after achieving some success. What is truly dangerous is to make mistakes in the opportunities of the great era and take 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 corresponding transaction costs increase inevitably; non-market economic organizational costs have always been high, and 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 collected in this book mainly come from three columns the author has written over the years: "Qi Ren Articles" in The 21st Century Business Herald, "Picking up the Lamp to Gaze at the Sword" in Economic Observer, and "Economics in Life," co-authored with Xue Zhaofeng in the Chinese edition of The Financial Times. The author thanks the editors and readers of the three newspapers, especially Zhang Dongsheng, Yin Lian, and Zhang Lixian, for their patient efforts in urging the author to write and their meticulous editing work. Without them, the author 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, the author is particularly grateful to Zhang Wu Chang for writing the book's title, which instantly gave this small book "collectible value." Perhaps he knows how much I owe him, so he simply granted all my requests.