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COMMENT ON THE PAPERS

COMMENT ON THE PAPERS. Kenichi Ohno National Graduate Institute for Policy Studies, Tokyo. Krongkaew-Kakwani Paper. Useful statistical decomposition into neutral growth and redistribution effect Question: Why Thai inequality remains high by East Asian standards? Thai uniqueness???

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COMMENT ON THE PAPERS

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  1. COMMENTON THE PAPERS Kenichi Ohno National Graduate Institute for Policy Studies, Tokyo

  2. Krongkaew-Kakwani Paper Useful statistical decomposition into neutral growth and redistribution effect Question: Why Thai inequality remains high by East Asian standards? Thai uniqueness??? --Urban-rural, industry-agriculture gaps --Labor structure shift is slower than output shift --Growth drive under military dictatorship --Strong executive, weak legislative --Corrupt political system

  3. Remaining Thai Uniqueness? • Land reform failure • Never colonized (?) • Assimilated Chinese population (?) • Unique interpretation of development under Buddhism (my addition)  Persistent inequality remains a puzzle

  4. Kurihara-Yamagata Paper • Labor-intensive, export-oriented industriali-zation is key to pro-poor growth (job creation) • Examination of labor shifts from agriculture to manufacturing (“poor”= uneducated) • Relativity of “resource-rich” vs. “labor-rich” --Taiwan, Malaysia, Thailand, Indonesia were once “resource rich” (importingChinese and Indian workers) --Successful industrialization made them now look “resource-poor”

  5. Beyond Petty-Clark’s Law • Labor shift from farming to manufacturing = more jobs for poor, therefore pro-poor? • Some checkpoints: --Working at subsistence wage? (Lewis model) --Rising urban unemployment and slum? (Harris-Todaro model) --Too hungry or unskilled to work? (efficiency wage model—poorest may be excluded from labor market)

  6. East Asian Growth is Dynamic • Heckscher-Ohlin and Stolper-Samuelson? --Static, one-time effect --Dependent on initial factor endowment --No increasing returns • East Asian experience --Continuous re-formation of regional production network through trade and investment --Diverse endowment, similar catching up pattern --Learning, agglomeration, and crucial role of policy (not just laissez-faire or free trade)

  7. “Pro-poor growth” Morally correct, politically convenient and currently very popular, but ... • Desirability?: is more equality always good? Should we not balance equality and incentive? • Channels and linkages: many ways to reduce poverty, direct and indirect. Strategy must be carefully geared to each society.

  8. Equity-Incentive Tradeoff John Rawls: “Choose the society which maximizes the welfare of the poorest” (maximin principle) Deng Xiaoping: “Those who can, get rich first. Let others imitate and follow” • Innovation requires reward, but too much inequality destabilizes society. The right mix is needed. • Perfect equality is the ideal of communism. “Pro-poor growth” seems to support convergence on it. • Society can be “too equal” and stagnant: (i) general poverty, (ii) socialism, (iii) welfare state

  9. “Technocratic Model” and its failure Economic growth START Political suppression Rising inequality Political instability END Social explosion!!! Samuel P.Huntington and Joan M. Nelson, No Easy Choice: Political Participation in Developing Countries, Harvard Univ. Press, 1976.

  10. “Populist Model” and its failure Equalization START Increased participation Economic stagnation Political instability END Political suppression!!! Samuel P.Huntington and Joan M. Nelson, No Easy Choice: Political Participation in Developing Countries, Harvard Univ. Press, 1976.

  11. East Asian Way to Success Two-tier approach • Primary: create source of growth. • Supplementary but very important: deal with problems caused by growth—income gap, regional imbalance, environment, congestion, drug, crime, social change, etc. Yasusuke Murakami: “industrialization policy must be combined with supplementing policies or it will fail” (Theory of Developmentalism, 1994)

  12. Revised Technocratic Model (E. Asia) Economic growth START Developmental state Rising inequality (checked) Political stability Supplementing policies END A freer & more democratic society (a few decades later) cf. Korea, Taiwan

  13. Three Channels of Pro-Poor Growth (1) Direct channel(impacting the poor directly) --Health, education, gender, rural development, etc. (2) Market channel(growth helps poor via economic linkages) --Inter-sectoral and inter-regional labor migration (cf. Chinese TVEs) [Kurihara-Yamagata Paper] --Increasing demand (cf. proto-industrialization, multiplier effect) --Reinvestment (formal, informal and internal financing)

  14. Three Channels (contd.) (3) Policy channel(supplementing the market channel) --Price support, taxes, subsidies --Fiscal transfer, public investment, infrastructure --Micro and SME credit and other financial measures --Proper design of trade and investment policies --Pro-poor legal framework

  15. Broadening the Scope • So far, disproportionate attention on the direct channel—the question of sustainability and the risk of permanent aid dependency • Emerging emphasis on pro-poor “growth” --Focus still too narrow, not integrated --Past debates on growth, equality, incentive, migration, etc. have not been incorporated --The right mix depends on each country --The E Asian model is one option (but not for all)

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