Can a rational person have great passion?
Known to be rational, economists usually seem to be lack of passion when they work. However, this illusion of mine was broken by the book, “Rational Passion: the Chinese architects in the international palace of economics”, recommended by Prof. Tao Zhigang this morning.
It is a book collecting the profiles and conversations with reporters of 16 famous Chinese economists. Why would Prof. Tao recommend this book rather than some other economics textbooks to broaden my knowledge of economics?
“It seems that you do not know those big names in Economics?” said Prof. Tao in the discussion this morning. Yes, I’m so ignorant of those economists and top development of economics. Learning economics for only two years at an introductory level, I aim more on the basic economic sense which need to be cultivated step by step. Before I entered university as a student majoring economics and finance, I even mistook economics for the calculation of money exchange. In the past two years, I began to know what economics really is, but I need to know more before I can go further.
Apart from Prof. Tao, I only have a little knowledge with Qian Yingyi and have heard the name of Bai Chong-en. I still have much to do before I can catch the development of economics.
My knowledge of Prof. Qian is also from the project I am doing under the instruction of Prof. Tao. I was recommended to read his paper “The Process of China’s Market Transition (1979-98): The Evolutionary, Historical, and Comparative Perspectives”. It gave me a clear view of the development of the market transition in China with a unexpected foundation in the early years of PRC to the current situation. It also first time reminded me the difference of planned economy between the former Soviet Union and China.
The profiles and conversations in the book give me a clearer picture of this Chinese economist and extend my understanding of China’s economic development from his paper to a much wider range.
As a Chinese, we have our advantages to review the development of China. We know much more about the culture and more details than foreigners. We also feel the real change and see the unsatisfactory issues in our life. That is the good resources of our knowledge on China’s development. However, it also brings some side effect. We are too familiar with the situation that we might underestimate some improvements without notice and regard some problems as unique ones of China.
Sometimes we may use too much concepts from western culture but ignore some practical issues. As a result, this may also bring pessimism. A good example is how to view political development without a western way of democracy. Actually, democracy is just one part of politics. In the western civilizations, they may put democracy as the base of the development. However, in an eastern culture, rule of law may play a more important role. That’s why we can see the present economic and social development under the improvement of rule of law. As a result, though the nominal political development has not been much touched as is defined as popular election, the real political development is already underway and have exerted its great power in China.
27 June, 2007
19 June, 2007
Specialization and Its Cost (Update2)
In people’s mind, Shanxi Province is always associated with illegal collieries and brick kilns which hundreds of people have been killed or wounded due to explosions of gases, collapse of mines or tortures by the foremen and the owners. People and the Press are always angry with these phenomena but curious about the continuous happening of the serious cases. Has Shanxi fallen into a vicious cycle?
When the focuses are concentrated on the social, moral, or even political systems, the economic factor may be neglected.
How could economy make Shanxi fall into the vicious cycle of illegal collieries and brick kilns? Some people argue that it’s the fault of specialization. The abundant natural resources and cheap labour forces make Shanxi Province acquire the comparative advantages in producing coal and bricks. The more specialized Shanxi Province is, the more mono-form its economy takes. As a result, the pursuit for higher profit by trading these low value-added goods drives officials and local magnates to exploit those poor peasants and migrant workers.
It seems to be reasonable. However, the relationship between workers and owners of the mines and brick kilns is all about the story of exchange. This previous argument only covers the picture of one party in the exchange. The other half of the picture from the perspective of those workers is not mentioned.
Before we check the part story of those workers, let’s get a general view for the exchange process, specialization. In economists’ minds, specializations should bring a win-win situation for both parties participated in the trade. They will tell you the stories of a painter and a carpenter, or a country specialized in sea food production and a country producing agricultural products. In their cases, specialization makes both parties better off. If that’s true, then how can we explain those phenomena in Shanxi Province?
If we give a second thought on the stories economists present, we may find that both parties are equal in the legal status. Individuals exchange with individuals and countries with countries equally. The specialization is based on the fair trade as an assumption. In this sense, Shanxi Province is getting better economically through the exchange of coal and brinks with other provinces for the goods they need. However, the tragedy happens when there is inequality between the two parties. The tragedy happens in the relationship between the owners of the mines and brick kilns and the education-inadequate peasants and migrant workers.
Why is there inequality? Maybe the answer is the lack of choices. The aim of peasants and migrant workers is to survive and support their families. If there are any better choices for the peasants and migrant workers, they will flow out of the industry which might take their lives as a cost. Since there are no other choices, they take the risk of death to do the dangerous work.
Is it the specialization limits the choices of peasants and migrant workers? To some extent, it is. The limit of choices reflects the strict ranks of jobs. However, this is one of the results of the specialization. You use your comparative advantages to do the job fit you best. However, the fittest job may not be a highly-paid or even enough paid one. Actually, this is the cost of specialization society has to pay.
Some extreme liberalists may argue that those peasants and migrant workers are so illiterate or unskilled that they should only be granted those dangerous and low-paid jobs. However, we need to solve three questions. Is it their fault to be illiterate or unskilled? Should the government participate to help them out? If the government participate, will this increase the benefit of the whole society?
The first question is quite obvious. Most of those peasants and migrant workers are born in a poor family. The environment usually does not allow them to study or develop themselves. However, the family environment has nothing to do with the children bred in it. They have no choice. The illiterate and incompetence of those peasants and migrant workers are the tragedy of society. They are bearing the cost produced by society rather than the cost produced by themselves.
As a result, the cost should be shared by society. The responsibility obviously falls to the government. They play the role of auditor to check the cost and benefit between different actors in society and finally using taxes they collected to make the second distribution of wealth.
The government’s participation is not a bad thing at least for these cases. If we assume that the increase of wealth has the decreasing rate as the consumption of other goods, then it is quite clear that the second distribution of wealth using the money from the rich to help the poor may increase the total benefit of society as a whole.
That is to say, the government plays an important role in the equal exchange when specialization is inevitable. The government should compensate the peasants and workers the social cost they are bearing. A common way is to establish a good social security system and exercise welfare policies consistently.
As a result, it can be concluded roughly that specialization can bring benefit on the equal basis, but bring some negative impact when there is. However, if the government is weak and could not provide well social security system, the cost of specialization will be very obvious. If we extent our conclusion a bit further, we may find something more surprising. If there is no government (world government as for the international arena), the specialization (globalization as it is called) may bring great benefit only to those who are strong. The small and developing countries may suffer a lot as a victim billing the cost without any compensation.
When the focuses are concentrated on the social, moral, or even political systems, the economic factor may be neglected.
How could economy make Shanxi fall into the vicious cycle of illegal collieries and brick kilns? Some people argue that it’s the fault of specialization. The abundant natural resources and cheap labour forces make Shanxi Province acquire the comparative advantages in producing coal and bricks. The more specialized Shanxi Province is, the more mono-form its economy takes. As a result, the pursuit for higher profit by trading these low value-added goods drives officials and local magnates to exploit those poor peasants and migrant workers.
It seems to be reasonable. However, the relationship between workers and owners of the mines and brick kilns is all about the story of exchange. This previous argument only covers the picture of one party in the exchange. The other half of the picture from the perspective of those workers is not mentioned.
Before we check the part story of those workers, let’s get a general view for the exchange process, specialization. In economists’ minds, specializations should bring a win-win situation for both parties participated in the trade. They will tell you the stories of a painter and a carpenter, or a country specialized in sea food production and a country producing agricultural products. In their cases, specialization makes both parties better off. If that’s true, then how can we explain those phenomena in Shanxi Province?
If we give a second thought on the stories economists present, we may find that both parties are equal in the legal status. Individuals exchange with individuals and countries with countries equally. The specialization is based on the fair trade as an assumption. In this sense, Shanxi Province is getting better economically through the exchange of coal and brinks with other provinces for the goods they need. However, the tragedy happens when there is inequality between the two parties. The tragedy happens in the relationship between the owners of the mines and brick kilns and the education-inadequate peasants and migrant workers.
Why is there inequality? Maybe the answer is the lack of choices. The aim of peasants and migrant workers is to survive and support their families. If there are any better choices for the peasants and migrant workers, they will flow out of the industry which might take their lives as a cost. Since there are no other choices, they take the risk of death to do the dangerous work.
Is it the specialization limits the choices of peasants and migrant workers? To some extent, it is. The limit of choices reflects the strict ranks of jobs. However, this is one of the results of the specialization. You use your comparative advantages to do the job fit you best. However, the fittest job may not be a highly-paid or even enough paid one. Actually, this is the cost of specialization society has to pay.
Some extreme liberalists may argue that those peasants and migrant workers are so illiterate or unskilled that they should only be granted those dangerous and low-paid jobs. However, we need to solve three questions. Is it their fault to be illiterate or unskilled? Should the government participate to help them out? If the government participate, will this increase the benefit of the whole society?
The first question is quite obvious. Most of those peasants and migrant workers are born in a poor family. The environment usually does not allow them to study or develop themselves. However, the family environment has nothing to do with the children bred in it. They have no choice. The illiterate and incompetence of those peasants and migrant workers are the tragedy of society. They are bearing the cost produced by society rather than the cost produced by themselves.
As a result, the cost should be shared by society. The responsibility obviously falls to the government. They play the role of auditor to check the cost and benefit between different actors in society and finally using taxes they collected to make the second distribution of wealth.
The government’s participation is not a bad thing at least for these cases. If we assume that the increase of wealth has the decreasing rate as the consumption of other goods, then it is quite clear that the second distribution of wealth using the money from the rich to help the poor may increase the total benefit of society as a whole.
That is to say, the government plays an important role in the equal exchange when specialization is inevitable. The government should compensate the peasants and workers the social cost they are bearing. A common way is to establish a good social security system and exercise welfare policies consistently.
As a result, it can be concluded roughly that specialization can bring benefit on the equal basis, but bring some negative impact when there is. However, if the government is weak and could not provide well social security system, the cost of specialization will be very obvious. If we extent our conclusion a bit further, we may find something more surprising. If there is no government (world government as for the international arena), the specialization (globalization as it is called) may bring great benefit only to those who are strong. The small and developing countries may suffer a lot as a victim billing the cost without any compensation.
15 June, 2007
From the NIEs to the BRICs: See the World in Your Own Eyes
The Inaugural Lecture by Professor Edward Chen Kwan-Yiu was held today in Loke Yew Hall, the University of Hong Kong. This is the lecture organized by the former students of Professor Edward Chen to extend their gratitude to their respectable teacher.
The topic was “From the NIEs to the BRICs: Development Theory Revisited”. Professor Chen talked about his inaugural lecture as the chair professor of our faculty in HKU. At that time, the lecture was about the NIEs (Newly Industrializing Economies). It gave people the enlightenment that small, resources-scarce countries with open policies could develop quickly if in right conditions. Nowadays, the world seems to have been changing. The emergence of the BRICs (Brazil, Russia, India and China) seems to suggest the repeat of history: large, resources-abundant countries can survive and develop well when small, open economies might be vulnerable in the international financial integration.
However, in Professor Chen’s eyes, the world has not changed too much. The core conditions of development for these countries are the same. The active attitude towards openness is still the most important. The role of government is still kept its place while the western world holds the laissez-faire as a creed. The cultural values different from the Christianity are both held true for the Four Little Dragons and the BRICs.
The transition from the NIEs to the BRICs was along with development from the so-called “Hong Kong Consensus” suggested by Professor Chen to the “Beijing Consensus”. Both are quite different from the “Washington Consensus”. The repeated mention of the “positive non-interventionism” and the repeated criticism of the laissez-faire policies made people remember repeatedly the environment we were living. Why his theories and hypotheses are so well-received in Hong Kong and probably south-east Asia? He sees the world from his own eyes and speaks out. That’s very important.
What I mean by seeing the world from his own eyes is about the way he sees the world. When you see the world with your own eyes, you are making assumptions and determine those very important factors that you are going to consent to. The choice of assumptions and factors sometimes come from data, but your own personal philosophy might count, which also makes culture a very important factor in social science research. The well-reception of the positive non-interventionism probably might be easier in Asia than in western world. I think perhaps that’s why Professor Chen lists culture other than Christianity as a very important factor for both models.
The topic was “From the NIEs to the BRICs: Development Theory Revisited”. Professor Chen talked about his inaugural lecture as the chair professor of our faculty in HKU. At that time, the lecture was about the NIEs (Newly Industrializing Economies). It gave people the enlightenment that small, resources-scarce countries with open policies could develop quickly if in right conditions. Nowadays, the world seems to have been changing. The emergence of the BRICs (Brazil, Russia, India and China) seems to suggest the repeat of history: large, resources-abundant countries can survive and develop well when small, open economies might be vulnerable in the international financial integration.
However, in Professor Chen’s eyes, the world has not changed too much. The core conditions of development for these countries are the same. The active attitude towards openness is still the most important. The role of government is still kept its place while the western world holds the laissez-faire as a creed. The cultural values different from the Christianity are both held true for the Four Little Dragons and the BRICs.
The transition from the NIEs to the BRICs was along with development from the so-called “Hong Kong Consensus” suggested by Professor Chen to the “Beijing Consensus”. Both are quite different from the “Washington Consensus”. The repeated mention of the “positive non-interventionism” and the repeated criticism of the laissez-faire policies made people remember repeatedly the environment we were living. Why his theories and hypotheses are so well-received in Hong Kong and probably south-east Asia? He sees the world from his own eyes and speaks out. That’s very important.
What I mean by seeing the world from his own eyes is about the way he sees the world. When you see the world with your own eyes, you are making assumptions and determine those very important factors that you are going to consent to. The choice of assumptions and factors sometimes come from data, but your own personal philosophy might count, which also makes culture a very important factor in social science research. The well-reception of the positive non-interventionism probably might be easier in Asia than in western world. I think perhaps that’s why Professor Chen lists culture other than Christianity as a very important factor for both models.
11 June, 2007
Does Opportunity Cost Matters, or the Tolerance Limit of Opportunity Cost?
The summer vacation is coming. Since our hall is undergoing a maintenance project this summer, half of the students have to move out of the hall, including those who have graduated or only applied to live for part of the summer. To give a more detailed picture, our hall has two buildings for undergraduates, the Old Wing and the New Wing. When the New Wing is under maintenance, all the students permitted to stay will have to move to the Old Wing. And this will be vice versa after one month.
Today, June 11 is initially the deadline for those students who are not permitted to stay in summer to move out. However, the college office (administration branch of our hall) announced the delay for the deadline just a few days ago. The reason is that some local graduates cannot move out on time.
This is quite a shock for mainland students. Most of the mainland students have left according to the instructions of the hall, even with very high opportunity cost. For example, I have to move to a guest room in another hall for a week which costs $200 per day. And some mainland students have to take trains and go back home with their luggage in a hurry.
Most mainland students believe that the local students should comply with the instructions announced by the college office because they have more resources and ways to meet those demands, i.e. they have lower opportunity cost. However, for most mainland students, they have not many choices. Probably, the implementation of the instructions will incur a higher opportunity cost. Why do the mainland students have to bear higher opportunity cost while those local students still insist to stay?
There is something to count: the tolerance limit of opportunity cost. Actually, mainland students have a much higher tolerance limit for opportunity cost. Generally speaking, they possess this quality for several reasons.
One important reason is that the very limited resources and choices raise the tolerance limit of opportunity cost. In this unfamiliar environment, they are frequently facing higher opportunity costs and gradually get used to the high opportunity cost. In the case of moving out of the hall, even if they can find a place to live which is quite cheap but is one week after the deadline, they will have no other choices but to pay a higher price for a place which can be moved in immediately after the deadline. However, for local students, they can go back home and put their luggage in their friends’ rooms. If these cases happen all the time, mainland students may regard it reasonable to pay a higher price.
I’d like to use one case this morning to end. One mainland student is scheduled to move into another room in our hall. However, the graduate originally living in this room did not show any signs to move out. She was sleep at 10:40 am and the room was in its original order. The mainland student was in a hurry because her flight is 7 pm. She couldn’t put any her luggage into the room.
Today, June 11 is initially the deadline for those students who are not permitted to stay in summer to move out. However, the college office (administration branch of our hall) announced the delay for the deadline just a few days ago. The reason is that some local graduates cannot move out on time.
This is quite a shock for mainland students. Most of the mainland students have left according to the instructions of the hall, even with very high opportunity cost. For example, I have to move to a guest room in another hall for a week which costs $200 per day. And some mainland students have to take trains and go back home with their luggage in a hurry.
Most mainland students believe that the local students should comply with the instructions announced by the college office because they have more resources and ways to meet those demands, i.e. they have lower opportunity cost. However, for most mainland students, they have not many choices. Probably, the implementation of the instructions will incur a higher opportunity cost. Why do the mainland students have to bear higher opportunity cost while those local students still insist to stay?
There is something to count: the tolerance limit of opportunity cost. Actually, mainland students have a much higher tolerance limit for opportunity cost. Generally speaking, they possess this quality for several reasons.
One important reason is that the very limited resources and choices raise the tolerance limit of opportunity cost. In this unfamiliar environment, they are frequently facing higher opportunity costs and gradually get used to the high opportunity cost. In the case of moving out of the hall, even if they can find a place to live which is quite cheap but is one week after the deadline, they will have no other choices but to pay a higher price for a place which can be moved in immediately after the deadline. However, for local students, they can go back home and put their luggage in their friends’ rooms. If these cases happen all the time, mainland students may regard it reasonable to pay a higher price.
I’d like to use one case this morning to end. One mainland student is scheduled to move into another room in our hall. However, the graduate originally living in this room did not show any signs to move out. She was sleep at 10:40 am and the room was in its original order. The mainland student was in a hurry because her flight is 7 pm. She couldn’t put any her luggage into the room.
01 June, 2007
Can You Keep up with China’s Stock Market?
Just a week ago, Chinese officials were defending that the rise of stamp duties was a rumor. Just two days ago, the stamp duties were suddenly nearly tripled. This was followed by a vaporized 1,240 billion market value in the stock market or 6.5% market value. The next day, it dropped another 10% but rebounded miraculously. Even my instructor in Macroeconomics wrote a comment before the sudden rebound and has to update it. Can you keep up the pace with China’s Stock Market?
One editorial in FTChinese.com told you to “relax about China’s stock market”. It sounds interesting when you are facing the sudden drop and someone is shouting against the government’s honesty and the harsh policies facing them. However, there are some truths in it.
When I expressed my concern for the collapse of China’s stock market two weeks ago, a friend of mine pacified my with the assertion that the China’s whole economy would not be influenced too much even in the worst situation that the stock market collapse. This was the same assertion as the editorial.
China’s stock market is somewhat independent and has few relations with other markets. It is bad when outside regards it as a huge opportunity for investment. However, it is good news if the opportunity turns into a burden as it is out of control itself. The limited opportunity of investment goes along with the limited risk in it.
What’s more, the assertion that the market would turn sour is still not a certain one as the yesterday’s rebound gave many people a surprise. The most important thing now probably is to try to keep up with the update information of China’s stock market.
One editorial in FTChinese.com told you to “relax about China’s stock market”. It sounds interesting when you are facing the sudden drop and someone is shouting against the government’s honesty and the harsh policies facing them. However, there are some truths in it.
When I expressed my concern for the collapse of China’s stock market two weeks ago, a friend of mine pacified my with the assertion that the China’s whole economy would not be influenced too much even in the worst situation that the stock market collapse. This was the same assertion as the editorial.
China’s stock market is somewhat independent and has few relations with other markets. It is bad when outside regards it as a huge opportunity for investment. However, it is good news if the opportunity turns into a burden as it is out of control itself. The limited opportunity of investment goes along with the limited risk in it.
What’s more, the assertion that the market would turn sour is still not a certain one as the yesterday’s rebound gave many people a surprise. The most important thing now probably is to try to keep up with the update information of China’s stock market.
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