Justin Yifu LIN: Economic Rationale and Global Significance of Chinese Path to modernization

2022-12-05 08:23
source: Sina
author: Justin Yifu LIN


Opinion leader丨Justin Yifu LIN (Honorary Dean of National School of Development at Peking University)

It is proposed in the recent report to the 20th CPC National Congress to advance the great rejuvenation of the Chinese nation on all fronts through a Chinese path to modernization, which is the central task of the Party on the new journey of the new era. I would like to take this opportunity to share my understanding of three questions: What is Chinese path to modernization? How to achieve Chinese path to modernization? What is the meaning of Chinese path to modernization?

Modernization is an important historical process that has taken place in Western societies since the Age of Exploration in the 15th century, and especially after the Industrial Revolution in the 18th century. This process was characterized by the transformation from a traditional agrarian society to an industrial one, with rapid changes in science and technology, economic development at a tremendous pace and continued improvement in people’s living standards. Such modernization began to spread from the West to the rest of the world and became a common pursuit for all peoples of the world, as everyone aspired to a prosperous and affluent life.

What is Chinese path to modernization?

Chinese path to modernization is one for socialist modernization pursued under the leadership of the Communist Party of China (CPC), and it contains both elements that are common to the modernization processes of Western countries and characteristics that are unique to China.

This is well summarized in the report to the 20th CPC National Congress. I will briefly contrast the features of Chinese path to modernization with those of Western modernization.

First, Chinese path to modernization is for the modernization of a huge population. Admittedly the West has been prompting industrialization and modernization since the Age of Exploration in the 15th century and the industrial revolution in the 18th century, but up to now the proportion of the world’s population living in high-income countries has been only 16%. If China achieves modernization and joins the ranks of high-income countries, the population living in high-income countries will increase from 16% to 34%.

Second, Chinese path to modernization is for the modernization of common prosperity for all. After the Industrial Revolution, Western countries have indeed experienced rapid material development and a great increase in social wealth in the course of modernization, but the problem of the polarization between the rich and the poor has not been well resolved for centuries. China hopes to achieve common prosperity for all in the process of modernization.

Third, Chinese path to modernization is for the modernization of material and cultural-ethical advancement. In the course of the modernization of Western countries, great material abundance was achieved but there was cultural impoverishment. China hopes to solve this problem thoroughly.

Fourth, Chinese path to modernization is for the modernization of harmony between humanity and nature. In the process of Western modernization, Western countries did a lot of damage to the environment, and the global warming we are now all concerned about basically resulted from massive emissions of carbon dioxide after the Industrial Revolution in the West. China hopes to avoid the recurrence of the same situation in the course of modernization and to achieve the modernization of harmony between humanity and nature.

Fifth, Chinese path to modernization is for the modernization of peaceful development. China will not achieve modernization through material accumulation based on colonial plunder, as was the case in the West.

How to Achieve Chinese path to modernization?

These five features of Chinese path to modernization are indeed very grand. How can they be achieved?

My personal understanding is that, with the exception of the first one – the characteristics of a huge population – which is an inherent condition of China, all the other four characteristics are the result achieved through choice of development path under the leadership of the CPC.

What kind of path and what kind of policy can have such a result? From the perspective of the theory of new structural economics that I have advocated over the years, which is guided by the basic tenets of Marxism and put forward based on summarizing China’s own development experience, the most important thing is to choose industries and develop economy according to the factor endowments that are given at each point in time and change dynamically over time and that are characterized by the material-first principle of Marx’s theory of dialectical materialism, and according to the comparative advantage determined by the structure of the endowments, under the joint action of an efficient market and a competent government. In this way, the 2nd to the 5th features of Chinese path to modernization can be realized.

The reason for this lies in that if an economy is developed based on its comparative advantage, combination of efficiency and equity can be achieved in the initial distribution. With efficiency, the economy can grow at a relatively rapid pace and wealth can increase relatively quickly. If equity is achieved at the time of the initial distribution, a solid foundation is laid for common prosperity. Besides, with development based on comparative advantage, the government will not only realize an increase in its tax revenue, but be more capable of addressing problems of vulnerable populations, widows, widowers, orphans and other solitary persons, and regional disparities in the secondary distribution, thereby promoting common prosperity. Moreover, the government can also use taxation and other means to promote charitable donation (tertiary distribution). In this way, common prosperity can be achieved.

As an old Chinese saying goes, “Only when the granary is full will people learn etiquette; only when people are well-fed and clothed will they know honor and shame.” If common prosperity is achieved, cultural-ethical advancement can be realized while modernization of material is achieved, and the two will synergize with each other. Moreover, with development based on comparative advantage, common prosperity will enable people to have a growing expectation for a better life. The expectation for a better life includes the pursuit of a good natural environment. If development is pursued in accordance with comparative advantage, enterprises will have viability and be more willing and able to adopt green and environment-friendly technologies for production. This will enable better development featuring harmonious coexistence between humanity and nature.

Development based on comparative advantage does not rely on plunder, but on the two kinds of resources of both domestic and international markets and is pursued through mutually beneficial and win-win trade in an open and globalized environment of fair competition. Therefore, China’s development will not only raise its own level of wealth, but will also bring a larger market and more opportunities to the development of other countries in the world and achieve peaceful development.

Global Significance of Chinese path to modernization

Achieving modernization is the common aspiration of mankind. In the past, as modernization only took place in Western countries, it was always assumed that modernization could only be achieved through the Western way. However, practice since the Second World War has shown that there are basically no successful precedents of developing countries pursuing modernization along the Western path. The few developing countries that have been able to achieve modernization didn’t follow the Western path.

Although every country has been pursuing modernization since World War II, the gap between them and the several developed Western countries that had achieved modernization after the Industrial Revolution has actually been widening. Recently, we have been talking about “change on a scale unseen in a century”. The Eight-Nation Alliance that attacked Beijing in 1900 were the eight most powerful countries in the world at that time, and their aggregate economic output accounted for 50.4% of the world in terms of purchasing power parity. One hundred years later, in the year 2000, there was a Group of Eight, all of which were the countries of the Eight-Nation Alliance except Austria-Hungary, which was replaced by Canada. In 2000, the aggregate economic output of the Group of Eight accounted for 47% of the world in terms of purchasing power parity, down only 3.4 percentage points from 50.4% in 1900. In other words, after 100 years of trying to catch up with these eight industrialized powers, the other countries’ economic aggregates rose by only 3.4%. Moreover, the population growth rate in developed countries that have achieved industrialization has been relatively low, while that in developing countries has been relatively high, so that although the aggregate economic output of developing countries as a whole has increased by 3.4 percentage points, the gap in per capita terms has instead widened. Not only have the vast majority of developing countries not achieved modernization and failed to join the ranks of developed countries, but they have even become poorer in relative terms.

Why did the vast majority of developing countries fail to achieve modernization in the past? In my opinion, in the past, we always thought that modernization was Westernization, and developing countries all looked to the West as a reference point, seeing what the West had and what we lacked, and therefore always wanting to have what the West had; seeing what the West did well and what we did badly, and then hoping to do as the West did; or seeing what the West thought was important and thinking that it was also important for developing countries.

The pursuit of modernization in this way was well-intentioned, but the figures show that the actual results have fallen far short of expectations.

In my view, the error of pursuing modernization by copying the Western model lies in incorrect perceptions. From the perspective of Marx’s historical materialism, what the West has, what it does well and what matters are all determined by its economic base. Going after these modernization standards of the developed Western countries without the same economic base, a developing country is bound to fail.

What is the biggest difference between the path to modernization advocated by the new structural economics and the Western path to modernization?

The new structural economics takes as its starting point the factor endowments, which have a material-first nature, and their structure, as advocated by dialectical materialism. In short, take a look at what one has now, which is just one’s factor endowments. Comparative advantage determined by factor endowments is based on what one has now and what one can do well, and then, with the combined effect of an efficient market and a capable government, excel in what one can do well. What matters is achieving excellence in what one can do well, rather than whatever is regarded to be important by the developed countries.

Following this train of thought, every developing country, given its current endowments, always has some industries with comparative advantages, and based on what each developing country has now, it can always find what it can do relatively better, and then, under the joint action of an effective market and a capable government, excel in what it can do well. Acting in this way, every developing country will be able to achieve long-term stable and rapid development and realize its aspiration to catch up with the developed countries.

In my view, the greatest reference for other developing countries to learn from Chinese path to modernization is this principle – take yourself instead of developed countries as reference, see what you have and what you can do well according to what you have, and then achieve excellence in what you can do well with the combined effect of an effective market and a capable government. By moving forward in this orderly manner, the goal of building a prosperous community with a shared future for mankind can be achieved.

(Introduction to the author: Renowned economist and Honorary Dean of National School of Development at Peking University)