this is a lot of material, but quite difficult since it is verbose and the detailed data are not present (which would be easier for me).

here is what i regard as the most fundamental constraint: 800 million peasants live on arable land which covers only 7% of the nation, for an average of 1 hectare per person.

how much money can you squeeze out that one hectare? let us say technology doubles the productivity and price support doubles it again. so instead of 1,000 yuan per person per year, you yield 4,000 yuan per person and then you have nowhere left to go. there is no exit under the pure agricultural model. they better look at something else.

If you click the link you can download the original report, which has 30-odd pages of data in the appendicies, including some good charts.

In the long run, you're right. Agriculture will only get the country so far. But in terms of poverty alleviation, it is just about the only thing that deals with the problem. As China gets richer, more people will leave the farm for the city. Eventually some of those farmers will become more successful and grow larger, taking over their neighbours' plots and becoming true commercial farmers. But that's way into the future.

Even based on the numbers you've suggested, a 400% improvement in incomes from land is a great result, and it will see even more people rising out of poverty. They can worry about where next down the track.

Yes, as we all know, it's government policy to eventually increase the urban population to much, much higher than it is today.

For this reason alone, I imagine that the goverenment are also aware, or at least partially aware, of the fact that rural reforms can only go so far and if it wants to build a real world-class economy in the long run, then it will have to try even up the urban-rural population divide.

i think it is wrong to move more and more people into the existing big cities.

i would like to see a reverse migration of the migrant workers, who have accumulated enough capital and knowledge that they would want to go back home and build small enterprises. this would be supplemented by large private and public investments to generate rural employment. this is hard, because all the right micro-level decisions have to be made (and the Huaxi/Huankantou riot was the result of attracting chemical factories and destroying the environment). the central government can direct the large infrastructe investments (electricity plants, road, etc), but they can't assure the efficiency and correctness of all the micro-level projects.

one example that i thought of is Lijiang, from the poorest county in the nation to a tourist center that provides direct employment to tens of thousands. but not every place can be transformed into a tourist center.

China needs to find a way to compete agriculturally by growing their agriculture to the point of being able to export food in large quantities. Most country's sustain their agriculture through subsidies. This could be one item.
Another would be to build the transportation infrastructure to the point where it is no longer adventageous to produce on the east coast (close to ports). The USA did this with cross country interstate highways. China is currently working on several of these highways...but witht he high tolls on these highways, many truckers are reluctant to use them as they bleed their profits. Subsidize highways and create, what the USA has, 'free-ways.'
Finally...cut taxes. The tax rates here are brutal. A moderately middle class income here pays roughly 40% in taxes. As you mentioned in your article...get the government out of the pocketbooks (and the internet!)

Well, Simon, you did it again! I am happy to see you continue the topic of new left. I feel the one of most important underlying official policy now is to expand the cities and force peasants to lose or leave their land. Making farming hardly profitable is necessary for this situation. As long as the labor can be absorbed continuously, this will be a huge sustainable engine for China's economy in the future. One thing the government has to do now is to publish a set of policy to encourage the small private business instead of subsidizing SOEs. However suitable banking, credit system and law enforcement are not there. The leader has to have courage to implement a gradual institutional change even with the obvious risk to accommodate this change. The former prime minister Zhu failed with the high salary of government employee as the only result. Wait and See what Hu will do. By the way, simon, I absolutely disagree that decreasing the government intervention will be the answer for the problem. Chicago boys failed in Chile 30 years ago. The lesson is that moderate governmental intervention has to be maintained, especially in the transition. Hopefully Hu can learn sth from Alejandro Foxley.

Lin, can you explain how the "Chicago boys" failed in Chile? Chile is South America's most prosperous and stable economy and has been for 30 years. While clearly the Pinochet regime was a human rights disgrace, at least economically they got it right.

ESWN: a natural consequence of economic development is a shift of populations from rural to urban areas. Why? Because people like living in cities, because farms become more productive, because farms need less labour as they use more capital. I don't think there's a single example where there's been a reverse migration in a developing country. That said, you're right that in rural areas there is a need for diversification to encourage further economic development.

ESWN

I ca see where you're coming from with theory that migrant workers could return to their villages and, with govt support, build the rural economy.

It's a interesting thoery, despite what Simon rightly points out above about people generally prefering to live in cities and rural migration increasing economies of scale by reducing the farming population/icreasing size of farms, the fact remains that China's urban/rural divide must be better balanced to reflect global norms if it ever wants to achieve a higher standard of living for the population at large.

At the moment (I might go off and chase up the figures in a minute) China's rural population is too large and lop-sided and this will hamper China's development more and more in the years to come. Some of the reasons are mentioned earlier in this thread.

Simon, probably tomorrow I will google the whole story of Chicago boys for you. Now I only remember that under Chicago boys' administration, poverty rate had gone up from 20ish% to somewhere above 40% from 1973-1998. The average growth rate was only 3.5% sth...The price that a society paid has not all been counted into these numbers yet. Chile has really boomed only after a new socialist government took the power based on a center-left coalition. Look at Clinton's, Blair's and Chilean's success, I can't help trusting the "NEW" LEFT! Or you guys called them neo-liberal or sth else?

Lin, I look forward to the story of the Chicago Boys.

I must admit that I don't know much about chile (apart from the fact that's it extremely nationalistic---according to one of the British Consulate guys here in Guangzhou who was there for a bit) but I know that just before and after Margaret Thatcher came to power in Britain in 1979 she sent political advisors to Santiago many times in order to study Chile's Hayek-esque form of Darwin-sink-or-swim type capitalism.

Therefore, I've always assumed the opposite of what you are saying about Chile.

Lin, I look forward to the article. But your two examples of "New Leftists" perfectly prove my case: both Blair and Clinton followed the doctrines of right wing economics to the letter - fiscal surpluses, independent monetary policy, welfare reform...they out-Tories the Tories and out-Republicaned the Republicans. That was Al Gore's mistake - he chose to veer left and got pounded.

Thanks for proving my case.

Because it's a long article, so only some data are presented here, you can see More here

The Chicago School of Economics got that chance for 16 years in Chile, under near-laboratory conditions. Between 1973 and 1989……………….. The results were exactly what liberals predicted. Chile's economy became more unstable than any other in Latin America, alternately experiencing deep plunges and soaring growth. Once all this erratic behavior was averaged out, however, Chile's growth during this 16-year period was one of the slowest of any Latin American country. Worse, income inequality grew severe. The majority of workers actually earned less in 1989 than in 1973 (after adjusting for inflation), while the incomes of the rich skyrocketed. Conservatives have developed an apologist literature defending Chile as a huge success story. In 1982, Milton Friedman enthusiastically praised General Pinochet (the Chilean dictator) because he "has supported a fully free-market economy as a matter of principle. Chile is an economic miracle." (1) However, the statistics below show this to be untrue. Chile is a tragic failure of right-wing economics, and its people are still paying the price for it today…………………. After the IMF loans came through, the Chilean economy began recovering in 1984. Again, it saw exceptionally high growth, averaging about 7.7 percent a year between 1986 and 1989. (11) But like the previous cycle, this was mostly due to actual growth, not potential growth. By 1989, the GDP per capita was still 6.1 percent below its 1981 level. (12)……………… So what was the record for the entire Pinochet regime? Between 1972 and 1987, the GNP per capita fell 6.4 percent. (13) In constant 1993 dollars, Chile's per capita GDP was over $3,600 in 1973. Even as late as 1993, however, this had recovered to only $3,170. (14) Only five Latin American countries did worse in per capita GDP during the Pinochet era (1974-1989). (15) And defenders of the Chicago plan call this an "economic miracle!" Aggregate statistics are somewhat better. Between 1970 and 1989, Chile's total GDP grew a lackluster 1.8 to 2.0 percent a year. That was slower than most other Latin American countries, and slower than its own record in the 60s. (16)……….. By all measures, the average worker was worse off in 1989 than in 1970. During this period, labor's share of the national income fell from 52.3 to 30.7 percent. (17) Even during the second boom (1984-89), wages continued to fall. The following index shows the decline in both average and minimum wages:

By 1989, Chile's poverty rate was 41.2 percent, one-third of them indigent or desperately poor. (19) Shanty towns known as poblaciones grew around Santiago and other major cities, kept alive by las comunes, or soup kitchens. In 1970, the daily diet of the poorest 40 percent of the population contained 2,019 calories. By 1980 this had fallen to 1,751, and by 1990 it was down to 1,629. (20) Furthermore, the percentage of Chileans without adequate housing increased from 27 to 40 percent between 1972 and 1988, despite the government's boast that the new economy would solve homelessness. (21)

Chile's income inequality also became the worst on the continent. In 1980, the richest 10 percent took in 36.5 percent of the national income. By 1989, this had risen to 46.8 percent. By contrast, the bottom 50 percent of income earners saw their share fall from 20.4 to 16.8 percent over the same period. (23)

How did the Chicago boys accomplish this war against workers without the people rising up in revolt? The answer lies in Pinochet's reign of terror.

Alejandro Foxley is an famous economist who turned right wing economic policy toward the center after chicago boys. And he, is a big believer for Political economy.

INTERVIEWER: What would be your final verdict on the Pinochet years in terms of economy?

ALEJANDRO FOXLEY: It's a very mixed performance. The average growth rate in the 17 years of Pinochet was a mediocre 3.5 percent. That's an average. In 10 years of democracy, we doubled our rate [to] 7 percent a year. So in that respect, I don't think they have much to show. But having said that, in terms of the deeper transformation of the economy, they certainly were able to anticipate what became a global trend afterwards. They were able to start a process of deregulating the markets, opening up the economy, and allowing everybody to have a share in world markets, to be able to compete, and the need to increase productivity. All of those things later became a global trend. That was their contribution. They were able to anticipate a global trend, and Chile has benefited from them.

INTERVIEWER: But at a terrible price?

ALEJANDRO FOXLEY: At a very high price. Believe me, at a very high human price.

back to top

Towards a New Development Strategy

INTERVIEWER: Tell me about the people you got to know in Boston [in the early '80s], and what outlook you shared.

ALEJANDRO FOXLEY: Well, I was at MIT at the time, as a visiting fellow. I got to know Domingo Cavallo and Pedro Aspe very well. Pedro Aspe became the minister of finance in Mexico when I was the minister of finance in Chile, and Cavallo in Argentina. And we developed a view that wasn't as rigid as the one the Chicago Boys had developed, in terms of development strategy. And I think that it shows. If you look at what Cavallo is doing in Argentina today, you will certainly see a much more pragmatic type of economist, someone who believes, as Jeffrey Sachs does, that development is an effort that you have to, in some way, conduct, that you have to awaken the creative forces, and just freeing up the markets will not always do that job for you.

You can find all interview materials here

By the way, Simon, I am not denying that Clinton and Blair moved to the right a little bit in order to wow the center. That's why I called it center-left coalition, and "NEW" left. However don't mistakenly consider them implementing right wing economics. First of all, Pro-business nature are universal for both right and left. It should not be counted in the right or the left.
Ok, we have seen Clinton raised tax for richest people, pay a fortune for public education, social security and medicare. Take a look at what right wings doing: Cut tax (mainly for richest people), teachers and government employee laid off, tuition skyrocketed, plan to privatize pensions......(hey, what if stockmarket collpase as it did swiped out chilean's pension...)
So you are saying Clinton out-Republicaned the Republicans?

Lin, I'll have to read the article over the weekend. But on a quick skim I've already noticed one thing - while Chile's average growth might have been 3.5% per annum over that period, its neighbours went through various economic catastrophes. That Chile managed stability in an ocean of turmoil is a helluva achievement.

I am saying Clinton did out-Republican the Republicans...but Gore blew it.

When did those on the left become pro-business?