Author: Natalie Hell, Scott Rozelle
ISBN: 022673952X
Date read: 2021/12/24
How strongly I recommend it: 8/10

China is probably the first country where I got introduced to the idea of export-led growth as a tool for modernizing and industrializing a nascent economy. It was this that led me to amass over a hundred different article and books on how certain countries, mainly the Asian Tigers, got rich quickly. Unfortunately all of it is still on my TBR (to be read). I am still not able to find time to read them even though I know there are some gold mines over there.

At the time, I was obsessed with this topic because being an Indonesian you can’t help but wonder on why my country is “poor”. I had to put that in quotation marks because technically Indonesia is NOT poor by any stretch of the imagination given our very firm base as a middle income country. So far, its economy is moving at a steady five percent per year with a stable democratic government, low debt (a common misconception of course), a huge young population, and abundance of natural resources.

One could also be warned to not forget that there are many, so many other developing economy that were not even as fortunate as Indonesia. No need to point names here, a familiar reader in the world of geopolitics can point to a lot of countries with a lot of population that isn’t as successful as Indonesia not just in economic terms but also socio-political terms.

Yet, the question lingers. “How does a country get rich quickly?” this is one of the books I read during my peak interest of answering said question. I read this in late 2021. This book explores China behind the facade of its growth and skyscrapers. Part of China that is not near the coast paints a very different pictures than what most foreigners would think. And this picture is described in the book in statistical answers by the authors. The book is almost like a plea, given the important of this huge country to the world, whether you dislike China or not, its importance to the world economy cannot be overstated. Without China, our modern economy is affected heavily; and given the arguments in the book, it is in danger. There are so many more good books on this topic that I am very willing to read, but that will take some time. Below are my notes.

Some of my notes

For the past several decades, China’s economic growth strategy has relied almost exclusively on low-wage, low-skilled workers.

China’s rate of high school or university attainment is lower than its peers at the same development level.

The extent that the rural urban divide in china goes to the law level. It is codified by law. Under the hukou (household registration) system, at birth all Chinese citizens are divided into two categories: rural or urban.

In humanitarian perspective, with more than a billion people, it’s the best place to make an impact in improving human lives. From an economic perspective, whether china succeeds or not will matter for the rest of the world. If china falls, the world will suffer. People can no longer rely on its manufacturing industry, nor people can rely on its huge market. It is to worlds importance that china succeeds. Besides that, if china collapse, what will the young men and most working force do? They will build resentment. The CCP had excel so far by promising better lives for it’s citizens, with the largest army on earth bad shit can happen if the Chinese economy fell.

One of the overlooked but remain a common point between countries that were able to graduate to high income economies are high school enrollment rate above 50 percent.

In our globalized world, each country can develop very quickly to middle income status; but the necessary human capital (including the high school stuff earlier) must be done BEFORE they reach high income as some sort of final ladder that helps them to climb to high income status.

A country simply can’t afford having the human capital late, this is because it takes decades for the effects to be felt. A basic education for one person takes 12 years and will be more up to tertiary education. But what about the countless amounts of workers that is still in the workforce whom most of them have only finished primary school?

Every year 40.000 factories are shutting down their business in China. Add that up with automatization and relocation of factories to other countries, there are massive amounts of people that are rendered jobless.

BRI (Belt and Road Initiative) will not help save the economy. For a couple of reasons:

  1. Lots of countries dont want foreign workers
  2. The initiative has been met with corruption within the country
  3. The BRI is seen as a debt scheme

Here’s the popular strategy that is used since WWII to climb the economic ladder:

  1. Open the border and let factories that produce low value goods establish a presence in the country.
  2. With usually huge, poor, almost everyone is a farmer type of population they will flock to the sweatshops.

This won’t last forever; remember, the cardinal rule of the globalized world is this: labor-intensive manufacturing will go to whatever place has the lowest wages.

Why is Chinese wage rising?

  1. There is still huge demand for Chinese goods; more demand, higher wages.
  2. With no one left in the rural area to fill in the factories, wages start to rise. Get it? It’s because back then whenever the wages are increased the steady flow of people (supply of surplus labor) from rural are coming kept it low.
  3. Chinese population is shrinking.

Even if the growth rate of China’s economy were zero and there were no additional demand for labor, China’s shrinking population would keep driving wages upward—for a long time.

Taiwan and South Korea was able to keep improving by moving up the supply chain. No longer were they reliant on cheap labour but high quality distinguishing products.

The author believed that Taiwan’s success (and the success of the other graduates) depended on two complementary sets of workforce skills.

First one is highly skilled workers, leaders, and other people at the front of the economy that will build brands and stuff.

Second is a strong highly educated human resources. And this is not just for the elites in the first reason. Everyone needs to have high education that is at least high school level.

Polarization is bad for two reasons:

  1. It inhibits growth
  2. It deters investment

Adult training programs in developing countries almost never succeeded.

For those who can’t move up to white collar jobs (which is almost everyone) in China they will most likely resort to the informal sector.

The author then provides an example of what it would look like if china fucked up: Mexico.

The book then lists the things that happened following its development after the boom of the low manufacturing ladder is fully used up:

  1. From 2001 to 2004, Mexico lost an estimated 400,000 jobs to China. Then the informal sector rapidly increased because of which the government gets less tax and couldn’t provide social protection system of any sort. The cumulative employment growth in Mexico’s informal sector from 1998 to 2013, 115 percent, is much higher than the growth in the formal economy in the same period, 6 percent.
  2. Productivity declines rapidly.
  3. Rise of theft and crime. The polarization of Mexico’s labor force contributed to a vicious downward spiral. Keep in mind that Brazil, South Africa, Turkey, and Thailand has the same fate.

Spain and Portugal (and Greece) may be the exceptions that prove the rule. In fact, in the early 1980s the human capital levels of the people of Spain, Portugal, and Greece resembled those of a trapped middle-income country today. But I would argue that the primary reason they made it to high income was by riding the EU’s coattails. EU transfers provide unemployment support for those who are structurally unemployable, keeping many from deciding to lead a work life outside the formal sector (or in crime). They provided government benefits—at tremendous cost—based on their EU membership to avoid the exact scenario I have laid out for China.

How can China be worse off in educational terms than South Africa and the Philippines, which look so much poorer?

  1. The rural urban divide is too great: most of the working force (and their children; and rural produces majority of children) is rural in their houkou registration. They face challenges in accessing education.
  2. Government that prioritize education only came recently with great improvements too, but still not enough. Even when all the resources are in place, it takes at least twelve years to fully educate a single cohort of children through high school.
  3. High schools aren’t free. Tuition cost is the highest in the world. And china is one of the most unequal countries in the world.
  4. The gap is not just in educational attainment—defined as the share of people attending a given level of schooling. Urban and rural populations also show a large and persistent gap in how much they are learning when they are in school.
  5. There is a high opportunity cost to staying in school even though tuition has been eliminated. Why pursue higher education when you can earn some bucks now? This is an example of the mismatch that can threaten the economic rise of developing countries.

Just an increase in high school enrollment rate is not enough.

First, the schools themselves need to provide high-quality education.

Second, the students who are being ushered into high school in larger numbers need to be ready to learn. This has more to do with providing good health and nutrition since a very young age.

On Chinese vocational high school

  1. Massive increase in the amount of vocational high school does not equal quality. These quality includes both what the students learn and whether what they’re studying is relevant in the modern economy.
  2. A lot of provinces, especially in rural areas, the vocational high school doesn’t even exist.
  3. The results showed that on average students in vocational high school are learning nothing. What they learn doesn’t match (teaching important skills), even they even learn anything in the first place.
  4. The clearest indicator of the problem is that students are dropping out of school in astonishing numbers.
  5. Every educational system in the world depends on careful regulation and monitoring. The vocational high schools in china are badly regulated and monitored.
  6. Even if China succeeds in reforming this sector, the students would graduate with only one vocational skills, leaving them vulnerable.

Two kinds of skills are useful for a worker looking for employment. The first type of skills is purely vocational or professional: the ability to do a certain job well.

The second type I refer to as general or academic skills. These are taught in a traditional academic junior high school or high school. They include skills like math, reading comprehension, writing, science, logic, information technology (IT), and (in much of the world) English.

General skills are proven to be more important in the long run, no matter what industry the students would end up on. This is also exacerbated by the fact that it’s impossible to predict, both in the short or long term, which vocational skills are important.

Unlike China’s, Germany’s vocational high schools do not solely teach narrow vocational skills. Students in German vocational high schools spend 70 to 80 percent of their time in general academic classes. This is the only kind of vocational teaching that makes sense in the modern economy.

China needs to start putting regulations to maintain the vocational high school quality and reform it in a way by prioritizing general skill.

Students health in China

Even though huge improvements has been made for rural children there is still other problems that if left untreated will hamper China’s progress.

It is common for developing middle income countries to have epidemic diseases, including China.

These are anemia, poor vision, and intestinal worms.

Even for families who believe in modern science they struggle to get adequate and correct medical advice because the doctors themselves isnt properly trained or even worse still believes in myth.

These epidemics are very cheap and easily treated. It requires minimal effort (albeit at a large scale relative to population) with huge returns; especially the availability of glasses for rural children.

The way infants are parented since their birth can have a huge impact on Bayley test score (children’s IQ test). Investing in the way infants are parented will result in huge returns. For every dollar we put into programs like this, we get a return of about seventeen dollars by the time children are in their thirties. That’s a seventeen-fold return on investment.