Financial Times, Mar 21 (continued)

choi

(2) Martin Wolf, How to Blow Away China's Gathering Storm-Cloufs; Aftyer the purge. page 9 (columnist).

Quote:

"China is ceasing to be a labour surplus country , in terms of the development model of the late West Indian Nobel laureate, Sir Arthur Lewis. Lewis argued that the subsistence income of surplus labour in agriculture set a low ceiling for wages in the modern sector. This made the latter extremely profitable. Provided the high profits were reinvested, as in China, the rate of growth of the modern sector and so of the economy would be very high. But, at some point, labour would become scarcer in agriculture, so raising the price of labour to the modern sector. Profits would be squeezed and savings and investments would fall as the economy matured.

"The China of 35 years ago was a surplus labour economy. Today that is true no longer, partly because growth and urbanization have been so rapid * * * In addition, China's low birth rate means that the working age population (15-64) will reach a peak of 996m in 2015. A paper by Cai Fang of Chinese Academy of Social Sciences states that 'labour shortage has become rampant throughout the country since it broke out in 2004. In 2001, manufacturing enterprises came across unprecedented and universal difficulties in recruiting labour.'  Mr Cai's paper gives compelling evidence of the consequential rise in real wages and shrinking profits. China is mow at the Lewis turning point.

"The difficulty in making the transition to growth driven by technical progress is one reason why so many countries have fallen into what has come to be called the 'middle income trap.' China, now a middle-income country, is determined to become a high-income country by 2030.That will take deep reforms * * * Those reforms will adversely affect vested interests, particularly in local government and state-owned enterprises. That is surely a big reason why Mr Wen thinks political reforms matter.

My comment:
(a) Arthur Lewis (economist)
http://en.wikipedia.org/wiki/Arthur_Lewis_(economist)
(1915-1991; born in Saint Lucia, then still a British territory in the Caribbean;  In 1979 he won the Nobel Memorial Prize in Economics, becoming the first black person to win a Nobel Prize in a category other than peace; The point at which the excess labor in the subsistence sector is fully absorbed into the modern sector, and where further capital accumulation begins to increase wages, is sometimes called the "Lewisian turning point" (or "Lewis turning point") and has recently gained wide circulation in the context of economic development in China)
(b) Quotation 1 explains Lewis theory and "Lewisian turning point." In that quotation:
(i) The clause "set a low ceiling for wages in the modern sector" means "low wages" thanks to the seemingly inexaustable labour pool in the countryside (which indeed will be exhausted, according to Lewis).
(ii) The word "provided" (short for "provided that") means "if."
(c) The last sentence of quotation 3 is the only oblique reference to the event-driven column titled "After the purge."


(3) My comment:
(a) The next column does not mention China at all. But the columnist's prescription for Britain sounds identical to the practice of China in the last decade.
(b) The author gloss over--see the last quotation--why the move will not add to public debt of UK, which, as is, is already way too high.


John Kay, Building Can Help Britain Balance the Books and Boost Jobs. at page 9 (columnist).

Excerpt in the window of print: Keynes advocated employing people to dig holes and fill them in again; today the potholes are already there

Quote:

"In 2006 Ireland, with a population 7 per cent of the size of that of the UK, built almost half as many houses. In that year new residential construction in Spain was nearly 700,000 units--the largest number in any country in European history. These booms demanded supporting infrastructure expenditure. Since the crisis, new-built figures in these countries have fallen by almost 90 per cent. Many houses are vacant and itl will take years, perhaps decades, before the backlog is eliminated.

"Constructionis labour-intensive and much of that labour is low-skilled. Most of the industry's costs are incurred domestically. The economic resources used--the many small companies that characterise the industry, the workers they employ--are not easily deployed elsewhere.

"Britain and the US did not experience similar construction booms. Britain has built too few houses for too long.

"The most effective way to stimulate growth in the short term, and to mitigate the social damage of long-term unemployment, especially among young people, is to put underused resources to work.

"repair and maintenance, and minor public works, are as important as new building.

"The overall effect would, as the National Audit Office recently observed, be likely to reduce public expenditure over the medium term, not to raise it.