Friday, August 15, 2008

I know I've said THIS before...

Check THIS out. I've said it for several years, citing a mid-nineties Foreign Affairs Article by Krugman (The Myth of the East Asian Miracle...):

China can grow at a rapid rate with a collectivist spirit because it
has so many resources (ie, so much labour) to put towards fuelling
its growth. We saw in previous decades other Asian economies quickly
accumulate capital and labour, and it also resulted in impressive
growth rates. However, long-term growth can only be achieved through
innovation and entrepreneurship.
Pure capital accumulation peters out once relative returns start to even out across sectors and across countries, and pure labor mobilization peters out when the marginal return for "collective" labor is matches that in the market sector. So, kudos to China, but don't be shocked when they hit a "wall" with their ability to grow: Property rights don't incentivize innovation or entrepreneurship, and markets aren't fully in place to weed out those entrepreneurs who take bad risks.

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