logo

Sport Feeds -


China and the One-Two Punch China and the One-Two Punch

- (Huffington) - 1 years, 11 months ago...

In the sport of boxing, a one-two punch is a combination of two blows, normally a left followed by a right cross, which could be devastating to the opponent. Well, economic theory has delivered a solid one -- two punch to China, throwing it off the economic trajectory the world has become accustomed to for the past 30 years. How China defends itself from these blows, and remember in boxing the one-two punch is usually the initial attack to throw the opponent off guard, will determine not only China's economic and political future, but also global growth for decades to come. The first of these blows is what is known as convergence theory. With a mixture of various economic tools and forward thinking leadership, a country that was lagging in economic development can move into a cycle of unbelievable growth, possibly for years, as it catches up to the more economically advanced nations. Factories that did not exist are built -- as are new cities, highways, communications systems, high-speed railroads, etc. -- all feeding on each other and stimulating the economy to achieve very high levels of growth. At one point it even begins to look like a perpetual motion machine that never stops with the investment of growth reinforcing additional growth, you build a power plant which then gives you cheap electricity to build a manufacturing plant and so on and so on. But at one point convergence occurs. As an example, how many steels mills do you need to build after a certain point? Naturally at that point, the exaggerated growth level based on catch up investments slows and the economy returns to average global growth patterns. The second punch is what economists call "The Lewis Turning Point." It was named after the Nobel Prize winning Saint Lucian economist Arthur Lewis. In 1954 Lewis published his theory, Economic Development with Unlimited Supply Of Labour". In it, Lewis discussed how a capitalist sector could develop by taking labor from the non-capitalist subsistence sector. At the beginning stages of development, there would be an "unlimited" supply of labor available, which would mean the capitalist sector could expand without an increase in wages. The high returns from these initial factories could then be invested in other more advanced factories again using the supply of cheap labor. The process, like convergence, almost becomes self-sustaining, leading to rapidly increasing wealth within the country. But then comes what is now known as the Lewis Turning Point. That is the point when the low hanging fruit, the excess labor in the economy is used up by the growth and wages rise and the country's products become less competitive worldwide. Most seasoned boxers know how to defend against opening fakes that put them off balance, but the Chinese government appears to have never wanted to see these punches coming. Convergence theory has been proven to be more than a theory and perpetual motion machines only exis...

see complete article.

Similar recent news articles...

-- Sorry, no results.

Popular news