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Economic Restructuring: Progress Abroad and China’s Options
Guo Lihong
Economic restructuring takes place constantly, independent of people’s awareness, or whether the government has taken any actions. Countries that seem to have made no adjustment are constantly restructuring themselves in a relative way when compared with other countries, and the most evident signs of this fact are reflected in their import and export structures. A government can dynamically change the speed and orientation of economic restructuring, and it can achieve either a favorable or an unfavorable result, which depends on whether it abides by the rules of the game.
I. The main theme of the economic restructuring of industrialized countries is globalization and widespread application of high technology.
1. Globalization reflects quantitative expansion, namely, the large-scale transnational flow of production factors, large-scale transnational investment of industrial capital, and large-scale transnational mergers of strong enterprises. The widespread application of high-technology reflects a quality leap, and it includes both the emergence of sunrise industries and enterprises, and the hi-tech-powered renovation of traditional industries and enterprises. It may be concluded that any economic restructuring of any country at any stage is in nature a process of strengthening the economy both quantitatively and qualitatively, regardless of its forms.
2. The US has taken the lead in structural adjustment. So far as globalization is concerned, Europe is on a par with the US, while Japan is strong in exportation but weak in importation. In terms of the application of high-tech, there are relatively big differences among Europe, the US and Japan. The main reasons are possibly attributed to both their system environment and social environment. The important conditions for development and the application of high-tech are capitalization of knowledge and innovative individuals. The US has the most adaptable system and social environment in this regard, while Europe and Japan are trying their best to catch up. However, a change in social environment cannot be achieved in a short period of time.
3. The US economic restructuring is a continuous, spontaneous evolution process, which is driven by the market force and pushed by the whole society. The government and the Congress have a sharp sensitivity toward social phenomena and market development, thus providing timely system guarantees. The Silicon Valley is not a result of the government's strategy. Rather, it is an organic combination of a series of social and market factors (education, culture, capital, technology, human talents, industrial organizations and business environment) that developed to a certain degree in a certain region. The appearance of the Silicon Valley was something accidental, but it’s inevitable that hi-tech enterprise groups first emerged in the US.
4. The hi-tech industries in Europe and Japan have not formed a mechanism under which they can gain spontaneous development. Therefore, the governments of various countries are learning from the US experience and have strengthened system buildup, encouraging the formation and development of venture enterprises in recent years. On the other hand, governmental capital has advanced in some areas and backed off in others so that a balance is achieved. For instance, the French Jospin Government created a venture investment fund by transferring returns of the stock equities of the state-owned telecommunications company.
II. Fence-mending and integration are the main theme of the economic restructuring of emerging industrialized countries and regions (represented by the Four Little Asian Dragons).
1. Advanced countries have for many times taken fence-mending measures to correct their mistakes, and it’s hardly avoidable for less developed countries to take similar measures. The profound lessons from the financial crisis in East Asia are that the long-time accumulation of industrial and commercial capital of a country can be swept away by international financial capital in a short time. In other words, any failure in fence-mending will make it impossible to integrate into globalization and the trend of hi-tech application. Fence-mending is the prerequisite for integration. Therefore, the common focus of the structural adjustment of the Four Little Dragons (and in a weaker sense other ASEAN countries) is to consolidate finance. To consolidate finance does not mean enhancing direct government intervention. Rather, it is a short-term measure taken for the sake of economic security, which is aimed at securing a longer period of grace time for long-term reform and open-up. Therefore, Malaysia re-opened its foreign currency exchange market, and Hong Kong handed back to investors the “official stocks” placed in government trust during the time of crisis. In addition, fence-mending must be conducted in light of the specific conditions of a particular place. For instance, South Korea included some special measures related to enterprise restructuring in its structural adjustment programs, such as encouraging the development of small and medium-sized enterprises and discouraging that of financial magnates.
2. The Four Little Dragons have no doubt about the necessity to integrate into globalization and the hi-tech-powered trend. The other two of their common key tasks are: (1) to promote the birth and growth of hi-tech enterprises through integrated policies; (2) to open wider to the outside world and actively encourage the inflow of international capital. To this end, South Korea is willing to take political risks (due to different social and cultural background).
III. The difficulty in the economic restructuring for countries in transformation lies in system buildup.
Those who have trumpeted and practiced the "shock therapy" have come to realize that any economic restructuring randomly driven by the market force in the absence of basic laws and effective mechanisms only resulted in "shocks" without any "therapies". This is the “post-Washington consensus”. For most former Soviet republics and eastern European countries in transformation, it seems not to be the right time now to talk about any active, effective and virtuous structural adjustment. The main reason is that their system buildup has far lagged behind.
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