The Nobel laureate in economics Joseph Stiglitz, who was a professor at Stanford during my Stanford years, says in his new article “World has much to learn from China’s new economic model” that China is employing a “new economic model” to move away from export-led growth, which other East Asian countries have pursued. China recognizes that things worked in other countries may not be suitable to China’s unique situation.
To move away from export-let growth, China needs to stimulate domestic consumption. “While the rest of the world struggles to raise savings, China, with a savings rate in excess of 40 percent, struggles to get its people to consume more.” The good news is, as professor Stiglitz notes, “There is a consciousness of environmental limits and the realization that the resource-intensive consumption patterns now accepted in the United States would be a disaster for China – and for the world.”
The new model also requires China to create an independent innovation system. “Western technological innovation has focused too little on reducing the adverse environmental impact of growth, and too much on saving labor – something that China has in abundance.” says professor Stiglitz. So, it makes sense for China to focus on technologies that use fewer resources, but can be used by the majority of people.
In the end, Stiglitz summarizes: “Too many people think of economics as a zero-sum game, and that China’s success is coming at the expense of the rest of the world. …. But economics is really a positive-sum game. An increasingly prosperous China has not only expanded imports from other countries, but is also providing goods that have kept prices lower in the West, despite sharply higher oil prices in recent year.”
To hear a Nobel laureate say this is really encouraging: “We should all hope that China’s new economic model succeeds. If it does, all of us will have much to gain.”