COMMENT ON THE PAPERS

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COMMENTON THE PAPERS

• Kenichi Ohno
• National Graduate Institute for Policy Studies,
  Tokyo

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Krongkaew-Kakwani Paper

• Useful statistical decomposition into neutral
  growth and redistribution effect
• Question Why Thai inequality remains high by
  East Asian standards?
• Thai uniqueness???
• --Urban-rural, industry-agriculture gaps
• --Labor structure shift is slower than output
  shift
• --Growth drive under military dictatorship
• --Strong executive, weak legislative
• --Corrupt political system

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(No Transcript)
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Remaining Thai Uniqueness?

• Land reform failure
• Never colonized (?)
• Assimilated Chinese population (?)
• Unique interpretation of development under
  Buddhism (my addition)
• ? Persistent inequality remains a puzzle

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Kurihara-Yamagata Paper

• Labor-intensive, export-oriented
  industriali-zation is key to pro-poor growth (job
  creation)
• Examination of labor shifts from agriculture to
  manufacturing (poor uneducated)
• Relativity of resource-rich vs. labor-rich
• --Taiwan, Malaysia, Thailand, Indonesia were once
  resource rich (importing Chinese and Indian
  workers)
• --Successful industrialization made them now look
  resource-poor

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Beyond Petty-Clarks Law

• Labor shift from farming to manufacturing more
  jobs for poor, therefore pro-poor?
• Some checkpoints
• --Working at subsistence wage? (Lewis model)
• --Rising urban unemployment and slum?
  (Harris-Todaro model)
• --Too hungry or unskilled to work? (efficiency
  wage modelpoorest may be excluded from labor
  market)

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East Asian Growth is Dynamic

• Heckscher-Ohlin and Stolper-Samuelson?
• --Static, one-time effect
• --Dependent on initial factor endowment
• --No increasing returns
• East Asian experience
• --Continuous re-formation of regional production
  network through trade and investment
• --Diverse endowment, similar catching up pattern
• --Learning, agglomeration, and crucial role of
  policy (not just laissez-faire or free trade)

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Pro-poor growth

• Morally correct, politically convenient and
  currently very popular, but ...
• Desirability? is more equality always good?
  Should we not balance equality and incentive?
• Channels and linkages many ways to reduce
  poverty, direct and indirect. Strategy must be
  carefully geared to each society.

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Equity-Incentive Tradeoff

• John Rawls Choose the society which maximizes
  the welfare of the poorest (maximin principle)
• Deng Xiaoping Those who can, get rich first.
  Let others imitate and follow
• Innovation requires reward, but too much
  inequality destabilizes society. The right mix is
  needed.
• Perfect equality is the ideal of communism.
  Pro-poor growth seems to support convergence on
  it.
• Society can be too equal and stagnant (i)
  general poverty, (ii) socialism, (iii) welfare
  state

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Technocratic Model and its failure
Economic growth
START
Political suppression
Rising inequality
Political instability
END
Social explosion!!!
Samuel P.Huntington and Joan M. Nelson, No Easy
Choice Political Participation in Developing
Countries, Harvard Univ. Press, 1976.
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Populist Model and its failure
Equalization
START
Increased participation
Economic stagnation
Political instability
END
Political suppression!!!
Samuel P.Huntington and Joan M. Nelson, No Easy
Choice Political Participation in Developing
Countries, Harvard Univ. Press, 1976.
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East Asian Way to Success

• Two-tier approach
• Primary create source of growth.
• Supplementary but very important deal with
  problems caused by growthincome gap, regional
  imbalance, environment, congestion, drug, crime,
  social change, etc.
• Yasusuke Murakami industrialization policy must
  be combined with supplementing policies or it
  will fail (Theory of Developmentalism, 1994)

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Revised Technocratic Model (E. Asia)
Economic growth
START
Developmental state
Rising inequality
(checked)
Political stability
Supplementing policies
END
A freer more democratic society (a few decades
later)
cf. Korea, Taiwan
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Three Channels of Pro-Poor Growth

• (1) Direct channel (impacting the poor directly)
• --Health, education, gender, rural development,
  etc.
• (2) Market channel (growth helps poor via
  economic linkages)
• --Inter-sectoral and inter-regional labor
  migration (cf. Chinese TVEs) Kurihara-Yamagata
  Paper
• --Increasing demand (cf. proto-industrialization,
  multiplier effect)
• --Reinvestment (formal, informal and internal
  financing)

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Three Channels (contd.)

• (3) Policy channel (supplementing the market
  channel)
• --Price support, taxes, subsidies
• --Fiscal transfer, public investment,
  infrastructure
• --Micro and SME credit and other financial
  measures
• --Proper design of trade and investment policies
• --Pro-poor legal framework

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Broadening the Scope

• So far, disproportionate attention on the direct
  channelthe question of sustainability and the
  risk of permanent aid dependency
• Emerging emphasis on pro-poor growth
• --Focus still too narrow, not integrated
• --Past debates on growth, equality, incentive,
  migration, etc. have not been incorporated
• --The right mix depends on each country
• --The E Asian model is one option (but not for
  all)