Stories of Social and Economic Change KMUN 2013 Dr. Peter Ibbott Associate Professor of Economics King’s University College at the University of Western Ontario May 16, 2013 Stories of Social and Economic Change • Is economic change accelerating? • Is economic change mostly good or mostly bad? • Can we manage change or will it destroy us? Stories of Social Economic Change Is social change accelerating? • The paleontological record shows that for approximately 6,000,000 million years, humans were hunter gatherers • The historical and archeological record shows that for approximately 10,0000 years humans have existed in slowly changing agrarian societies • Over the last 300 years change has been accelerating. – Scientific Revolution/Industrial Revolution – Urban Society/Consumer Society/Globalization/Mass Extinction/Global Warming/Democracy Stories of Social and Economic Change Accelerating Social Change: Air travel • • • • • • • • • 1903: Wright Flyer 11 kph 1905: Wright Flyer III 60 kph 1917: Sopwith Camel 190 kph 1937: Supermarine Spitfire 594 kph 1944: Me 262 (Swallow) 870 kph 1953: Canadair F-86 Sabre 1,130 kph (sound-B) 1964: McDonnell-Douglas F-4 Phantom II 2585 kph 1976: Lockheed SR-71 Blackbird 3,529 kph 1981: Space Shuttle 27,870 kph Stories of Social and Economic Change Accelerating Social Change: Computing • • • • • • • • • • • • • 1951: UNIVAC I 1971: Intel 4004 1977: VAX-11/780 1982: Intel 286 1987: Motorola 68030 1992: Intel 486DX2 1994: Intel Pentium 1996: Intel Pentium Pro 1998: Intel Pentium III 2003: Pentium 4 2006: Intel QX6700 (Quad core) 2008: Intel Core i7 920 (Quad core) 2011: Intel Core i7 3960X (Hex core) 0.002 MIPS 0.092 MIPS 0.500 MIPS 2.66 MIPS 18MIPS 54 MIPS 188 MIPS 541 MIPS 2,054 MIPS 9,726 MIPS 49,161 MIPS 82,300 MIPS 177,730 MIPS Moore’s Law: Number of components on an integrated circuit doubles every year (1965) Stories of Social and Economic Change Era Neolithic Bronze Age and Iron Age Classical Greece Classical Rome Pre-Columbian North America Medieval Islamic Caliphate Life Expectancy at Birth (years) 20 26 28 28 At age 15, life expectancy an additional 37 years (total age 52). 25–30 35+ Medieval Britain 30 Early 20th Century 31 2010 world average Life Expectancy at Older Age 67.2 At age 21, life expectancy an additional 43 years (total age 64). Stories of Social and Economic Change Life Expectancy and Gross National Income Stories of Social and Economic Change Stories of Social and Economic Change Freedom 55? • If any of these babies retires at 55 they will have to finance 65 years of retirement and the health costs of an extended life. • OR, the state will have to. • This is unsustainable • We must re-imagine the future. Stories of Social and Economic Change • Is change inevitable? Poverty Trap • Are the poorest doomed to poverty? China and India Stories of Social and Economic Change • Just because we are getting richer and living longer does not mean that we are having better lives. • Development and Education • Development and Poverty • Development and Inequality: Kuznet’s Curve • Development and Child Labour Stories of Social and Economic Change Have we sown the seeds of our own destruction? • The Population Bomb is ticking (Malthus and Ehrlich) • The collapse of Capitalism is imminent (Marx) • The collapse of the social order is increasing domestic crime and violence. (Conservatives) • Technological change has increased lethality of modern warfare so that Armageddon is imminent. • Global warming (Environmentalists) Moral Panic from unleashing forces we cannot control. Stories of Social and Economic Change The Population Bomb is ticking very slowly. Stories of Social and Economic Change The Population Bomb is ticking very slowly. Stories of Social and Economic Change The Population Bomb is ticking very slowly. Stories of Social and Economic Change The collapse of Capitalism is not imminent. • The Great Depression (US Real GDP per Capita) Stories of Social and Economic Change The collapse of Capitalism is not imminent. • Are we facing a new Depression? • US Unemployment • G6 • PIGS Stories of Social and Economic Change The collapse of Capitalism is not imminent. • Should the means of production be socialized? • China and India Stories of Social and Economic Change The collapse of the social order is not increasing domestic crime and violence. Stories of Social and Economic Change Stories of Social and Economic Change Stories of Social and Economic Change Stories of Social and Economic Change Armageddon? Stories of Social and Economic Change Stories of Social and Economic Change Stories of Social and Economic Change Global Warming is real but there has been very little real progress in reducing CO2 Stories of Social and Economic Change • Perhaps we need a more radical approach. • Some have suggested that we need to confront our culture of excess consumption, and develop an ethos of deep ecological consciousness. (Deep Ecology Movement) • Can we re-educate human nature? • There are much simpler solutions: – Carbon Tax – Cap and Trade Stories of Social and Economic Change • There is no political will to implement these solutions. • Even with sufficient political will this global problem needs a global solution. We have the mechanism through the UN to make change. – Intergovernmental Panel on Climate Change (IPCC) – United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol • Success is possible under the UN system: The Montreal protocol on Substances that deplete the Ozone Layer (1989). Stories of Social and Economic Change • We are in the middle of the most rapid period of economic and social change in human history. • China and India are growing so rapidly that: – the global balance of power is shifting back to its traditional balance. – The middle class in China and India are the new engines of demand in the world economy. – Rural-Urban migration is creating a tidal wave of change to the social fabric – living standards are rapidly converging around the world • Change is not restricted to India and China. The same forces are driving : – Arab Spring Stories of Social and Economic Change • Change is not restricted to India and China. The same forces are driving : – Arab Spring – Accelerating growth in Africa and Latin America. • No one seems interested in developing a deep ecological consciousness. What should be done? 1. Develop an understanding of the social forces reshaping our world. 2. Develop policy instruments that will help us steer our society and the world economy towards a just and sustainable future. This is the business of the Social Sciences. Stories of Social and Economic Change • Unfortunately there is insufficient time thoroughly examine these social forces how to control them. • Instead I propose that we Examine China as a case study of a modern industrial revolution. This allows us to examine the: • Causes of China’s growth? • Benefits from China’s growth? • Risks and Challenges posed by China’s growth? Shanghai: Bund Shanghai: Pudong Stories of Social and Economic Change Causes of Chinese Economic Growth: • 1949-58: Mao consolidated power and encouraged families to have more children. China’s first five year plan introduced the Soviet development model in which large state monopoly firms pursue heavy industrial development. • 1958-61: In the second five year plan the soviet industrial model was replaced with a focus on rural development. Under “The Great Leap Forward” small rural agricultural collectives were merged into large, rural “People’s Communes” in order to better exploit the gains from the division of labor. The peoples communes were tasked with: – Banning all private holdings/gardens – Introducing new farming techniques that would turn China into a grain exporter – Accelerating the construction of state infrastructure, – Increasing steel production by using backyard furnaces. The Chinese Economic Miracle Causes of Chinese Economic Growth: • 1962: The result was the “Great Chinese Famine”. Estimates of up to 45 million died of starvation, while 200 million suffered from serious malnutrition. During this time China exported grain. Mao is forced by the party to change direction and Deng Xiaoping and others take over economic planning. • 1966: Mao introduces the Cultural Revolution and uses it to purge Deng Xiaoping and other leaders of the CPC who had earlier opposed him. Stories of Social and Economic Change Causes of Chinese Economic Growth: • Mao dies in 1976, Gang of Four arrested • Deng Xiaoping seizes power from Mao's anointed successor Hua Guofeng • In 1978 Deng introduces significant economic reforms aimed at introducing market socialism Stories of Social and Economic Change Chinese Economic Growth: Stage 1 (1978-84) • De-collectivization of agriculture, and the introduction of the “household responsibility system”. Farmers are granted long term leases and allowed to privately farm and sell their produce in new private markets. • Special Economic Zones were created that permitted foreign investment and encouraged local entrepreneurs to start up businesses. • But: most industry remained state-owned. Stories of Social and Economic Change Chinese Economic Growth: Stage 2 (1985-2010) • privatization and contracting out of much stateowned industry • lifting of price controls, protectionist policies, and regulations, • But: state monopolies in sectors such as banking and petroleum remained. • But: The conservative Hu Jintao Administration more heavily regulated and controlled the economy after 2005, reversing some reforms. Stories of Social and Economic Change Benefits of Chinese Economic Growth: • Agricultural output growth dramatically accelerated to 8.2% a year, agricultural prices fell, meat and vegetable production rose dramatically. • Overall the reforms unleashed economic growth that is unprecedented in human history – GDP Growth rate of 9.5% a year – China's economy became the second largest after the United States. – More than 500 million people lifted out of poverty – Now the world’s largest exporter and manufacturer – In transition from middle-income to high-income status. China and India Compared 2011 Nominal GDP in US$ billions (Source: IMF) Stories of Social and Economic Change Benefits of Chinese Economic Growth: Improvements to Basic Education • 1950: 20% over age 15 are literate • 2007: 93.3% over age 15 are literate while 99% of 1524 year olds are literate • 2009, PISA (Program for International Student Assessment) international rankings of 15 year olds placed Shanghai students first in the world in mathematics, science and literacy Stories of Social and Economic Change Benefits of Chinese Economic Growth: Improvements to Health • 1949: Average Life Expectancy of 35 years • 2012: Average Life Expectancy of 74.8 years • But life expectancy would be much higher if respiratory illnesses (cigarettes, air pollution) could be reduced, water quality improved and food safety increased. • Improvements to public health should provide huge gains in life expectancy. Stories of Social and Economic Change Benefits of Chinese Economic Growth: Middle class lifestyle: • Car (already world’s largest automobile market) • TV, Internet, Music, Movies, Mobile phones – http://www.youtube.com/watch?v=9bZkp7q19f0 • Consumer goods – Global brands are coveted • Status recreational activities • Quality Education in the Arts and Science • Home ownership Stories of Social and Economic Change Risks and Challenges of Chinese Economic Growth: • Pollution • Corruption • Consumerism – Endless pursuit of status goods – Rising Search for spiritual alternative (Christianity is growing very fast) – Vice (drugs, gambling, prostitution) is a rising menace. – Congestion 100-km Chinese traffic jam enters Day 9 Last Updated: Monday, August 23, 2010 | 1:43 PM ET CBC News External Links Xinhua: Highway jam enters its 9th day, spans 100km (Note: CBC does not endorse and is not responsible for the content of external sites - links will open in new window) (David Gray/Reuters) A nine-day traffic jam in China is now more than 100 kilometres long and could last for weeks, state media reported Monday. Thousands of trucks en route to Beijing from Huai'an in the southeast have been backed up since Aug. 14, making the National Expressway 100 impassable, Xinhua News reported. A spokesman for the Beijing Traffic Management Bureau reportedly told China's Global Times newspaper that the backup was due to "insufficient traffic capacity … caused by maintenance construction.“ The construction is scheduled to last until Sept. 13.Stranded drivers appear to have few options when it comes to dealing with the jam. At least some drivers have complained that roadside vendors have increased their prices to take advantage of the traffic jam. One truck driver said he bought instant noodles from one vendor for four times the original price. Stories of Social and Economic Change Risks and Challenges of Chinese Economic Growth: • Failure to introduce meaningful political and legal reform. – – – – Tiananmen Square Protests of 1989 Internet and press are subject to heavy handed censorship Courts and police are corrupt and serve interests of the party Despite this, the government is having difficulty resisting change: • Failure to introduce national history curriculum in Hong Kong • Need for legal reform to sustain investment • Inequality – Chinese market socialism has failed to deliver distributive justice. – Japan, Singapore, Taiwan and Korea have managed growth without such high inequality by making careful policy choices. Stories of Social and Economic Change Risks and Challenges of Chinese Economic Growth: China’s inequality compared. • Canada: Gini = 32.1 • Korea: Gini = 31.4 • Taiwan: Gini = 34.2 • Peoples Republic of China: Gini = 41.5 • Hong Kong: 53.3 Culture does not determine inequality. Politics matters!!! Stories of Social and Economic Change Risks and Challenges of Chinese Economic Growth: The One Child Policy introduced in 1978 has slowed population growth. Chinese Population Trends • • • • • • • • • • • • 2 AD: 86,000,000 1000: 87,000,000 1500: 110,000,000 1800: 260,000,000 1900: 400,000,000 1950: 546,815,000 1982: 1,008,065,000 (reaches 1 billion) 2010: 1,337,825,000 (almost 1 in 5 people live in China) 2020: 1,387,792,000 2030: 1,393,076,000 2040: 1,360,906,000 2050: 1,295,604,000 Stories of Social and Economic Change Risks and Challenges of Chinese Economic Growth: • But the One Child Policy has had less impact on population growth than is commonly believed and has caused a number of unintended consequences of enormous importance: – Increased the proportion of males to females – Encouraged the state to use its power to violently intervene in the most important decisions made by ordinary families. – Has caused China to have a rapidly aging population which will soon increase the dependency ratio and further weaken the already weak social safety net – Will put increasing pressure on the health care industry and further reduce access to primary health care for most ordinary Chinese families. Stories of Social and Economic Change Risks and Challenges of Chinese Economic Growth: Rural-urban migration is dramatically reshaping China: • Between the 1953 and 1982 the urban population grew slowly from 13.3% to 20.6%. China was still primarily an agrarian society. • From 1982 to 1986, the urban population increased dramatically to 37 percent of the total population as rural agricultural workers left the land in the largest rural urban-migration in human history. • By 2000 this had risen to 50% of the total population (650 million) • Between 2010 and 2025 an additional 300 million people are expected to leave the countryside and move to the cities taking the urban population to 75%. Rural urban migration has caused the rise of super-megalopolises • Guangzhou: ≈ 41 million • Beijing-Tianjin : ≈ 30 million • Shanghai: ≈ 25 million Stories of Social and Economic Change Risks and Challenges of Chinese Economic Growth: Other Internal Risks and Challenges: • Resource depletion • Inflation • Pace of human capital accumulation External Risks and Challenges: • global economic slowdown • high resource prices • new emerging competitors Stories of Social and Economic Change Risks and Challenges of Chinese Economic Growth: Can China’s economy continue to grow quickly with little disruption to the world, the environment, and the fabric of its own society? In a recent report, the World Bank suggests that both are possible, but that growth is likely to slow down and that meaningful policy changes will be needed to support China’s transition to a modern, harmonious, and creative high-income society. Stories of Social and Economic Change Risks and Challenges of Chinese Economic Growth: • What policy changes are needed? • The World Bank Report recommends that China seek to implement policies that: 1. 2. 3. 4. Complete the transition to a market economy Accelerate the pace of open innovation Go green Expand Individual Opportunities and Improve Social Services 5. Reform the fiscal framework 6. Take on greater responsibilities as a Global Player Stories of Social and Economic Change Risks and Challenges of Chinese Economic Growth: • Is that all? • The World Bank will not say it, but policy reform may be impossible without meaningful political reform. Select Readings: • “China 2030: Building a Modern, Harmonious, and Creative High-Income Society” • • published by the World Bank and available at http://www.worldbank.org/en/news/2012/02/27/china-2030-executivesummary • “Supersized cities: China’s 13 megalopolises “ • • published by the Economist and available at http://www.eiu.com/Handlers/WhitepaperHandler.ashx?fi=Megalopolis_Report_ July_2012.PDF&mode=wp&campaignid=Megalopolis2012 • “New Clues to a Long Life”, Stephen S. Hall • • Published in the May 2013 Edition of National Geographic and available at http://ngm.nationalgeographic.com/2013/05/longevity/hall-text • Animated graphics on living standards are available from the UNDP 2013 Human Development Report • http://hdr.undp.org/en/data/explorer/ Stories of Social and Economic Change End 1. Complete the transition to a market economy • Implement structural reforms, • Strengthen the foundations for a market-based economy, • Redefine the role of government its relationship to markets and the private sector, • Reform and restructuring state enterprises, developing the private sector, • Promote competition, • Provide more intangible public goods and services like systems, rules, • Introduce modern corporate governance practices, e.g., separating ownership from management Financial sector reform: • • • • Allow commercializing the banking system, Allow interest rates to be set by market forces, Deepening the capital market, Developing the legal and supervisory infrastructure to ensure financial stability, • Build the credible foundations for the internationalization of China’s financial sector. Labor market reform: • Ensure workers can move in response to market signals, • Introduce measures to increase labor force participation rates, and • Use social security instruments (pensions, health, and unemployment insurance). Land reform: • Increase efficiency of land use, • Reform policies for acquisition of rural land for urban use, and • Reduce local government dependency on landrelated revenues. 2. Accelerating the pace of open innovation Needed: An open innovation system that fosters both Product and Process innovation How? Increasing Chinese domestic R&D 1. By participating in global R&D 2. By establishing a research and development infrastructure via: a) increase the technical and cognitive skills of university graduates, b) build a few world-class research universities with strong links to industry, and c) foster research parks, innovative cities. 3. Go green Why ? • • • • • Increased efficiency, Improve the level of well-being, Sustain comparative advantage, Achieve and sustain economies of scale, and Sustain rapid growth. How ? • • • • • • Public education and awareness, market incentives, Regulations, Public investments, Industrial policy, and Institutional development. 4. Expand Individual Opportunities and Improve Social Services • Expand opportunities and promote social security, • Facilitate equal access to jobs, finance, quality social services, and portable social security, • Help households manage employment, health, and agerelated risks, • Increase labor mobility, • Manage the large rural-urban differences in access to jobs, key public services, and social protection. 4. Expand Individual Opportunities and Improve Social Services • Deliver more and better quality public services to underserved rural areas and migrant, • Restructure social security systems to ensure secure social safety nets • Mobilize all segments of society, public and private, government and social organizations, to share responsibilities in financing, delivering and monitoring the delivery of social services. 5. Fiscal Reform Three key dimensions: 1. Mobilize additional fiscal resources to meet rising budgetary demands, 2. Reallocate spending toward social and environmental objectives 3. Ensure that budgetary resources available at different levels of government. Note: fiscal reform as an essential prerequisite for many of the other reforms 6. Becoming a Global Player 1. Seek mutually beneficial relations with the world, 2. Use multilateral institutions and frameworks and open regionalism, 3. Intensify trade, investment, and financial links with the global economy, 4. Seize the benefit from further specialization, and diversification, 5. Integrate into the global financial system, which will involve opening the capital account, 6. Take steps toward internationalizing the RMB as a global reserve currency, 7. Help shape the global governance agenda such as: • • • • climate change, global financial stability, effective international aid structure, development in poor nations. Substantial hurdles ahead: • The risk of a hard landing in the short term, • Challenges posed by an ageing and shrinking workforce, • Rising inequality, • Environmental stresses, and • External imbalances and shocks.