Mushtaq Khan

The economist who inspired me to start a PhD was Mushtaq Khan, professor of economics at the School of Oriental and African Studies (SOAS) in London, where I studied for an MSc in development economics a couple of years ago.

SOAS has a couple of inspiring economists, and Mushtaq is one of the best. After each lecture, we went home enthusiastically discussing new ideas.

It was the big questions we were discussing. How, as a policy maker and economist, can you help a poor country to grow?  Why are some countries so much more successful in promoting growth than others? Why did catch-up work in South Korea, but much less in India, and not at all in so many African countries?

Apparently, the policies advocated by the big international institutions were not really the solution. I still remember a couple of graphs from Mushtaq's lectures:

Aggregate property rights and growth 1980-90 (source: Khan (2006))

Aggregate property rights and growth 1990-2003 (source: Khan (2006))

Rule of law and growth 1990-2003 (source: Khan (2006))

Corruption and growth 1990-2003 (source: Khan (2006))

What these graphs show is that different indicators for good governance such as secure property rights, rule of law and low corruption are not preconditions but outcomes of successful economic development.

The blue group are rich countries with good institutions. The red group are poor countries with bad institutions and low growth rates. So far, so good. But the green group are poor countries with bad institutions and high growth rates. Apparently, they are growing fast not because of good institutions, but because of something else.

Of course they would probably grow even faster if they had also good institutions, but putting into place decent institutions before reaching a certain level of prosperity is almost impossible in many poor countries. So finding this something else becomes the crucial question.

China is a good place to start searching. The country still has huge problems with corruption, insecure property rights and poor rule of law, but has been growing at almost 10% for the last 30 years. There seem to be a couple of key conditions in place that keep growth going.

One key condition are the incentives faced by Chinese government officials. The overarching incentive they face is to assure high growth rates. Although many are apparently still happily taking bribes, they would never ask for sums that could cause the failure of a business project, as a successful growth record is the decisive criteria determining a possible promotion. Now, how to put such pro-growth incentives into place is the real question.

Here the man who led China out of its Mao era troubles, Deng Xiaoping, played a key role - see a later post on this, with a couple of links to nice quantitative papers on China's incentive system. 

If you are interested more in detail in Mushtaq Khan's research, one of his lectures is available on youtube:

Selling Super-Soap in Xi'an

The old Muslim quarter in Xi'an was once point of departure of the Silk Road in China. The saying goes that the Hui people living there today are direct descendants of the Arab traders who travelled the Silk Road in ancient times.







Even today, walking through the streets of the Muslim quarter gives you a distinctive Silk Road feeling.

 

  

 All generations are actively involved in trading, and everything has its price:

Some people though just sit by the street and enjoy watching funny strangers.

At night, the streets are illuminated by light bulbs, the trading goes on, and in many places food is offered:

 

One afternoon, I came upon a merchant who was loudly advertising the benefits of the soap he was selling:

 

If you happen to dirty your shirt on the chain of a motorcycle, this is no issue. Super-Soap will solve your problem in no time: 

 

Sometimes you might spill a few drops of ink on your shirt while practicing calligraphy. Nothing to worry about if you have super-soap at home.

Some people in the audience had rather dirty trousers. The merchant volunteered to solve the problem on the spot:

  

After such compelling demonstration, the audience was convinced.

 

 

I also bought some soap:

Unfortunately, the product displayed some unforseen features. When I arrived at home after my travels in China, the soap had successfully absorbed a lot of liquidity, and had transformed itself into an interestingly smelling, crumbly pulp:

The Bo Xilai Affair

Bo Xilai

This year, Chongqing has been the theater of one of China's most significant political scandals during the last 20 years.

Its popular mayor Bo Xilai, former minister of commerce with ambitions to the highest positions in party and state, was ousted in March in an affair that included his police chief seeking refuge in an American consulate, and his wife being accused of murdering a British businessman.

Bo had been popular in Chongqing for pursuing generous social policies, and cracking down on crime and corruption. However, due to his use of Maoist slogans and an often intransparent, hands-on approach of doing business, his opponents accused him of 'neo-leftist populism', and of undermining the rule of law.

In early May, posters of Bo's campaigns were still widely visible throughout the city:

The Bo Xilai affair with its multiple layers and meanings offers a range of interesting insights into the otherwise obscure world of Chinese politics.

First, the scandal permits a glance behind the facade of party unity, which had been carefully maintained since Tiananmen. It reveals how different factions struggle for power within the party. Some of these struggles have their origin in the 1980s and before, and are now continued by the children and followers of politicians that occupied prominent positions during the early years of reform. John Garnaut has an excellent article on this in Foreign Policy, the ideas of which he further developed in a recent book on the topic.

Second, the affair reveals the nervousness that always accompanies a leadership change at the top of Chinese politics. 2012 is an important year, as 7 of the 9 members of the Politbureau Standing Committee (the highest and most powerful decision-making body in China) are going to be replaced.

Using Chongqing as a platform, Bo Xilai conducted an agressive campaign to recommend himself for one of these posts. However, it seems that he was not able to secure enough support in time, so that his opponents managed to bring him down before he was able to make himself untouchable by becoming a member of the country's top leadership. A reason for the opposition Bo was facing might have been his use of populist Maoist slogans (e.g. as mobile phone messages sent to Chongqing's citizens), showing the deep fear the reformist faction in the Chinese government still has of a backslide into Cultural Revolution-style politics. It seems that a key objective of the group around Hu Jintao and Wen Jiaobao is to secure Deng Xiaoping's pragmatist legacy for the next ten years, and it is well possible that Bo's ascent was seen as a threat in this respect. 

Finally, the story also illustrates the intense competition between different economic models that is taking place across China's provinces. It is widely seen that this open and experimental approach played an important role in China's economic success during the last 20 years (see a recent book). Economic policies are tried out on a provincial level, before being implemented nationwide.

While the Chongqing-model favoured by Bo Xilai promoted a state-centered approach to stimulate investment and consumption, it is often contrasted with the more liberal approach implemented in the province of Guangdong (see this article in the Economist in favour of Guangdong, while a recent piece in Foreign Policy points out the advantages of Chongqing). In this light, the Bo Xilai affair can also be seen in the wider context of a struggle about concepts, ideas, and China's economic future during the next decades. 

Along the Jialing River

Early one morning in Chongqing, I took a motorcycle taxi to the small town of Ciqikou (磁器口). Ciqikou lies on the Jialing River (嘉陵江), which comes all the way down from Gansu province.

In Ciqikou, the river's waters seemed to be surprisingly low, given that a couple of kilometers downstream in Chongqing the effects of the large dam could still be seen.

Along the river, people in houseboats were tending their fishing nets. The scenery looked all very interesting, so I decided to go for a walk.

 

Near to a small bridge, there was a kind of holy shrine up the hill. 

 A number of friendly figures were keeping guard over the river and its valley.

A bit further upstream, a dredger ship was excavating sand from the river bed.

Walking along, the smokestack of a factory could be seen through the bushes.

There is nothing I like more than old socialist factories, so of course I went to have a look:

It was all empty, but some machines were still standing around:

Then I saw a sort of crane, which looked as if one could climb on it to have a look at the factory from above. But unfortunately, before I could reach the crane three officials came along in their sparkling new car:

They were very surprised to find me in the middle of their factory. However, after making it clear that I had no business here, they couldn't help smiling. They told me that the factory was part of a larger complex producing some sort of chemicals (as far as I understood), and that parts of it were still working. 

Back at the river, the landscape looked a bit like in those apocalyptic sci-fi movies from the 1980:

A couple of hundred meters upstream, they were constructing a big highway bridge across the river.

I was on my way to have a look, when it started to rain, so I reluctantly turned around. Coming back to Ciqikou, one had a nice view of the town, its traffic system and the river.

The old center of Ciqikou is fairly well preserved and a bit of a tourist attraction. Streets are full with souvenir stands, and wise-looking scribes are happy to provide you with an original piece of calligraphy.

From the top of a pagoda in a temple, one could see the town, its factory and the sourrounding mountains:

 

After lunch, the rain had become so heavy that I was happy when I found a small coffee place to take shelter. It belonged to a former computer scientist, who had wanted to do something else and was now grinding and selling his own coffee.

As there was no electricity due to the thunderstorm, he used an intricate device to boil the water:

He was also selling books and a choice of rare wines and teas, besides practicing a couple of instruments and studying ancient Chinese music. The whole place looked a bit like the den of an alchimist:

Outside, it was raining heavier than ever, so we were just enjoying our coffee and discussing important questions. What would have happened if Alexander's armies had continued to China and met with the forces of the rising Qin state? Where does the best coffee come from? Does climate change affect the frequency of earthquakes?

After a couple of hours, the rain had almost stopped and I finally said good bye. The streets that before had been full with tourists were now completely empty.

On my way home, I passed by a small shop and bought a painting that somehow reminded me of the river I had walked along during the morning: