Derek M. Scissors March 2015
This article was originally published in Chinese in the March issue of China Policy Review.
The strategies that raise a country from poor to middle-income status will not work to raise it from middle-income to rich. Economically, there is no reason to expect the strategies to work. Poor countries have very different capital stock, labor productivity, land utilization, and capacity for innovation than middle-income countries. Unfortunately, old policies seem politically easy or are even perceived as a source of social stability. Many middle-income countries try to become rich by sticking to a development model that no longer works.
This is the middle-income trap. The middle-income trap makes the concept of “the new economic normal” in China a very valuable one. Chinese policymakers, business owners, workers, and farmers must understand that the old development model is changing because it must change. However, introducing the idea of a new economic normal is only the first, small step. It must be implemented with new and appropriate economic policies.
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If it is more than a slogan, the new economic normal can help China escape the middle-income trap. It must feature policies that:
- Increase competition, not cooperation, in the corporate sector.
- Give farmers sharper rights to their land, as the original reforms did in 1978.
- Rapidly integrate labor markets, so a shrinking workforce is more productive.
- Dramatically slow or halt the accumulation of debt to avoid stagnation.
Source Making the new normal meaningful.