Download China - IDEAs

Globalization, Export-Led Growth and
Inequality: The East Asian Story
Mah Hui Lim
Penang Institute
[email protected]
Sanya University
22-24 February 2016
1
OUTLINE
 Stylized facts on rising inequality
 Forces of Globalization & National
Policies
 Trend & reasons for worsening
inequality in each country
 Limits & Challenges of Export Led
Growth
 Alternative Policies & Strategies
2
Section I - Inequality
 Issue of inequality return with
vengence – failure of trickle down
growth –13 of 36 Asian ctries Gini>40
 Inequality not just distribution of
personal incomes, opportunities &
outcomes, technology
 Focus on functional income
distribution – distribution of national
income to capital vs labor
3
Functional Income Distribution
(FID) worsening
 Since 1990s, ¾ of 69 countries for
which FID data are available
experienced declining wage share*
(WS) of income.
 On avg in Asia WS declined by 20
percent since 1994
 * Wage share and labor share used
interchangeably
4
Wage share in Devpg Econs
1970-2007 (ILO 2012/3)
5
Worsening FID driven by two
sets of forces
 Exogenous - Globalization forces
 Endogenous - Policy driven forces
 Export-Led Growth reflects both
these forces
6
Globalization – Trade &
Financial, Technology
 Mainstream view– world trade
improves equality – exports pull up
wages in LDCs with labor endowment
 Technology > freer flow of capital &
info > decrease inequality
 Above not supported by evidence
7
Heterodox view – political
economy
 Trade openness accompanied by
financial openness-worsens inequality
 Main factor – K more mobile than
labor - flow to wherever wages are
lower > downward pressure,
worsened by national policies
 Change in bargaining power btw lab &
capital. Emph redistribution of rents
8
Heteredox -Globalization Forces
 Financial liberalization/deregulation >
frequent currency and econ crises
 FX deprcn and econ recession – more
negative & lasting effects on labor
thru erosion of wages via prices &
bargaining power, e.g. Korea during
Asian financial crisis
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Section II – East Asian Story
 China, Korea, Taiwan (PoC), Malaysia
and Thailand
 High growth rates avg 6%-11% p.a. but
 Gross export growth higher @ 7%-20%
 Definition of Export Led Growth (ELG)
 ELG = periods when gross export
growth > GDP growth; can have current
account deficit
 Most periods are ELG
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Export-Led Growth Periods (in red) =
GDP growth – Export Growth
1960s
China
1970s
19971999
2000-2007
20082011
13.7
-6.5
2.3
6.4
13.5
-1.0
3.7
1.5
-0.7
0.8
9.3
1.6
-0.1
Malaysia
-0.6
0.5
3.3
5.9
4.3
1.3
-2.3
Thailand
2.5
2.9
6.3
2.8
10.6
2.8
2.2
12.1
9.9
3.9
0.6
2.6
5.0
2.1
Korea
Taiwan (PoC)
N.A.
1980s
19901996
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Growth with Declining Wage
Share (WS) in all 5 economies
 Because wage growth is lagging
behind productivity growth resulting
in declining wage share
 Most productivity captured by capital
rather than labor
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Wage Share for 5 East Asian
Economies, 1990-2008
13
Falling Wage Share
 Steepest for China of over 12%
 Malaysia & Thailand lowest level of
WS (ard 30%), secular decline for
Msia & stagnating for Thailand
 Taiwan significant decline ard 10%
 Korea – decline after 1996, recovered
slightly after 2000 but down again
after 2007
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Reasons for Inequality & Falling
Wage Share
 Trend mirrored in real wage growth
falling behind prodtvy growth
 Not marginal prodtvy but pol, econ,
soc forces, at global & national level,
can better explain rising inequality
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Summary of E Asian ELG policy
 China, Malaysia, Thailand follow labor
intensive ELG based on repressing
labor & unit labor cost to attract FDI
 Korea ELG based more on technology
r/t wage comptn; nevertheless WS
declined after fin libzn & crisis
 Taiwan – in btw 2 camps. Started off
like Korea but > 1990 changed to
“cost-down” strategy with opening of
China & massive invst moved to Ch
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China- extreme case of ELG based
on pushing down unit labor cost wage competiveness strategy
 Indzn & export based on cheap lab fr
rural sector
 Explicit policies to discriminate
against migrant labor; prohibit trade
union except state sponsored
 1996-2007 – productivity rose 2x real
wages 19% vs 11%
 Worsened after China joined WTO
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China: Labor Productivity vs Real
Wages in Industry, 1995-2010
1000.0
900.0
800.0
700.0
600.0
Labour productivity index
Real average wage index
500.0
400.0
300.0
200.0
100.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
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Chinese ELG policy based on
exploitation of agr & rural sectors
 Massive capital transfer from
agriculture to industry plus from rural
to urban sectors amounted to a total
of Rmb 4.3 trillion btw 1978 & 2000
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China-Yearly Capital Transfer fr Agr
to Industry and Rural to Urban (in
Rmb Bn)
450
400
350
300
250
Agr-Ind
200
Rur-Urb
150
100
50
0
-50
Source: Huang,Rozelle,Wang, 2006, Table 6
20
Malaysia and Thailand – also
ELG based on wage comptve
 Msia & Thailand – ELG since 70s but
diffnt fr Korea & Taiwan
 High foreign direct investment
 High import content; few linkages
 Dependent on foreign market
 Poor or no industrial policy
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Foreign Direct Invst as Percent
of Gross Capital Formation
FDI as Percent of GFCF
20.0
18.0
16.0
14.0
12.0
AVG 1970s
10.0
AVG 1980s
AVG 1990s
8.0
AVG 2000s
6.0
AVG 2010-2012
4.0
2.0
0.0
-2.0
China
China,
Taiwan
Province of
Korea,
Republic of
Malaysia
Thailand
Japan
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Msia & Thailand
 Incentives for FDI –tax holiday, low
impt duties, prov infrastrcuture,
 Repressive lab laws – unions banned
in export inds; no minimum wage
until 2012/13; right to strike
prohibited
 Lacking technology, participate in low
end of global supply chain
23
Policy of high prodtvy & low
wages > falling WS of GDP
Thailand: Productivity vs Real Wage Growth,
2001-2009
125.0
120.0
115.0
110.0
Real wage index
105.0
Labour Productivity Index per
employed persons
100.0
95.0
90.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
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Policy of high prodtvy & low
wages > falling WS of GDP
Malaysia: Productivity vs Real Wage Growth,
1990-2010
350.0
300.0
250.0
Value Added Per Worker
200.0
Real Wages Per Worker
150.0
100.0
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Taiwan-From Technology to
Labor Competitiveness ELG
 Up to 1990s, labor reaped large part
of prodtvy gains
 Wage Share rose fr 50% to 54%
(1980 to 1994)
 Gini dropped fr 0.4 to 0.3 in 1990s
 Things changed > 1990 with opening
up of China to FDI
 Taiwan invsted heavily in China &
adopted “cost-down” strategy
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Taiwan
 One million skilled workers &
professionals moved to China
 Taiwan imported cheap foreign labor
 Technology development trailed
behind Korea
 All these put pressure on wage >
declining WS
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Taiwan: Productivity vs Real
Wage Growth in Industry
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Korea- WS declined after
financial liberalization & crisis
 Korea ELG based on domestic cap,
technology purchase
 <1990s, real wages rose with prodtvy
 WS rose from 33% (1970) and
peaked at 49% (1996), then declined
 Turning point financial liberalization &
Asian Fin Crisis – opportunity state &
cap to extract concessions from labor
> rise in temp emplyt & unemplyt
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Korea – Wage diverged from
productivity growth > 1996
Korea: Labor Productivity vs Wage Growth, 1990-2010
220.0
200.0
180.0
160.0
140.0
120.0
100.0
80.0
199019911992199319941995199619971998199920002001200220032004200520062007200820092010
Labour Productivity Index (1990=100)
Real average wages index (1990=100)
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Section III- Limits & Challenges
of Export Led Growth
 2007 global fin crisis (GFC) exposed
weakness & limits of ELG – higher ext
vulnerability; dom rising inequality
 Wage- not only a cost item; also
source of aggr demand
 Drop in WS impacts negatively dom
consumption & aggregate demand
 ELG is one way to escape stagnating
dom demand arising fr declining WS
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China – falling WS, falling
private consptm, rising exports
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Inequality contributes to global
imbalance
 Current acct surplus of one ctry
shows up in cur acct deficit of others
 CAS of China & CAD of U.S.-2 sides of
same coin
 In U.S. falling WS counteracted with
rising household debt > fin crisis
 In China – falling WS made up for
with rising exports
 Both unstable & unsustainable
33
Korea & Malaysia – also taking
the debt route
 Parallel to fall in WS, Korea’s
household savings rate plunged from
26% (1988) to 0.4% (2002). Now
hovers around 2%-3%
 Household debt rose at 13% p.a.
twice GDP growth rate > 89% of GDP
in 2011
 Household debt / HH disposable
income at 164% in 2012
34
Malaysia –same story but
worse – slowing prodtvy growth
 WS dropped from 47% (1970s) to
30% in 2008
 Private consptm supported by debt,
not rising income
 Msia prodtvy growth is slowing down
- early deindustrialization
35
Malaysia – Growth of GDP, HH
Consptm & HH Loans
36
Section IV – Alternative Policies
& Strategies
 Ctries esp China trying to orientate to
dom demand to stimulate growth
 But need to restructure their
productive, distributive, redistributive
systems
37
Restructure Distributive System
 Align wage rise to prodtvy growth +
inflation
 Instead of race to bottom in wage
comptn, coordinate wage policies btw
countries
38
Restructure Redistributive
System
 More progressive tax structure
 Reduce tax bias now favoring capital
 Increase capital gains tax – esp
graduated cap gains tax – higher tax
for short term cap gains
 China sh reduce over invst in phy
infrast & incr invst in social infra –
health, educn, social safety net
39
Restructure Productive System
 Productive structure – move away fr
just vertical specialization in global
supply chain to horizontal
specialization
 More intra-regional trade in final
goods
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 THANK YOU
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