Each year the Royal Economic Society runs a prestigious essay competition, providing students with the chance to go beyond the straight-jacketed exam approach and when successfully commended impress top Universities.
The details for this year can be found here: http://beta.tutor2u.net/economics/blog/2015-res-economics-essay-competition.
For EdxcelAS and A2 students I have indicated possible exam questions that could be linked to these questions - as a good starting point. For 6Ec01 and 6Ec03 - produce a 14 mark response (8+6e). For 6EC02 produce as a 30 mark essay response.
- "Countries like Greece caused the Eurozone crisis by running up too much debt, so it is only fair that they should bear most of the burden of fixing it." Discuss. 6EC04
- Should the Government support manufacturing? If so, how? 6Ec04
- Should raising GDP be the primary objective of economic policy? 6Ec02 http://beta.tutor2u.net/economics/topics/economic-growth http://tutor2u.net/economics/revision-notes/a2-macro-economic-growth-costs-benefits.html
- "The rising gap between rich and poor is not just bad for society, it is bad for growth." Discuss. 6Ec02/6Ec04 http://beta.tutor2u.net/economics/blog/fair-pay-inequality-and-economic-growth http://beta.tutor2u.net/economics/blog/fat-cat-united#extended
- Should "fracking" be allowed? If so, who should benefit? 6Ec01
- "It is immoral for the drug companies to charge large sums for drugs that are cheap to manufacture." Discuss. 6Ec03
- "High saving promotes faster growth. So having more savers in the global economy should be good for our long run prosperity." 6EC02/6Ec04
- "Does the economic case favour a new airport runway at Heathrow, Gatwick or elsewhere?" 6Ec03
Recently, one of our students Lok Hin Wong, was commended for her essay - as published below. Her essay was one of the top 40 out of over 1150 international entrants and the only one got commended from all the state schools in Oxfordshire.
Should
the experience of China silence those who think that democracy is good for
growth?
The
question presupposes that China is hardly democratic – if at all, and that it
has been enjoying exceptional economic growth. The task of this essay is to
examine both presuppositions and, more crucially, to discern any relationship
between the two. Insofar as China does not have democracy and yet produces strong
growth, the implicit hypothesis is that economic growth is a-democratic. In evaluating this hypothesis, attention will be paid
to the attributes of China’s economic success as well as experiences in other
countries.
Surging
economy without democracy
Ever
since Deng Xiaoping reformed the economy in 1978, China has been transformed
economically and socially. It is now the world’s second largest economy;
Guangdong alone exports abroad as much as South Korea – estimated to be more
than US$360bn in 2010. In the same year China became the world’s biggest
manufacturer, displacing the US. Given China’s rapid recovery from the global
financial crisis and the unabated malaise in the West, the balance of global
power is decisively shifting in China’s favour. All eyes are on when rather
than if China’s economy will become again the largest in the world, a day which
informed observers expect to dawn while its leader Xi Jinping is still in
office. In other words, China seems entering a golden period of prosperity, analogous
to that at the height of the Qing dynasty in the 1700s. The recent spate of
books aptly captures the prevailing mood: “E. Fingleton, In the Jaws of the Dragon: America's Fate in the Coming Era of Chinese
Hegemony (2008); M. Jacques, When
China Rules the World: The Rise of the Middle Kingdom and the End of the
Western World (2009); A. L. Friedberg, A
Contest for Supremacy: China, America, and the Struggle for Mastery in Asia
(2012).
Whilst
there are unquestionably excesses, China has managed to achieve three decades
of nearly 10% average annual growth, albeit from a low base, without democracy.
As such, China’s growth is not dependent on democracy, on Western notions of
democracy. Here, it is noteworthy that the Communist Party’s longer-term plan is
to create a “rich, strong, democratic, civilised and harmonious socialist
modern country” by 2049. Although the meaning of those words has never been
made clear, “democratic” certainly does not refer to multiparty politics. There
is no universal suffrage in China, and there is limited freedom of speech,
religion, and movement in, out of and around the country. However, within the
wider ambit of democracy, we have seen welcoming improvement in the rule of
law. Indeed, the progress on this front has prompted foreign investments to flood
into China. According to Columbia FDI Profiles, since 1978 “China has become
the largest recipient of IFDI (inward foreign direct investment) among
developing and transition economies” (p.244). The relatively good performance
of IFDI into China during both the Asian crisis of 1997-98 and the current
global financial turmoil reflects international investor perceptions of China
as a reliable, secure risk-avoidance haven, notwithstanding concerns about
human rights and democracy. In short, the sheer amount of IFDI has been one of
the major contributors to China’s economic success, for it has not only met the
economy’s huge financing needs, but it has also brought along new products, new
production processes and modern management techniques.
Dismal performance in the developed, democratic world
Countries in the developed world are generally regarded
as democratic, with the US often hailed as the “model” of democracy. Yet the
financial crisis, which broke out in the US in 2007, coupled with its
repercussions, vividly demonstrates that democracy is no guarantee for economic
health. Six years on, many developed countries, big and small, have been
struggling to stay afloat, to drag themselves out of the turmoil. Worse still,
all their shortcomings have been ruthlessly laid bare by the financial crisis. Particularly
there seems endless intractable issues challenging the integrity and long-term
viability of the euro zone and its single currency. In sharp contrast to the
developed, democratic world, China has moved from strength to strength and has
emerged relatively unscathed from each of the major crises since 1980.
Source: Economy watch database,
available at: http://www.economywatch.com/economic-statistics/year/2009/ and OECD
statistics database, available at http://stats.oecd.org/Index.aspx?DatasetCode=SNA_TABLE1#
Fundamentally, the crisis that has engulfed most
countries is rooted in poor public finances and a severe loss of
competitiveness. These happen to smaller countries, like Portugal, Ireland and
Greece as well as to seemingly large and strong countries, such as Italy,
France and the UK. Some of them, e.g. Ireland and Spain, have to confront a
housing market bubble as well, whilst France is also burdened by overly rigid
labour- and product- market regulations, exceptionally high taxes and heavy
social charges on payrolls. Cyprus, menawhile, has been too dependent on EU
tourism and financial services supplied to Russian-owned companies. Output of
the whole euro zone has contracted for six consecutive quarters in a recession
stretching back to late 2011. The danger is that even if a recovery does get
under way later this year, it is likely to be feeble, detectable only in
decimal-point statistics rather than in people’s lives. The biggest risk stems
from unemployment, which has reached 27% in Spain and Greece; youth
unemployment is even more horrific, at 56% and 64% respectively. The pressure
for reform and budget cuts is fierce across all countries, including the US.
They have recapitalized their banking systems, with the US, the UK and many
others spending a lot of taxpayers’ money to rescue or nationalize financial
institutions. Often this has to be supplemented by persistent quantitative
easing programmes to drive down interest rates in order to stimulate investment
and consumption, thereby hopefully restoring growth and employment.
Elsewhere, Japan has not fared better. After two lost
decades, its nominal GDP is the same as in 1991. Japan’s shrinking workforce is
burdened by aging population; its society has turned inwards; its companies
have lost innovative edge. To reinvigorate Japan’s sclerotic economy, the newly
elected prime minister has not only announced major fiscal stimulus, but has
also launched an unprecedented QE programme to rid itself of its 15-year bout
of deflation. However, his structural reform announced in June 2013 has fallen
well short of expectations. Arguably, this is the most important part of Abenomics, as it seeks to boost the
country’s long-term economic performance. Rather than focusing on the key
issues of the labour market, healthcare, agriculture and business deregulation,
it largely contains old-fashioned industrial policy that has been tried and
failed. Whilst it is too early to write off Abenomics
completely, excitement
over it seems already fizzling out.
China’s state capitalism – three attributes
If democracy is not necessarily good for economic
growth, might the converse be true that a lack of democracy is beneficial to
the economy, thereby explaining China’s outperformance? Perhaps, the answer
lies in its neighbour, North Korea. Both China and North Korea are one-party states without
Western democracy and with their leaders assuming long presidency. However,
this is as far as their similarity goes. The ascendancy of Kim Jong Un after
his father’s death in December 2011 brought hopes that he might be a reformer;
he has been educated in the West, and he has a fashionable wife and a more
boisterous leadership style. As it turns out, the son’s regime is no less
capricious than his father’s. North Korea is run in the interests of its
leadership, or rather, for the entrenchment of the Kim family dynasty. This
manifests itself in the vicious eccentricities of its leaders and the obsessive
enhancement of its military capabilities at the expense of economic development.
The upshot is that the country is beset with instability, deepening inequality,
worsening corruption and a political leadership that lacks the vision, capacity
and will to respond. Over a quarter of young children are reported to be chronically
malnourished, especially in its impoverished rural north. GDP growth rates of
North Korea, albeit from a very low base, still pale in comparison with those
of China.
Source: The Bank of Korea, available at:
http://www.nkeconwatch.com/nk-uploads/DPRK-GDP-2011-BOK.pdf and OECD statistics
database, available at http://stats.oecd.org/Index.aspx?DatasetCode=SNA_TABLE1#
What then are the qualities for China’s continued
success? The answers essentially boil down to strong leadership, policy continuity
and big visions. First, Deng Xiaoping (1904-1997) was a reformist leader with
an iron fist. He took a historic step to implement the “open-door” policy in
1978 and established new ties with the West. It was a huge bold move, partly
because China had been “closed” for so long and partly in view of the
humiliations of the 19th and early 20th centuries.
Another of Deng's early reforms was to abolish Mao Zedong's rural agricultural communes and allowed
peasants to cultivate family plots. Grain harvests quickly increased, and other
reforms followed. By the early 1990s Deng’s reforms had helped lift around
170m peasants out of extreme poverty. Second, as a one-party state, China’s government
is not undermined by the chop-and-change policymaking of democracies. Moreover,
the unwritten rules of succession politics in China require its current leader
Xi Jinping to stick to the guidelines laid down by his predecessors. He is all
but obliged to work towards the targets of the five-year economic plan approved
under Hu Jintao in 2011, which calls for faster change to address the
imbalances and sees boosting consumption as critical to this. Moreover, leaders
of state-owned enterprises, senior army figures and former leaders (e.g. Jiang
Zemin and Hu Jintao) all push their interests directly or through their proxies
on the powerful Politburo standing committee, which is ruled more by consensus
than by one-person dictatorship. Third, as early as in his first weeks in
power, Xi declared his vision of China’s future as the “Chinese dream”. Since
then, his slogan has been widely discussed in schools, on television and across
the political spectrum. The adoption of a personal slogan – one that conveys a
sense of supernormal wisdom and vision in a short, memorable and perhaps
deliberately opaque phrase – has been customary for leaders since Mao Zedong: “reform
and opening up” for Deng, “three represents” for Jiang, and “scientific-development
outlook” for Hu. Xi’s “Chinese dream” is calculated in its opacity, allowing
him to embrace the inherited aims whilst hinting that under his rule change is
possible.
Surely, those attributes of China’s impressive growth
are not intrinsic to its underlying economy. They come and go, depending on
many factors, one of which is political stability. Equally, they can also be
found in democratic countries, albeit not as often as we would like to see. For
example, in November 2011 Mario Monti was appointed as Italy’s interim prime
minister to restore the country’s credibility. Unlike his counterparts in other
democratic countries who, according to public choice theory, are motivated to maximize
votes to stay in power or to get re-elected, Mr. Monti’s non-party,
technocratic government rammed through stiff tax increases and a bold pension
reform. He risked a loss of popularity. The very point of a non-partisan
government was to go where elected leaders feared to tread, putting him in a
similar position to that of China’s leaders who do not get paranoid about what
voters think. The pain has yielded some gains – public finances look healthier,
ten-year bond yields are down, structural reforms have at least been started
and, above all, the world takes Italy seriously again. He has clearly
demonstrated strong leadership and vision, though he has not been given the
opportunity to continue his reforms. In contrast, Margaret Thatcher had been
Britain’s prime minister for years – between 1979 and 1990, during which time
she pushed through policies that amounted to an economic revolution rather than
a reform: she privatized state industries, e.g. British Telecom and British
Airways; she replaced Keynesian demand-management with Friedman’s monetarism
and set off the “big bang” in the City of London; she broke the trade unions
and brought in a series of legislations, the Trade Union Act of 1984 and the
Employment Acts of 1980-90. During her terms, we saw sharp falls in inflation
rates, the top tax rate and the number of days lost to strikes, and London as
the global financial centre was strengthened. In short, her unwavering
leadership during the long years of service enabled her to realize her vision
of “a strong state and a free economy” which allowed individuals to run their
own lives as free as possible from micromanagement by the state.
Inverse
causality between democracy and growth
Overall, there is no compelling evidence that
democracy or lack of democracy per se is good for growth. Rather, China’s
success is rooted in strong leadership, policy continuity and big visions. In
the eyes of China’s leaders, authoritarianism has gained a new legitimacy,
especially as many advanced, democratic countries are still mired in recession
with unemployment ticking relentlessly upwards. This is a people with a sense
of their past glory, recent humiliation, present success and future supremacy. They
are on the verge of reclaiming what they see as their rightful position in the
world. Hundreds of millions have joined the new middle class, a constituency
that could present a powerful challenge to party rule if it becomes seriously
disaffected. Xi Jinping undoubtedly will sell them the idea that China can be
wealthy and strong whilst remaining a one-party state. However, the economy has
started slowing; the trend growth rate looks set to ease over the coming years.
More importantly, there are risks/issues that would require decisive and swift
government actions for fear of severe economic and social instability – a
growing debt problem worsened by the recklessness of local governments during
China’s stimulus-spending spree; related to this, the potential crisis arising
from the rise of the unregulated shadow banking; the excesses of the generally
inefficient state-owned enterprises, stifling the growth of and crowding out
investments in private enterprises; the danger of rampant corruption among
officials, evoking public hostility; the acute inequality between rural
migrants and urbanites. When the going gets tough and as they increase their
exposure to the outside world, the new middle class would understandably demand
to have their say on how their country is run. In March 2013 80% of respondents
to the online survey by the People’s
Daily replied “no” to one-party rule. What all this means is China’s
continued economic success is likely to usher in democracy, not vice versa.
This inverse causality between democracy and growth to that postulated in the
question is plausible; without political reform, China may lose what it has
already achieved through economic reform. Since 1978, it has gone a long way
from being the world’s low-cost manufacturing hub to directing its energies
inward, with consumers and services to the fore. Given a fast-growing middle
class and as its economy becomes increasingly modernized and westernized, China
cannot afford to defy the gravity of democracy much longer. Fighting this
reform law by only tinkering at the margins will lose the faith of its own
people and of the world, and will show a lacking in the boldness, stature and
responsibilities of a superpower which China is aspiring to become.
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