How China Escaped the Poverty Trap

by Yuen Yuen Ang

Some worry that industrial transfer is merely a disguised scheme of “pollution transfer” to underdeveloped and investment-hungry areas.

not all of China can become Shanghai. Further, I should add, perhaps not all of China wants to become Shanghai.

Consequently, a regional “commodity war” broke out.

This period of duplicative industries and protectionism led some pessimists to predict a perpetual state of regional market fragmentation and even political breakdown.109

The central government’s reorientation of regional development policy took China’s evolving niche in the international market into serious consideration.

The center was forced to respond with an unprecedented fiscal stimulus package, totaling four trillion yuan.116

Clearly, whereas FDI had fueled early takeoff on the coast, domestic investment has taken over as the new growth engine of the interior.

Endowments are situationally significant but not deterministic.

Political economies (national or local) are moving paths, not static models.

Regional inequality is not only a consequence but also a strategy of development.

The study of comparative cultures too cannot flourish when men are so defensive about their own way of life that it appears to them to be by definition the sole solution in the world.

I present further evidence that development is a coevolutionary process, not only in China but also in other parts of the world and in recent and historical periods.

A coevolutionary causal map is summarized in figure C.1.

Thus, according to standard institutional economics, modern markets require third-party enforcement of contracts by centralized regulatory states.8 But how does the transition from personal to impersonal exchanges occur? Greif’s study fills this gap.

taxless to tax-based public financing.

we learn from revisiting America’s past, democracy offers certain benefits for development (e.g., public deliberation on mitigating corruption and financial risks), but it also imposes certain constraints (e.g., inducing politicians to provide public goods without raising taxes).

it served a constructive role in spurring an initial wave of demand for Nollywood movies, what in Chinese may be termed “earning the first pot of gold.”

Arewa qualifies that “Nollywood has reached a point where higher levels of copyright enforcement would be beneficial to further development of the industry.”43

China’s local officials also adapted property rights structures and growth-promotion policies to suit evolving demands and resources as income levels rose.

Additionally, as the case of Nollywood suggests, regional transfer of opportunities may actually work better than charity in helping locals make their own success.

Another study also reports that the textiles industry in many African countries was hit hard by bales of free clothing coming from the West. In Zambia, textiles workers staged protests against the import of donated garments that threatened their livelihoods.48

Why did donated T-shirts hurt the textiles market while exported cheap tapes sparked the film market? Because those free T-shirts were donated under the false presumption that Africans lacked shirts to wear or could not make their own shirts. As Olopade points out in her critique of charity-making companies like TOMS, which donates a pair of free shoes to poor communities for every pair of shoes bought:

Asian exporters were not trying to “help” when they sold tapes cheaply to African markets; they were merely trying to get rid of obsolete products and earn some income from selling them. For African traders, the tapes they bought were cheap but not free. So like market actors everywhere, they were motivated to add value to the tapes to sell them for profits. This is why, ironically, while business as usual may stimulate growth opportunities, charitable gifts may end up inadvertently disrupting fragile markets in the Third World. In other words, no charity could be better than thoughtless charity.

Acknowledging the reality that development is a coevolutionary process has far-reaching implications for the type of questions we ask, the methods we employ, the causation we trace, and the policies we make. On the theoretical front, it raises new questions: How do state and markets interact and change together over time?

The point of my book, however, is that this is precisely the wrong target of search.

Meta-institutions are institutions that guide the processes and methods of problem solving within and across communities. Expressed in North’s terms, such institutions are “the underlying forces shaping the process of change.”

Stated in generic terms, my analysis of China and the other three national cases suggest six lessons on enhancing localization and adaptive output, summarized below.

1. Delimit boundaries of experimentation and flexibility

Activate incremental changes across connected domains simultaneously

In the beginning, define success narrowly

Give everyone a personal stake in the development process

Let some get rich first but pair up the poor and the rich

Harness weak institutions to build markets

miss the obvious because standard binary labels of “weak/strong” and “good/bad” blinds us to the potential of nonmodern, nonformal, non-rule-of-law, and nondemocratic institutions. Our conventional and strongly rooted bias that the norms of the developed West are universally best leads us to regard any deviation from these norms only as weaknesses.59 Consequently, institutions in developing societies are routinely identified by what they are not rather than by what they are.

Filmmakers, actors, and marketers were completely left to their own means. Initially, film producers defined success narrowly as selling movies en masse and quickly by catering to popular tastes (reminiscent of beehive campaigns launched by local officials in China to recruit investors of all types, regardless of quality).

also extend to the reform of foreign aid institutions. As reviewed in chapter 2, there has been a growing chorus in the policy and aid community for adaptive programs that value local knowledge and are tailored to diverse local conditions.62

“Making Details Matter: How to Reform Aid Agencies to Generate Contextual Knowledge,”67 I

By now, new pressures have mounted to a near tipping point. Such problems include severe vertical fiscal imbalance, hidden debts incurred by local governments, overly rapid state-led urbanization, environmental degradation, a brewing real estate bubble, and, as I write this conclusion, an ongoing stock market meltdown that has wiped out stock values about ten times the size of Greece’s economy.