Morrison
China's success in delivering a 10-fold increase in the real per capita incomes of its vast population since 1980 under its hybrid model of state capitalism and market economics is likely to substantially influence development theories in the 21st century.
Already, through its increasing size and impact on the global economy as it moves to the number two spot behind the USA, the country is exerting greater sway in international economic and financial decision-making. This is, notwith-standing, that its development model stands in sharp contrast to the formula of free-market capitalism embedded in the 'Washington Consensus'.
That formula, which dominated the policy prescriptions of the multi-lateral lending institutions over the last quarter century, was based on a three-pronged, one-size-fits-all solution of: liberalisation, privatisation and deregulation. These policy prescriptions were imposed on developing countries, in particular, regardless of their specific economic conditions, and in many instances aggravated their structural weaknesses. But the flaws in this model have been even further exposed in the on-going economic crisis that hit the advanced economies in 2008, and are exemplified by the free-for-all which led to the near-collapse of the US financial system.
While the Chinese engineered their economic transformation - the most rapid in the modern era - within a unique political construct, their success has further exposed the limitations of the neo-liberal development model. Before China's rapid economic climb, the Asian Tigers (Singapore, South Korea and Taiwan), Malaysia and earlier, Japan, had been touted as success stories in economic development since World War II. And they too had pursued pathways different from the free market capitalist model that emerged from the Reagan/Thatcher doctrine which shaped policy thinking on development issues in the past three decades.
impact of China's development success
It is too soon to determine just how far China's development success will change the power structure of the multilateral institutions and shape their policies. It is even less clear how any such changes would affect the conditionalities that apply to countries like Jamaica. What is evident is that the IMF is adopting a more pragmatic stance to its policy prescriptions in the context of the current economic crisis. We should also note that the Fund is soon to appoint a vice-president from the state-run Bank of China to a senior position, the first Chinese national to hold a major post within the institution.
China's ascent to a commanding global economic position does, however, involve obvious and immediate challenges for many economies and industries that require serious consideration. Specifically, Jamaica and other Latin American and Caribbean economies must contend with the reality of China and, more broadly, Asia, as the new growth centre. We have been accustomed to the US being the dynamo of the world economy, and the advantages of operating next door to the largest market, one that is English-speaking, with a familiar culture and with ease of access.
We are now going to be far removed from the centre that could well account for more than half of the world's economic growth in the years ahead. This means that the opportunities to expand our economy on the basis of increased trade may be less favourable than in the recent past. In Jamaica's case, our bauxite industry had developed in the 1950s on the back of the rapid pace of North American economic growth and demand for aluminium.
Now China has taken over the dominant role as it doubled its metal and alumina capacity over the past five years. This has enhanced the position of Australia, and emerging suppliers like Vietnam which are within its geographic sphere. But in ensuring a balanced raw material supply network for its aluminium industry, Jamaica could offer strategic advantages as a partner to China. The proposed new alumina plant being considered by Chinese interests is an indication of this.
chinese tourism
In the area of tourism, though China is the largest and fastest growing new outbound market, it is important to note that only 10 million of the 40 million Chinese tourists who travelled last year visited international destinations. And the greater part of this number went to Malaysia, Singapore, Thailand and other Asian destinations. Their next most popular places to visit were in the Pacific region and in Europe.
The Americas are, for now, at the bottom of the list and this is not difficult to understand based on the distances and air connections among other things. It would be unrealistic however to expect China to quickly become a major source market for Jamaica. Still the JTB must continue to lay the groundwork for the long term as it is estimated that by 2020 the number of Chinese tourists could reach as much as 120 million.
Economists have warned of the potential sharp upward adjustment in world food prices that could accompany China's increased dependence on food imports due to the combined effect of the jump in the incomes of its households and its limited arable land. A prelude to this was seen in the run-up in prices in 2007 and the first half of 2008. This represents both a threat and an opportunity for Jamaica where cheap food imports have increasingly displaced local production since the 1960s with import dependence moving from under 10 per cent in the 1950s to maybe as high as over 60 per cent in 2008.
Burgeoning Chinese food imports could well help to correct the price distortions that have set back the local agricultural sector such that nearly US$900 million was spent on these imports last year even as an increasing share of agricultural land was left idle.
Dennis Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.