Tag: Economics

Chinese Scholars Offer Ancient Management Lessons to Cure Low Productivity Growth

Since the 1990s, advanced countries have seen low productivity growth, something that also afflicted developing countries in the wake of the global financial crisis of 2008. With the emergence of the coronavirus disease (COVID-19) pandemic since the start of 2020, the situation has only worsened.

COVID-19 has led to long periods of lockdown contributing to weakened demand, investment, trade, and income losses. Companies have faced mounting debt and many are being wound down. In addition, disruptions to education have had an adverse impact on human capital resources.

Low productivity is everyone’s concern. It determines income and output growth, and ultimately living standards. As Paul Krugman famously puts it: “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker [productivity]”.

Policymakers and economists also worry about low productivity because of its impact on financial stability (higher debt-to-gross domestic product ratio) and social stability (less funds available to spend on social protection and address inequality).

In the face of this, much effort is expended on studying the causes of and solutions to low productivity. Global trade slowdown, weak capital investment, credit crunch, fading information and communications technology boom, aging, social unrest, natural disasters, and pandemics have all shared some blame.

To address the COVID-19 impacts for example, policies must provide adequate assistance to the health care system, coupled with monetary, fiscal, financial, and social support.

Something else is happening at work

These causes (and solutions) seem reasonable intellectually and at the macro level, but at the individual or organizational level, something else seems to be happening.

Polls by Gallup find only 15% of global employees are engaged at work—meaning 85% are not engaged or even disengaged! The polls were taken before the pandemic, but the added stress and pressures associated with COVID-19 would have worsened worker disengagement.

Low work engagement is bad news for organizations. Research by Gallup and others find disengaged or unhappy employees tend to have a higher rate of absenteeism; lower productivity; and low level of wellbeing, customer service, and work quality, which inevitably lead to lower firm profitability.

What is striking is that managers play a key role in workers’ disengagement. Gallup finds if workers are disengaged at a workplace, there is a more than two-thirds chance that it is due to bad managers.

Forgotten advice

Anyone looking back at ancient Chinese history might find these findings familiar. Evidence on how bad ministers (managers) ruined the country (organization) and advice on how to choose good managers can be found in “The Compilation of Books and Writings on the Important Governing Principles” (Qunshu Zhiyao), which was compiled under the instruction of Emperor Taizong (626-649 AD) of the Tang Dynasty.

To ancient Chinese scholars, personal characteristics—values a person upholds—are the very foundation of a good person. Therefore, by promoting the virtuous, an organization establishes the foundation of good governance. The first order of business of a leader then is to promote virtuous people, without which the leader will never be able to rest easy.

The scholars’ work is so detailed that they even identify, name, and describe the characteristics of six virtuous and unvirtuous types of manager. Virtuous managers are sagely (have foresight and take preventive measures), good, loyal, wise, honorable, and forthright (outspoken and forthright, unafraid to point out the faults of the organization). Unvirtuous managers are incompetent (work for money and have no interest in the job), flattering, treacherous, slandering, crooked, and vicious (work behind the scenes, stir up trouble and unrest).

In addition, the scholars provide farsighted advice on hiring virtuous managers. Although accepted today, the scholars then already recommended the hiring of able and virtuous people regardless of their social status and relationships with a leader, even if they are foes. What is more profound and unheard of even today is the idea that a person who nominates a candidate is accountable for their selection.

The scholars’ advice is also nuanced—depending on a candidate’s background. For example, if the candidate is prominent and prosperous, assess the people they employ or recommend whether they are good, able, and willing to work together harmoniously. If the candidate is a non-achiever and in despair, observe the tasks they are willing or unwilling to do. A non-achiever may be so because they refuse to take on tasks. If the candidate is rich, check whether they are generous. If they are poor, check whether they refuse ill-gotten gains.

Further, to test whether the candidate is greedy or self-serving examine the circumstances of their previous positions. The virtuous and able would be reluctant to take up a post, but once they did, they would be willing to step down if necessary. The greedy would be very willing to take up a post but refuse to step down regardless of circumstances.

Economists and policymakers have long dominated the productivity debate, but if employees are not happy and disengaged at work, do those macro ideas matter? If organizations do not care or know how to hire the right managers, there will be no escape from what ancient Chinese scholars and more modern commentators have long warned: “those who do not know history are destined to repeat it”.

Author
Hsiao Chink Tang

Hsiao Chink Tang

Senior Economist, East Asia Department, Asian Development Bank

This Op-Ed is reproduced from Asian Development Bank.

The Greater Mekong Subregion 2030 and Beyond: Integration, Upgrading, Cities, and Connectivity

采用市场法来分享中国人口老龄化的经济效益并共担长寿风险

ADB’s Country Partnership Strategy for the People’s Republic of China 2021-2025

A new 5-year country partnership strategy maps out ADB’s support to help the People’s Republic of China (PRC) achieve high-quality, green development under the country’s 14th Five-Year Plan 2021-2025.

Investments and knowledge work will focus on three inter-related strategic priorities: environmentally sustainable development, climate change adaptation and mitigation, and an aging society and health security.

ADB’s operations in the PRC will demonstrate new models and produce valuable lessons that can be shared with other countries facing similar challenges and have powerful development impact in the PRC and the region.

The PRC’s Plan for Inclusive Future Vital for Region

This year, the agenda of the National People’s Congress, the PRC’s top legislature, includes a critical item that is only discussed once every half a decade, a new five-year plan. The 14th Five-Year Plan (2021-25) is bound to be one of the most transformational plans since the founding of the PRC, as it departs from the emphasis on economic growth and restructuring that was characteristic of past plans to focus on the sustainability of growth and the quality of life.

To this end, the 14th Five-Year Plan outlines renewed efforts to close the rural-urban income divide, promote innovation, and move faster toward low-carbon development. These objectives are reinforced by the longer-term perspective ingrained in the PRC’s Vision 2035, which lays down the path for the PRC to become a moderately developed country by 2035 and a global leader in innovation. It also foresees domestic demand to be a main driver of future growth under the “dual circulation” development paradigm.

The 14th Five-Year Plan aims to advance the quality and sustainability of the PRC’s development, by addressing the social and environmental challenges that have emerged after decades of rapid growth. Given the country’s size, carbon footprint, and growing regional and global role, the plan’s success is not only important to the PRC, it is also important to the region.

Implementing the plan will require new policies and reforms to deepen social inclusion in the context of rapid population aging, and mainstream environmental sustainability into the development paradigm. The plan’s main policy guidelines will be refined, and implementation blueprints will map out the envisaged reforms. Making the right policy choices is essential for the PRC’s successful transition toward higher quality development. Social inclusion, population aging, and low carbon development are all priorities that deserve attention.

But despite remarkable achievements in extreme poverty eradication, income inequality remains a challenge and hampers social inclusion. Addressing inequality requires policy actions to close the rural-urban divide by reducing gaps in the economic, environmental and social conditions between regions, provinces and cities.

As economic reforms progressed in the PRC, State distributive mechanisms weakened. And funding to local governments has not kept pace with decentralization and the increasing responsibility to provide public services. Reforms in taxation, however, provide a means to increase revenues for government services, and they can promote a more balanced distribution of income and greater social inclusion.

International experience suggests large fiscal transfers for health, education and pensions are effective in reducing inequality, as sizable redistributive impacts can be achieved through increased public expenditure. Reforms to broaden the tax base and increase the progressivity of taxation have also been successful in other countries. In the PRC, increasing social spending and sufficient transfers of fiscal resources to local governments will ensure a more equitable income distribution and greater opportunities for lower-income households.

Social safety nets, too, are a powerful equalizing tool, especially when accompanied by further reforms of healthcare and pension systems, which in turn are essential to address demographic challenges.

The PRC’s population is aging rapidly and brings a new dimension to the challenge of social inclusion. The number of people aged 60 years or above is expected to reach 30 percent by 2050, the highest share in the world. Aging has broad repercussions beyond fiscal sustainability and long-term care costs. If left unaddressed, labor shortages and imbalances could undermine economic growth and future development.

Moving forward, there is a recognized need to prioritize the development of inclusive long-term elderly care systems. Efforts in this direction include establishing a sustainable financial framework, as well as expanding the provision and quality of eldercare services with adequate medical facilities and human resources funded by both public and private sources.

The PRC’s aging population also calls for labor market reforms. It is imperative to increase labor productivity to arrest the decline in the labor force and skills, and gain competitive advantages in innovation-intensive industries. The 14th Five-Year Plan’s call for the PRC to become a global leader in innovation requires higher-skilled workers. So improving the productivity of workers needs to be prioritized over protecting lower-productivity jobs, and greater efforts are needed to improve the efficiency of research and development spending and upgrading the quality of secondary and tertiary education.

Besides, an evolving labor market should accommodate the need for workers’ mobility by further relaxing the hukou (household registration) system, thereby ensuring greater opportunities for all and a more optimal allocation of resources.

The new government agenda to achieve green, high-quality development also emphasizes environmental protection and low-carbon development. The 14th Five-Year Plan builds on the remarkable environmental achievements of the 13th Five-Year Plan (2016-20) and provides a pathway to achieve peak emissions before 2030 and reach carbon neutrality by 2060. These ambitious goals require determined policies and innovative approaches to accelerate low-carbon development.

To contribute to inclusive sustainable development, the PRC’s low-carbon framework is also aligned with efforts to better manage urbanization and the country’s natural resources. The impacts of environmental degradation fall disproportionately on the vulnerable, especially in rural areas, where residents depend on forests, water, wetlands, fields and pastures for their livelihoods.

Developing a circular economy, more livable cities and low-carbon transport, and better managing natural resources cannot be achieved by the government alone. So there is a need to expand sources of green and blue finance and increase private sector investments in sustainable infrastructure, new technologies, and digital solutions.

Consistent with The PRC’s focus on sustainability, the Asian Development Bank country-level support has moved away from investments in physical infrastructure to focus on green, high-quality development.

The ADB’s new country partnership strategy for The PRC is aligned with the main priorities of the 14th Five-Year Plan and supports environmentally sustainable development, adaptation to and mitigation of climate change, as well as the challenges of health security and an aging society. Given that these areas of partnership will also contribute to regional and global goods, The PRC’s development strategies and plans for the coming years foretell a more inclusive and sustainable future for the country, the region, and the rest of the world.

Authors
James Patrick Lynch

James Patrick Lynch

Director General, East Asia Department, ADB

Yolanda Fernandez Lommen

Yolanda Fernandez Lommen

Country Director, PRC Resident Mission, ADB

This Op-Ed is reproduced from China Daily.

Bond Market Guide for Mongolia

A New Green Era for the PRC’s Development

The 14th five-year plan presents a unique opportunity for the PRC to transition toward a green, high-quality development path addressing social and environmental challenges that have emerged after decades of rapid growth. For more details, please read this blog. 

Related blog

How the People’s Republic of China Is Planning for a Greener, More Sustainable Future

The phenomenal economic development of the People’s Republic of China in recent years has been underpinned by careful planning. Photo: Toby Yang.

The 14th five-year economic Plan presents a unique opportunity to transition toward high-quality development by addressing the social and environmental challenges that have emerged after decades of rapid growth.

Five-year plans have been instrumental in the socioeconomic transformation of the People’s Republic of China. Carefully designed as planning blueprints, each plan guides policy making for half a decade.

While the country’s greatest development achievements are associated with the successful process of reform launched in 1978, economic modernization started in the early 1950s. It was triggered by the First Plan (1953-1957), which established the industrial base that set the country on the path to development.

Improved connectivity was also key, and the First Plan fostered the construction of railways across the country. On a smaller scale, but with great impact on people’s daily life, the number of bicycles increased from 80 million to 1.2 billion in five years. While this achievement might appear simple at first sight, bicycles meant a lot to families. The greater mobility they brought about facilitated access to jobs, health care, and education, among other public services.

Plans are dynamic and change over time. Their focus is shaped by development milestones and emerging challenges. For instance, the most recent plans unleashed a decade of far-reaching structural reforms to promote sustainable inclusive growth.

The 12th Plan (2011-2015) paved the way for a consumption-oriented growth model where innovation-driven industrial policies gained prominence. The 13th Plan (2016-2020) introduced a second wave of market reforms and launched the concept of the ecological civilization, a green revolution backed by ambitious targets for environmental protection and climate change.

And this brings us to the 14th Plan, with high-quality and green development at its core. By emphasizing the importance of inclusive sustainable growth and a more sophisticated concept of personal well-being, the new plan is poised to be the most people-centered of all the plans to date. Having achieved upper-middle income status and eradicated extreme poverty, the People’s Republic of China can now place people’s well-being at the center of policymaking.

The 14th Plan presents a unique opportunity to transition toward high-quality development by addressing the social and environmental challenges that have emerged after decades of rapid growth. This transition requires greater efforts to deepen social inclusion and strengthen the environmental sustainability of the development model. The magnitude of the environmental challenges and the impacts of climate change imply that high-quality development under the 14th Plan must be green.

The country’s transition to a development model that emphasizes environmental sustainability and personal well-being, requires new steps in ongoing institutional reform. New policies and institutions could yield dramatic advances in the quality and sustainability of development.

Progress on institutional advancement is vital at the local level and in less-developed regions, where most of the efforts to support high-quality development will be delivered. New initiatives and policy actions to foster social inclusion and promote green development are a must to achieve the ambitious objectives laid down in the 14th Plan.

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Tackling income inequality, a key objective of the 14th Plan, is critical to strengthen social inclusion. Rural areas suffer from limited access to public services including education, job opportunities, and health care. Narrowing the inequality gap requires actions to reduce the disparities in the environmental, social, and economic conditions to close the rural-urban divide.

Actions are also needed to mitigate the impact of the country’s rapid population aging, which is aggravated by the exodus to urban areas that leaves the most vulnerable behind. Income redistribution policies, including a more progressive taxation system, and strengthened social protection can ensure more inclusive growth for higher quality development during the new plan.

The 14th Plan builds on the remarkable environmental achievements of the previous plan and takes the country’s commitment to new heights by aligning its objectives with the government’s pledge to peak emissions by 2030 and reach carbon neutrality by 2060.

These ambitious goals require innovative approaches to accelerate low carbon development, including the circular economy, smart infrastructure, and state-of-the-art clean energy interventions. Greater strides in green and blue finance will be instrumental to manage plastic waste for the sake of the ocean’s health, an area where the country can lead in the delivery of a vital public good to the world.

ADB will be doing its part to support the key priorities of the 14th Plan, particularly in the area of high-quality, green development. This includes promoting environmentally sustainable development and climate change adaptation and mitigation initiatives, as well as addressing other critical issues, such as an aging society and health security.

The 14th Plan can yield dramatic advances in the quality and sustainability of development in the People’s Republic of China. Given the country’s size, carbon footprint, and growing regional and global role, the plan’s success will resonate in the country and across the region and the world.

Authors
Yolanda Fernandez Lommen

Yolanda Fernandez Lommen

Country Director, PRC Resident Mission, ADB

Marzia Mongiorgi Lorenzo

Marzia Mongiorgi Lorenzo

Principal Country Specialist, PRC Resident Mission, ADB

This blog is reproduced from Asian Development Blog.

Developing Modernization Indicators for the People’s Republic of China: Key Considerations and a Proposed Framework

Improved Borders Can Drive Broad Economic Benefits but Only If the Right Measures Are Taken

Economic development projects along borders are only effective if both sides are ready to make the most of the benefits. Photo: ADB.

Making it easier for people and goods to cross borders has been clearly shown to provide widespread economic benefits. But countries on both sides need to be prepared to take advantage of the new opportunities created.

COVID-19 has closed many borders around the world and the sudden halt to the flow of travelers and workers has had a major impact on some economies. This has highlighted the economic importance of border points that allow goods and people to easily cross borders. This critical infrastructure has significant spillover impacts beyond the border and into the broader economy.

So how do you make the benefits of improved border crossings cascade across the economy?

In general, when a country makes an investment, jobs are created, the workers receive higher income, and they spend more. Then as suppliers see this higher demand, they recruit more workers and source inputs to meet this new demand. This ripple effect becomes even more significant as the workers of the suppliers also start buying more goods and services, and so on. These are indirect impacts.

This ripple effect can only be created at a border if it is open for goods and people to cross. This spillover effect is particularly strong when investments are close to the border points. Ample examples of such spillover effects can be found in the European Union (EU), where costs of crossing borders are low, and the overall economy has been shown to benefit as a result.

The extent of the spillover effect depends on various factors, among them how prepared the neighboring country is to benefit from this investment by being ready to serve the increased demand for inputs and labor.

Experience in the EU suggest that border crossing spillover effects are unevenly distributed among countries and types of labor. In the case of the EU countries, both high-skilled and medium-skilled labor is impacted most, whereas low-skilled labor is mostly generated outside the EU because wages are lower there.

Asia also has a long history of infrastructure investments in border areas. For example, an ADB infrastructure investment project is being planned on the Inner Mongolia side of the People’s Republic of China’s border with Mongolia. The investment program aims to improve border crossing points and is designed partly to allow Mongolia to benefit from the investment. Direct benefits of the investment include 1,300 new jobs for Mongolians at border municipalities such as the Erenhot economic zone.

The spillover effects include additional employment providing an economic boost on the Mongolian side of the border that provides families more income for health care, education, and other necessities. This then prompts the suppliers to produce more to meet the higher demand. This could result in 40% more output and more than double the employment, according to our research.

In order to fully realize both direct and indirect benefits from border investment opportunities, the adjacent benefiting country will have to be ready to absorb the benefits.

As great as this sounds, one significant caveat is that it all assumes that Mongolia will source all the additional demand for goods and services domestically to fully benefit from the investment. This assumption, however, can be easily challenged. In reality, Mongolia may have to source inputs from other countries due to the limited supply domestically.

Since Mongolia is significantly dependent on import and export activities with its close neighbors, the People’s Republic of China and Russian Federation, the expected economic boost may leak as Mongolia imports inputs. Some of Mongolia’s economic sectors are importing a large share of their inputs – more than 40% of inputs are imported in mining, transportation, and construction sectors.

In this case, most of the additional income would be spent abroad, or the additional employment would be sourced from abroad—most likely the People’s Republic of China and Russian Federation. The same analysis suggests that the indirect spillover benefit of the Inner Mongolia project to Mongolia could be much lower, with the gross output change scaled back by 4% and the employment by 9%.

An example of where receiving areas have the capacity to maximize the spillover benefits can be found in the Greater Mekong region, where the benefits were found to be the highest when the projects connected large cities, e.g. the Southern Corridor that includes three large economies—Bangkok, Ho Chi Minh City, and Phnom Penh—along its relatively short length (about 900 kilometers), which have better absorptive capacity to respond to the new demand for inputs and labor.

For Mongolia to replicate this success along its border with the People’s Republic of China, policy makers should consider public investment in transportation and storage infrastructure that will support logistics operators and suppliers. In this regard, ongoing efforts with ADB to modernize logistic facilities in Zamyn-Uud economic zone are encouraging, particularly as this is across from the Erenhot economic zone and the main gateway for Mongolia’s trade with the People’s Republic of China and other parts of the world.

Despite this progress, Mongolia’s relatively high wage levels remain a bottleneck and need to be addressed by matching the required skill types and levels to those in the neighboring countries.

An important takeaway is that the extent of benefit an investment project in one country brings to a neighboring country depends also on the absorptive capacity. The gains are not automatic. Even when the project is designed to benefit the other country, the maximum benefit would not be always achieved.

In order to fully realize both direct and indirect benefits from border investment opportunities, the adjacent benefiting country will have to be ready to absorb the benefits by developing its own input markets and human capital. In particular, its limited infrastructure and the seasonality of many inputs combined with a poor storage capability make it challenging to establish a reliable supply chain.

Author
Akiko Terada-Hagiwara

Akiko Terada-Hagiwara

Principal Economist, East Asia Department, ADB

This blog is reproduced from Asian Development Blog.

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