2. Expanded Table of Contents

Introduction..................................................................................... 1

About the Book.......................................................................................................................... 1

A General Theory.................................................................................................................. 1

What is the book about?................................................................................................. 1

The Majestic Failure of the Expert................................................................................. 5

The Expert................................................................................................................................ 5

The Rise of The Intellectual Yet Idiot (IYI).......................................................... 6

Economics and the Expert.................................................................................................. 8

Macroeconomics and Microeconomics – A Brief Detour........................... 8

A Brief History of Economic Theory....................................................................... 11

Economic Theory and Its Discontents................................................................. 17

Development Economics and the Expert............................................................... 19

Mainstream Economic Theory of Development............................................ 19

The High Development Theory................................................................................. 20

High Development in Practice.................................................................................. 24

Crisis and Reform.............................................................................................................. 26

The New Growth Theory............................................................................................... 29

The Late Industrialization Miracle............................................................................ 32

The Mainstream View.................................................................................................... 32

North East Asian Industrialization....................................................................... 33

Mainstream Economic Theory Fails..................................................................... 34

The World and Its Wealth................................................................................................ 36

Global Wealth Stock and the Dominance of Industrial Countries..... 36

The Making of the Book – the Nuts and Bolts..................................................... 40

The Reader and the Book............................................................................................ 40

The Contents of the book............................................................................................. 41

The Making of the Theory, the Mechanism, and the Application....... 41

An Outlook of the Ideas in the Book...................................................................... 44

Data & Other Research Sources............................................................................... 48

Terminology........................................................................................................................ 49

 

 

PART ONE: GETTING STARTED

1 – Concepts, Notions & Terminology.......................................... 53

Concepts & Notations of Macro................................................................................... 53

Output, Savings, and Investment................................................................................................ 53

Notations of Macro......................................................................................................... 56

Concepts & Terminology of Micro............................................................................. 60

Economic Activity............................................................................................................ 60

Markets, Industries, and Products.......................................................................... 62

Classification of Markets by stages of Product Development............... 64

A Brief Outlook of the Nomenclature of Industry Classification......... 65

Classification of Industry............................................................................................. 67

Classification of Manufacturing Industry......................................................... 69

Final Goods Heavy Industry....................................................................................... 71

The Two Sectors of Final Goods Heavy Industry............................................ 73

A General Classification of Industry...................................................................... 75

General Concepts, Terms, and Notions................................................................... 77

Classification of Nations.............................................................................................. 77

What is Wealth Composed of?.................................................................................. 78

Classification of Capital............................................................................................... 80

What is Economic Development?........................................................................... 87

Capital Accumulation Phase..................................................................................... 90

Capital-Income Ratio................................................................................................... 92

The Essential state and the Enabling state...................................................... 93

 

 

2 – Early and Late Industrialization.............................................. 97

The East Asian Tigers – Success and Failure....................................................... 97

A Tale of Two Regions.................................................................................................... 97

A Brief History of Late Industrialization in North East Asia.................. 98

The Story of Output Growth....................................................................................... 103

A Contrast in Growth Rates..................................................................................... 103

Savings and Investment................................................................................................. 106

Savings matching Investment always.............................................................. 106

Capital Accumulation....................................................................................................... 109

Growth Accounting – Capital, Education, and TFP....................................... 113

Early v/s Late........................................................................................................................ 117

Target: High Capital-Income Ratio......................................................................... 118

The Ultimate Goal................................................................................................. 118

Relationship between ‘s’ and ‘g’................................................................................. 122

 

 

 

PART TWO: THEORY

MACROECONOMICS

3 – Low Savings Rate in Capitalist Economy.............................. 127

The Story of Economic Growth and Savings.................................................... 127

The Role of Savings in Economic Growth Theory...................................... 127

Savings in the Early-Industrialized Countries................................................ 130

Historical Savings Data............................................................................................. 130

              France............................................................................................................................ 131

              Germany........................................................................................................... 132

              The United States of America............................................................. 134

              The United Kingdom..................................................................................................... 135

Standard Economic Theory of Savings................................................................. 137

Savings as Unpacked and Understood by Mainstream Economics 137

Deconstruction of Theory......................................................................................... 141

Exposition of the Existence of a Threshold Savings Rate.......................... 142

Understanding the Origin of Savings – Getting Started........................ 142

First Principles Theorization.................................................................................. 148

 

 

4 – Restoring High Savings Rate in Capitalist Economy............ 161

The Exposition of the Cause of High Savings Rate......................................... 161

First Principles Theorization of the Cause of High Savings Rate..... 162

High Savings Rate in Taiwan................................................................................. 167

The Origin of Savings – Internal and Foreign................................................... 171

New Terminology.......................................................................................................... 171

Need for Capital Goods in Capital Accumulation & Capital Efficiency Phase      174

Investment – the Creator of Net Savings......................................................... 176

High Savings Rate in South Korea and China..................................................... 179

Revisiting the Comparatively High Savings Rate in German and French history                  183

Postwar German and French Reconstruction............................................. 183

German and French Infant Industry Protection Strategy.................... 184

What is the Threshold Internal Savings Rate Precisely?.......................... 185

A Super Average Perspective................................................................................... 185

The Threshold Rate...................................................................................................... 187

Further Evidence................................................................................................................ 188

Mechanisms Derived from Macroeconomic Theory.................................. 191

 

 

MICROECONOMICS

5 – Radical Uncertainty in Industrial Economy.......................... 195

Final Goods Heavy Industry Technologies & Markets............................. 195

The Big Question............................................................................................................ 195

Creation of the Markets of Final Goods Heavy Industry.......................... 200

The Invention of the Great Technologies  ............................................................... 200

Technological Improvement & Market Creation through Innovation 203

Exposition of the Concept of Forces of Radical Uncertainty.................. 207

Invention and Innovation—Radically Uncertain.................................... 207

A Brief Review.................................................................................................................. 207

Evidence of Radical Uncertainty......................................................................... 208

 

 

6 – Restoring Radical Uncertainty in Late Industrializing Economy...... 215

The Status of Radical Uncertainty........................................................................... 215

Absence of Radical Uncertainty in the Late-Industrializers.............. 215

Consequences due to the Absence of the forces of Radical Uncertainty............217

Evidence of the Workability of the Forces of Incentives........................ 218

Exposition of Mechanisms of the Forces of Incentives.............................. 219

Market Creation through Industry Promotion & Frontier Technology Transfer...........219

Rapid Technological Improvement through Export Targeting...... 221

Evidence from East Asian Late-Industrializing Countries...................... 222

Industrialization Drives – successes and failures...................................... 222

     South Korea................................................................................................................. 223

      Taiwan......................................................................................................... 225

      Malaysia........................................................................................................................ 227

Mechanisms Derived from Microeconomic Theory................................... 229

 

 

 

PART THREE: MECHANISM

7 – The Mechanism of Rapid Economic Development.............. 233

Mechanism From Theory............................................................................................. 233

The Two Backdrops & Two Routes of Development................................ 233

Mechanism of Economic Development through Rapid Industrialization......... 234

Rapidness & Lateness.................................................................................................. 234

The Mechanism of Rapid Industrialization.................................................. 234

Trade Policy and Industrial Policy: Policies drawn from the Mechanism......... 238

Rapid Capital Accumulation in China through Industrialization......... 244

Mechanism of Economic Development through non-Industrial Route......... 246

Rapidness is all that Matters.................................................................................. 246

The Mechanism of the non-Industrial route of Development........... 247

Trade Policy: Policy from the Mechanism...................................................... 249

Capital Accumulation in Chile through Commodity Exports............ 251

Essentially a System Failure....................................................................................... 253

Why Markets Required State Intervention.................................................... 253

Industrial Organization in the Late Industrializing Economy.............. 256

Industrial organization............................................................................................ 256

Where Does Traditional Approach Go Wrong?.............................................. 259

A Research Paper: China’s distinct system?................................................... 259

Classification of Products............................................................................................. 267

Standard Nomenclature in International Trade....................................... 267

Fusion of ISIC and HS Systems................................................................................... 269

The ISIC and HS systems............................................................................................ 269

The Goods that Ultimately constitute the Wealth of a Country....... 274

A Triumph of Pragmatism over absurd Academic Theories................. 277

How did the Successful Late-Industrialized Countries do it Without the Theory?...... 277

Industry and Analysis..................................................................................................... 279

Analysis of Industry...................................................................................................... 279

Foray into Chinese Industrialization................................................................ 280

 

 

8 – The Mechanism of Rapid Industrialization in Action............ 283

China and the Mechanism of Restoring High Savings Rate and Radical Uncertainty...... 283

Industrialization of Modern China.................................................................... 283

China’s Location and Timing................................................................................. 285

China’s Product Exports Composition.............................................................. 286

China’s Export Performance................................................................................... 287

China’s Export VAT Rebate Policy—Export Promotion and Export Targeting Channel...... 288

Capital Machinery Industry of China..................................................................... 292

Development of Capital Machinery Industry............................................... 292

Classification of Capital Machinery Industry.............................................. 293

Power Generation & Transmission machinery (HS8402–12 & HS8504)......... 297

Prime mover machinery (HS8501–03)............................................................ 303

Construction and Mining machinery (HS8425–31)................................ 321

Farm and Forestry machinery (HS8432–34)............................................... 326

Food Manufacture machinery (HS8435–38).............................................. 330

Paper & Printing machinery (HS8439–43)................................................... 332

Textile & Apparel machinery (HS8444–48).................................................. 334

Final Goods Heavy Industry Manufacturing machinery (HS8456–66).................. 334

Other machinery (various remaining subclasses within HS84 & HS85)                  340

China’s Capital Machinery Industry overall Performance................... 346

Capital Equipment Industry of China.................................................................... 349

The Development of Services Industry.............................................................. 349

Electronics (subclasses within HS84, HS85 & HS90)................................ 352

Electro-mechanical appliances (subclasses within HS84 & HS85)......... 354

Railways (HS86)............................................................................................................. 358

Vehicles (HS87)............................................................................................................... 365

Airplanes (HS88)............................................................................................................ 370

Ships & Boats (HS89)................................................................................................... 372

Optical and Precision measuring instruments (HS90)........................... 377

China’s Capital Equipment Industry overall Performance.................. 378

 

 

9 – The Mechanism of Non-Industrial Development in Action........ 381

Botswana & Chile - the Mechanism of Restoring High Savings Rate..........381

Non-Industrial route of Development.............................................................. 381

Botswana................................................................................................................................. 382

Chile............................................................................................................................................. 386

Non-Industrial Route of Development for Small Countries................... 390

The Desired route of Economic Development.............................................. 390

The Blessings of Being Small.................................................................................. 391

Commodities Make Waves in the Twenty-first Century......................... 394

 

 

 

PART FOUR: APPLICATION

10 – The Case of India & The Future........................................... 405

India & China – Parallels and Distinctions......................................................... 405

India & China................................................................................................................... 405

China & India parallels: Capital – Labor nexus.......................................... 406

China & India distinctions: Land – State nexus.......................................... 409

India & China – The Divergence................................................................................ 411

India and China’s Income Divergence.............................................................. 411

India – In the Past (1956 – 1985)............................................................................. 413

Theoretical standpoint.............................................................................................. 413

Practical standpoint................................................................................................... 417

India – In the Recent Past (1986 – 2015)............................................................ 420

India’s Trade as the cause of recent Growth................................................. 420

India’s Product Exports composition............................................................... 423

India’s Product Imports composition.............................................................. 424

India – At Present............................................................................................................... 426

India’ Industrialization Capabilities................................................................ 426

      Electricity Generation........................................................................................ 427

      Steel Production....................................................................................... 428

      Cement Production............................................................................................... 429

India – In the Future (2016 – 2040)....................................................................... 430

What is India’s most effective course for a bright economic future?......... 430

India’s transition to Light Industry Manufacturing and back to Heavy......... 433

International Trade Imbalances – When the Opposite is True............ 438

Trade Implications....................................................................................................... 438

 

List of Tables and Figures............................................................................................. 441

 

Index............................................................................................ 445