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