Who deserves the Nobel for China’s economic development?

The awarding of the Nobel Prize in economics to three academics “for their experimental approach to alleviating global poverty” has prompted some caustic commentary about how much, or little, global poverty has actually been reduced by the highly targeted, small-scale policy interventions evaluated by such experiments.

It’s well known that most of the reduction in global poverty in recent decades, however it is measured, is accounted for by rapid economic growth in big Asian economies. On the World Bank’s numbers, China alone accounts for about 60% of the decline in the number of people living in extreme poverty worldwide (China’s poor population declined by 742 million people, while the world’s declined by 1.16 billion people).

The contribution of randomized controlled trials to China’s poverty reduction has been, to a first approximation, zero. Yao Yang, the dean of the National School of Development at Peking University, wrote in an English-language op-ed that “Experiments might help policymakers improve existing welfare programs or lay the foundation for new ones, but they cannot tell a poor country how to achieve sustained growth.” In a similar vein, Harvard professor Dani Rodrik tweeted: “Remarkable how little today’s development economics has to say about the most impressive poverty reduction in history ever.”

So if the Royal Swedish Academy of Sciences were to award a prize for “contributions to sustained economic growth in China,” who should it go to? This is not a straightforward question. The prize is usually given to academics for contributions to theory and research, not to practitioners for implementing economic policies. As Bruno Frey noted in a 2018 article on China’s absence from the history of winners of the economics Nobel, “It may be argued that the Chinese economy has been successful without the help of high-ranking academic economists.” There are also few Chinese economists that appear in lists of the most-cited scholars–possibly because Chinese economists have historically tended to focus more on advising their own government than publishing in English-language journals.

It’s true that the decisions that led to China’s sustained economic growth were not mostly driven by research published in peer-reviewed journals. But that does not mean that economic ideas did not play a role in those decisions, or that the role of economists was not important. At least, as long as one does not hold to an excessively credential-focused definition of “economist” as meaning only a person holding an economics PhD. Pieter Bottelier’s recent book, Economic Policy Making in China (1949-2016): The Role of Economists, introduces many of these Chinese economic thinkers, few of whom are widely known abroad. One figure particularly stands out: Xue Muqiao. Bottelier writes:

I agree with Wu Jinglian that Xue (who died in 2005, when he was almost 101) was the most important Chinese economist of the 20th century. He was already involved in economic policy and management before the establishment of the PRC in 1949, and after 1949 under Mao. He then became one of the principal architects of market reform under Deng Xiaoping. The evolution of Xue’s thinking on how to develop a “socialist economy” mirrors Deng’s.

While Deng Xiaoping is these days often remembered mainly as an economic reformer, in fact he was not a specialist in the economy, and largely delegated economic management to other leadership figures. Xue seems to have been quite influential in the formation of Deng’s economic thinking.

Xue is particularly famous for is a letter he wrote in 1977, after Mao’s death but before reforms had begun, to Deng and Li Xiannian that laid out many of the problems in the economy. He focused in particular on agriculture, noting that farm output had grown no faster than the population despite collectivization and massive investments in machinery. The letter is translated in the English-language Collected Works of Xue Muqiao:

The CPC Central Committee has pointed out the importance of having agricultural production catch up with industry’s Great Leap Forward. The Ministry of Agriculture and Forestry has recently proposed twelve significant measures to attain this goal. It recommends an increase of investment into agriculture of RMB 30 billion. These measures are necessary, but I think it is more important to implement agricultural policies that improve farmers’ lives, and that arouse their enthusiasm for agricultural production. … It is hard to motivate farmers if growth in agricultural production cannot bring corresponding growth in income. Any interest in working suffers if extra work is not rewarded. … Boosting farmers’ enthusiasm for agricultural production therefore outweighs improving the conditions for agricultural production.

“Enthusiasm” is the term often used in Chinese during this period for what we would today call “incentives.” And there is no economic insight more fundamental than “incentives matter.” This early insight by Xue laid the intellectual groundwork for the later decision to allow farmers to break out of agricultural collectives and farm their own land–a massive change in incentives for agriculture that resulted in a huge boom in productivity. For Xue to be able to break through the deadening grip of Maoist political correctness and recognize that incentive problems were keeping China’s rural population mired in poverty must surely be counted as an intellectual achievement of the highest order.

Over his long life and career, Xue did much more than write one well-timed and well-placed letter. The economic historian Fan Shitao last year made a catalog of Xue’s achievements in the pages of Caixin magazine, in a letter arguing that “Xue should be credited with making the most comprehensive contributions to China’s early reform and opening-up.” I won’t reproduce the entire thing here, but here are a few highlights:

In a long speech presented to the Central Party School in autumn of 1978, Xue was the first official within the ruling Communist Party elite to criticize the catastrophic consequences and painful economic lessons of Mao’s “Great Leap Forward.” By warning that similar mistakes should not be replicated in the future, Xue’s speech paved the way for subsequent adjustments to China’s economic policies. …

As the most authoritative expert on price in the Communist Party, Xue was the first person to point out that price reforms were key to China’s economic reforms. He also differentiated between overall price stability and flexibility of individual prices. In agreement with German economic expert Armin Gutowski, Chinese American economist Gregory Chow, and experienced economist Edwin Lim, Xue promoted price reforms, which was one of the major decisions of the Third Plenary Session in 1984. …

In 1978 Xue pointed out that instead of administrative regions, economic development should focus on economic zones based on resource flows. The economic zone in Shanghai contributed to its becoming one of China’s most capital-abundant cities. Xue’s proposal also later led to the launch of other regional development plans.

So Xue’s intellectual influence can arguably be detected in agricultural decollectivization, the overhaul of central planning, the transition to market prices, and the coastal export manufacturing boom. That is a pretty staggering list.

Of course, China’s decades-long series of economic reforms had no one author or leader. But China’s system of closed-door debate and collective decision-making has long obscured the important contributions of individuals like Xue, and Du Runsheng, another major figure in rural reform.

Xue Muqiao

11 Comments

  1. Thanks, Andrew for this reminder of the almost complete neglect of the great work of Chinese economists (and for that matter, Indian and Brazilian economists) in the economics Nobel prize!!

    Reply

  2. Xue Muqiao’s contribution to socialist economy is analyzed in a new book, “Being Chinese in Canada.” Xue’s work played a key role in the Chinese government’s efforts to alleviate poverty in China. It is very doubtful that the Euro-centric, anti-Communist Nobel committee would recognize Xue or China for lifting 800 million people out of poverty.

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  3. There seems to be an Anglo-saxon bias in the grant of the award. Giants in macroeconomics in France & Belgium straddled the world of theory & policymaking in their countries. They wrote in English. On the natural ground of the Nobel, theory, Japanese scholarship across the board has been formidable. Almost all of it is available to the English-speaking world.

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  4. I have been advised to qualify my comment. Whatever their nationalities, all laureates have passed through the sieve of Ivy League institutionalization. The current crop are the possession of Harvard & MIT, so to speak. Jean Tirole, while settled at Toulouse, was a student of & collaborater with Eric Maskin, a Nobel prize-winner & an influence in those circles. Gregory Chow is a candidate on that account.

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  5. I’m not familiar with the work of these laureates, but I understand from press articles that they worked on important topics that should resonate in China:
    « Kremer and others found that providing free health care makes a big difference: Only 18% of parents gave their children de-worming pills for parasitic infections when they had to pay for them, even though the heavily subsidized price was less than $1. But 75% gave their kids the pills when they were free. The World Health Organization now recommends that the medicine be distributed for free in areas with high rates of parasitic worm infections. » (https://www.washingtonpost.com/business/nobel-awards-season-comes-to-an-end-with-economics-prize/2019/10/14/1e12c7f6-ee50-11e9-bb7e-d2026ee0c199_story.html)

    As Scott Rozelle explained in a CSIS conference last year, China’s policy on this specific issue is puzzling, to put it mildly, despite potentially having enormous (bad) consequences for the country’s future : https://www.csis.org/events/growing-problems-rural-china-trends-solutions-and-implications

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    1. Sorry, I misunderstood the purpose of this blog post. I am not saying Pr. Rozelle should have gotten the award, but as he rightly (IMHO) points out, how do you get out of the middle income trap when a huge chunk of your population is uneducated, and is so because of no de-worming policy?
      “Surveys by Rozelle’s team have found that more than half of eighth graders in poor rural areas in China have IQs below 90, leaving them struggling to keep up with the fast-paced official curriculum. A third or more of rural kids, he says, don’t complete junior high. Factoring in the 15% or so of urban kids who fall at the low end of IQ scores, Rozelle makes a stunning forecast: About 400 million future working-age Chinese, he says, “are in danger of becoming cognitively handicapped.” (https://www.sciencemag.org/news/2017/09/one-three-chinese-children-faces-education-apocalypse-ambitious-experiment-hopes-save)
      Talking about the nationality of recipients of Nobel Prize seems to me quite strange in this context, to put it mildly, compared to this challenge… I know economy is a “sensitive topic” in China nowadays (Unirule…) but I hope Chinese economists will use the spotlight on this issue provided by this Nobel prize to push their government to act on it For the sake of the whole country.

      Reply

    1. The idea for this blog post is to look at the contributions of economists, that is to say intellectuals rather than political decision makers.

      Reply

  6. Unfortunately for Xue, Nobels are not awarded posthumously….
    Anyway, I am not sure that he would even qualify. Indeed, and this is not to disparage him or any of his colleagues given the scale of their accomplishments, but have they even enunciated an economic doctrine? Is there any original idea in Chinese economics? Isn’t it all too often the case that politics/political ideology trump economic science? For all of its successes, Chinese economic policy has never been clearly formulated because doing so would have officially shown that Marxism had been relegated to the dustbin of history. It is primarily a triumph of pragmatism (feeling the stones to cross the river and all that) rather than a coherent system, often having to accomodate the latest political slogan (the Ten Whatevers) and sometimes having to hide its true colors.

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