Source: Global Risk Insights
Daron
Acemoglu of MIT and James Robinson of Harvard co-authored a book entitled as
above. Their study of rise and fall of economies all over the world concludes
that China is on course to reach about a third of U.S. per capita income by
late 2020s and about 40% of that in the 2030s. It will be difficult to progress
further, if China remains a “copycat” economy.
A
good analogy is the Soviet Union in the middle of the 20th century.
Moving from agrarian into an industrial economy, it was one of the fastest
growing economies. Then it ran out of steam in the 1970s. Malaysia similarly
had remarkable growth in the 80s and 90s and then settled for a sedentary pace
of 4-5% p.a., with no Covid-19.
Acemoglu
calls them “extractive” economies run by a narrow political elite for their own
benefit. Such economies hardly innovate because innovation means allowing new
“champions” to emerge and outcompete existing power players. In China (or
Malaysia) the economy is dominated by large state enterprises often controlled
by elites or some political members of a ruling party (or coalition).
Malaysia,
China or others like them can be innovative if political reforms and key
institutions are strengthened to act independently. For example, a judiciary
that acts fearlessly and competently will encourage innovation - knowing that
intellectual property will be protected. Falsified research, malaise in
standards, rampant copying, abuse of human rights, violation of basic universal
values are all elements of a decline. Why did Rome fall? A steady deterioration
of values; increase in corruption and intrigue; and, weakened institutions
ensured its eventual demise. Not barbarians at the gates!
‘Black
Lives Matter’ is a renewal for America. The Trump moral morass is now under a
renewal reset. Campaign slogans work for a while but real change is needed.
That’s
where Acemoglu and Robinson’s major thesis is – economic prosperity depends on
inclusiveness of economic and political institutions. When people have a say in
the decision-making, that is inclusiveness. When talent and creative ideas are
rewarded, that is inclusiveness. When minorities feel they are part of a large tent,
that is inclusiveness. In contrast, “extractive” institutions are those that
extract wealth from the non-elite. Nations with a history of extractive
institutions have not prospered – Congo, North Korea, Haiti, Somalia, Zimbabwe,
Egypt, Pakistan, Myanmar and many others. They are poor because the ruling
elite has organised society for their own benefit at the expense of the people.
The
choice for the rich is whether it is taxation and redistribution or will the
poor decide for renewal or revolution as the way forward. The rich have the
incentive to propose a taxation rate that doesn’t provoke a revolution, while
not losing too much of their benefits. So, democratization refers to a
situation where the rich “willingly” increase monetary redistribution to the
poor in order to avoid a revolution.
In
short, authoritarian economies choke-off sustained, long-term growth and
prosperity. Inclusiveness, equality and diversity enable societies to flourish
and prosper. And institutions where strengthened provide the platform for this
to take shape. This postulate has critics who cite technology, geography,
productivity, leadership as other factors for nations to succeed. Whatever the
case, we in Malaysia are at a critical stage in our development and leaders
need to look at issues objectively rather than be coloured by lenses of race
and religion.
Reference:
2.
Ed Sappin, Five reasons China will fail to dominate in business, CNBC
3.
Warren Bass, Book review: ‘Why Nations Fail,’ by Daron Acemoglu and James A.
Robinson, The Washington Post
A ' copycat ' economy will never be able to move 800mio of its people out of poverty in less than 40 years. With a population of 1.4bil and growing, there's no other choice but to become the largest economy in the world.
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