Twofish's Blog

February 3, 2007

Comments on Yasheng Huang’s article

Filed under: china, finance — twofish @ 12:40 am

http://www.ft.com/cms/s/057070f4-b263-11db-a79f-0000779e2340.html

There are a number of problems with Yasheng Huang’s article here.

The first is the human interest angle.  I absolutely think that it is a bad thing when you advocate a policy position and to justify your view you pick a gut-wrenching story that seems to suggest that everyone that disagrees with your point of view likes to molest kittens.  The problem with these stories is that they tend to make you turn your brain off.  It’s a bad thing that this happened, but what is the lesson we draw from it?

The problem here is that there is a bait-and-switch.  I think that the Chinese government should make life easier for small entrepreneurs, but at the same time that doesn’t mean that I support wholesale privatization of large state-owned enterprises, and I’m realistic about the degree to which small entrepreneurs can change the economy, especially with the lack of good capital markets that get bridge the gap between “mom and pop” and “Fortune 500.”

So I tend to take Huang to task, when he confuses “entrepreneurship” with “private ownership.”  Entrepreneurship is a good thing for any economy, but helping people start daycares and restaurants is a different issue than breaking up large oil corporations that started out state-owned and will probably end up in the hands of the politically well connected if you privatize them.

Now Huang talks about the heyday of private entrepreneurship in the 1990’s and regrets that this era has past, and as we all know, the Chinese economy has been falling apart the last few years.

Except that it hasn’t.  He talks about the decreasing *number* of self-employed entities, but what about the number of people employed in these entities and their fraction of GDP?  The numbers I’ve seen suggest an increase.  He also talks about the golden age of reform in the 1980’s, but this was in an age of lifetime state employment for urban factory workers which was unsustainable.

And then there is the issue that a huge amount of the growth in employment since 2005 hasn’t been in the “formal small business” sectors but rather the informal sector

 http://siteresources.worldbank.org/INTDECABCTOK2006/Resources/H_Angang.ppt

One irony is the person that Yasheng Huang’s article talks about probably wasn’t even counted as “self-employed” in the labor statistics that he refers to.

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