China and the American System of Economics

In an interview given to EIR and the Schiller Institute on Dec. 20, economist Justin Yifu Lin provides useful insight into the thinking behind Beijing’s development policy, which dovetails in many respects with the approach developed by Lyndon LaRouche. Justin Lin was Chief Economist and Senior Vice President at the World Bank from 2008 to 2012, and is now the Dean of the Institute for New Structural Economics as well as the Dean at the Institute for South-South Cooperation and Development.

Dr. Lin began by insisting on the importance of cooperation between the United States and China if the many challenges facing mankind, including the pandemic, climate, and the fight against poverty in the world are to be overcome. In his view, the rising tensions today are due mainly to the fact that China has now overtaken the U.S. as the world’s largest economy in terms of purchasing power parity (PPP), but Washington is still attempting to maintain economic and political dominance by containing China’s growth, and in effect denying its right to development. This strategy will not only fail, he believes, but is counter-productive for economic growth in the United States itself.

This led to a discussion of the difference between the British free trade system and the American system of economy involving protectionist measures and government-directed credit and R&D in the tradition of Alexander Hamilton and Friedrich List – and how China’s economic policy today is much closer to that American model than is Washington’s.

Lin pointed out that not only “did the U.S. protect her own industries” in order to “catch up” and become a manufacturing powerhouse, but Great Britain had done the same, before the 17th Century, when it was “trying to catch up with the Netherlands,” which had a more advanced wool textile sector, and a GDP “about 30% higher”. So, “Britain adopted similar strategies to protect its own wool textile industries”, smuggling in equipment and attracting the craftsmen to Britain. And yet, both Britain and the U.S. insist today that all non industrialized countries must also adopt free trade.

Even now, he explained, the U.S. and Britain “actively support research and development” to further upgrade their technology, “and also develop new higher-value industries.” Basic research, he insisted, is a public good that needs public support, whereas the development of new products based on the breakthroughs in basic research can be carried out by private firms.

In that context, Dr. Lin brought up on his own the opposition between two historical traditions in the United States, that of Alexander Hamilton and that of Thomas Jefferson.

While at the World Bank, and confronted with the dominant neoliberal orthodoxy, Justin Lin attempted to introduce what he calls “wealth accounting”, emphasizing the importance of human capital and infrastructure in an economy, as opposed to only counting monetary values, such as GDP (cf. SAS 50/21). He agreed that the LaRouche potential relative population density method of evaluating economic progress in physical terms goes in the same direction as this concept.

Overall, given the convergence of their ideas and proposals, Dr. Lin suggested that “we need to join hands to propose the right ideas, through your Institute and my Institute, and to convey it to more people.”

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