Lin Yifu: why the global governance formed after World War II failed

 Lin Yifu: why the global governance formed after World War II failed

At the foreign affairs conference held by the Central Committee in June 2018, general secretary Xi Jinping made a very important assertion that the world is in a great change in the past century. The novel coronavirus pneumonia outbreak in the world in 2020 and January this year has not been stopped, and has shown the worlds changing situation. The global governance system is a system that coordinates all countries in the world to deal with public affairs and meet global challenges. I would like to review the achievements and problems of the global governance system formed after World War II, and then talk about my personal views on the main content and direction of global governance reform.

After the Second World War, drawing on the experience of a larger world war 30 years after the first World War, a global governance system with the United Nations as the core was established after the war. In the United Nations, all countries are equal, and the resolution to deal with global problems is reached in the way of one country, one vote. In addition, the Bretton Woods system, including the International Monetary Fund, was established under the United Nations to help countries maintain macro stability; the world bank helped countries to promote post-war reconstruction and the development of developing countries and eliminate poverty; the general agreement on Tariffs and trade (GATT), which is now the World Trade Organization, promotes free trade and globalization. At the same time, the United Nations Industrial Development Organization was established to help developing countries promote industrialization; the United Nations Food and Agriculture Organization helped various developing countries realize agricultural modernization; the World Health Organization helped countries prevent and control infectious diseases; and the United Nations Educational, scientific and Cultural Organization helped countries promote the modernization of Education.

However, from nearly 200 developing economies after World War II, only two have developed from low-income to high-income, one is Taiwan and the other is South Korea. Of course, by 2025, the Chinese mainland will be the third to enter from low income to high income economy. In 1960, there were 101 middle-income economies in the world. By the time I joined the world bank as senior vice president and chief economist in 2008, only 13 went from middle-income to high-income. Of the 13 economies, eight are European countries bordering Western Europe, such as Spain, Portugal, Greece, or oil producers, and five are Japan and the four little dragons of Asia.

From the above statistics, under the world governance pattern formed after World War II, most of the countries in South Asia, Latin America and Africa have been staying at the low-income level or in the so-called middle-income trap. At present, 1.3 billion people in the world live below the absolute poverty line of US $1.90 per day. If we remove the 800 million poverty-stricken people who have been reduced after Chinas reform and opening up, the worlds poor population has not decreased but is still increasing in 75 years. This time the novel coronavirus pneumonia epidemic is spreading across the globe. According to some studies, it is likely that four hundred million to six hundred million of the population will return to poverty. As the problem of poverty has not been solved, it has brought social and political instability to many developing countries, resulting in many refugees and illegal immigrants. Since the outbreak of the international financial and economic crisis in 2008, developed countries have been in a very weak growth situation. The income of general residents has not increased, and the number of middle class is decreasing. Due to the uneven distribution of income, populism has emerged in developed countries.

When the developing countries are not developing well and the developed countries are populist again, there is a wave of anti globalization. Due to the withdrawal of the United States, the largest country in the world, from the international governance system, such as the United Nations Industrial Development Organization, UNESCO, the World Health Organization and so on. Therefore, there are many cracks in the global governance system formed after World War II. Where will the global governance system go under the new situation?

Why are there some countries and regions in the global governance system formed after World War II that are booming, while the vast majority of countries and regions have poor economic development? If we want to talk about the future development direction of the global governance system, or the focus of reform, we should first understand the success or failure of a country under the existing global governance system Why? In order to find the right medicine.

According to a study conducted by the growth Committee headed by Professor Michael Spence, Nobel Laureate in economics in 2008, 13 economies achieved annual growth of 7% or more after World War II, and even longer 25 years later. We know that the normal growth rate of developed countries is 3% to 3.5%. If a developing country can grow at the rate of twice that of developed countries for 25 years or more, it can greatly narrow the gap with developed countries, eliminate poverty and realize the dream of modernization. According to the Commissions study, the 13 economies share five common characteristics. The first feature is open economy. The common words we use in China are to make full use of two resources in two markets, namely, the domestic and international markets. The second is that the 13 economies have achieved macroeconomic stability; third, they all have high investment and high savings; fourth are market economies or Chinese mainlands turning to market economy after 1978. The last feature is that they all have an active and promising government.

From the perspective of the new structural economics that I recently advocated, these five characteristics are actually a truth. These successful developing economies are all based on what they have and can do well, that is, according to their comparative advantages, in the market economy, relying on the active and active guidance of the government to help enterprises make them bigger and stronger. In this situation, of course, they will open up their economy, import what they dont have and do not do well, and export what they can do well. Only in this way can they make full use of both domestic and international markets and resources. If we can make ourselves bigger and stronger, the economy will be stable and there will be no endogenous crisis. If we can make ourselves bigger and stronger, the rate of return on investment must be very high, the enthusiasm of domestic savings and investment will be very high, and we can attract a lot of foreign investment to invest. In other words, under the existing international governance system, if we understand the above ideas, any country can develop well, and developing countries can solve the problem of poverty, narrow the gap with developed countries, and realize common prosperity.

After the Second World War, the developing countries generally got rid of the colonial or semi colonial status and began to control their own destiny in their own hands. Their goal was to catch up with the developed countries quickly. Under the guidance of the mainstream theory at that time, their thinking was to see what developed countries have and what they lack, and strive to have what developed countries have, or what developed countries want to do well and what they cant do well, and try to do it in the way of developed countries. For example, in the 1950s and 1960s, developed countries had very advanced capital intensive heavy industries, while developing countries generally owned agriculture, resource industries and light processing industries. At that time, the mainstream theory was Keynesianism. The government led the development of capital intensive heavy industries that they did not have, and implemented the so-called import substitution strategy It is very noble, but under such a development idea, even if heavy industry can be established, it will be very inefficient, the economy will stagnate, the poverty problem will not be solved, and the gap with developed countries will continue to widen.

In the 1980s and 1990s, all developing countries were in the process of reform and opening up. The mainstream theory at that time was Neo liberalism, which believed that the developed countries had a perfect market economy system. However, the governments of developing countries intervened too much in the economy. Under the guidance of the prevailing new liberalism, developing countries generally wanted to establish a market economy system with developed countries A perfect market economy system. The policy suggestion is that the government intervention must be eliminated once and for all by shock therapy before the transition from the government led economy to the market economy. However, according to this idea, the economies of the countries in transition have collapsed, and the crisis continues, and the gap with the developed countries has further widened.

Looking back, why the global governance formed after World War II failed? I think the main reason for the failure lies in the way of thinking. After World War II, the developing countries got rid of colonial rule and gained political independence. Therefore, if we want to get rid of colonial rule and gain political independence and hold our own destiny in our own hands, we hope to be able to stand in the world on an equal footing with developed countries At that time, we saw that the developed countries had industrialization and modernization. After World War II, all developing countries were trying their best to realize industrialization and modernization. After the Second World War, these newly independent developing countries generally have the idea of learning from the West. They think that it is reasonable for the developed countries to be so developed. If they learn these principles, they can point out their own countries and let them realize industrialization and modernization just like developed countries.

How did these theories come from in developed countries? There are two sources for the theories of developed countries. One is the summary of the experience of developed countries. For example, Adam Smiths wealth of nations advocates laissez faire market and emphasizes the importance of allocating resources with an invisible hand. This is a summary of the experience of Britain and Europe in the 17th and 18th centuries. In the 1930s, when the great depression appeared, the laissez faire market could not solve the problem of recovery of the great depression. In order to solve this problem, Keynesianism appeared, emphasizing the necessity of government intervention. Any theory, whether from the summary of past experience or the solution of current problems, must be based on the level of economic development, society, economy, politics and culture of the country that put forward the theory at that time. If these conditions change in developed countries, the prevailing theory will also change. For example, Adam Smiths idea of free market economy focuses on market supply and demand In the 1930s, due to the great depression and the existence of a large number of unemployment, the market was replaced by Keynesianism. In the 1960s, the market supply and demand were generally balanced, and then stagflation occurred with expansionary fiscal and monetary policies. Keynesianism was replaced by the laissez faire Neo liberalism u3002

The prevailing theories in developed countries are based on the conditions of the developed countries at that time. The economic foundation, development level, social, political and cultural conditions of developing countries must be different from those of developed countries. If we apply the theories of developed countries to developing countries, we will inevitably encounter the problem of Huainan is orange, Huaibei is trifoliate. A few successful developing countries or economies share a common feature of emancipating the mind and seeking truth from facts. First, we should see what we have and what we can do well. Under the joint action of the government and the market, we should make what we can do bigger and stronger. This is the case with the export-oriented policies of the four little dragons in East Asia in the 1950s and 1960s, and the gradual dual track transformation of China, Vietnam and Cambodia in the 1980s and 1990s is the same.

Therefore, to discuss the reform of the global governance system under the current new situation is not to restart the stove, but to sum up the experience of success and failure of developing countries, and stand on their own land to face their problems and come up with their own solutions. If such theories and ideas can be formed, the current global governance system with the United Nations as the core is complete, which can make any country develop, solve the problem of poverty and narrow the gap between countries.

In this process of reflection, I think China is duty bound, because China is the worlds fastest-growing country. Now, according to the market exchange rate, China is the second largest economy. However, if calculated according to the purchasing power parity, China has been the worlds largest economy since 2014, and since 2010, China has been the worlds largest trading country. Economy is the foundation, so China has the responsibility to sum up Chinas own experience, solve Chinas own problems, and work with other developing countries to sum up the success and failure of developing countries, and work together to solve their own problems to complete the development of each developing country.

What novel coronavirus pneumonia can bring us to reflect on this and continue to follow the direction of globalization under the existing global governance. Every country helps what enterprises can do well under the joint action of the government and the market according to what can be done and what hands can do together. I believe that the general prosperity of the community of human destiny, proposed by general secretary Xi Jinping, is inevitable. Can be achieved.

The keynote of Lin Yifus speech at the International Investment Forum 2020.

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