Paul Krugman: Economist W. Arthur Lewis argued that countries in the early stages of economic development typically have a small modern sector alongside a large traditional sector containing huge amounts of “surplus labor.” [This] has two effects: 1) for a while such countries can invest heavily in new factories,without running into diminishing returns, drawing in new labor from the countryside; 2) competition from this reserve army of surplus labor keeps wages low even as the economy grows richer. Indeed, the main thing holding down Chinese consumption seems to be that Chinese families never see much of the income being generated by the country’s economic growth. Some of that income flows to a politically connected elite; but much of it simply stays bottled up in businesses, many of them state-owned enterprises. Now, however, China has hit the “Lewis point” — to put it crudely, it’s running out of surplus peasants.
Posted on: Fri, 19 Jul 2013 06:59:41 +0000
Trending Topics
Recently Viewed Topics
© 2015