under the catch-up strategy (CAD) which violates the comparative advantage, although developing countries can establish a relatively complete industrial system relatively quickly, it will cause the following negative effects: First, the economy that pursues the catch-up strategy will often become an inward-oriented economy: on the one hand, the industries that give priority to development have no comparative advantage and should be imported, but they develop on their own, so the imports will drop; On the other hand, domestic resources are limited. If these limited resources are used to develop industries that give priority to development, those industries that have comparative advantages and can export will get fewer resources, thus their exports will decline. On the contrary, if we develop according to comparative advantage, the imports of industries without comparative advantage will increase, while industries with comparative advantage will be able to obtain more resources, thus increasing exports. Therefore, the degree of extroversion of the country will be higher than that when the catch-up strategy is implemented. There is a view that the higher the extroversion, the better the country's development performance, but this view only sees the superficial phenomenon, and the essential reason for this phenomenon is that countries with higher extroversion often develop according to comparative advantages. Therefore, the best degree of extroversion also depends on a country's factor endowment, not the higher the better.
second, it may be difficult for countries that pursue the catch-up strategy to make good use of their late-comer advantages. (1) When pursuing the catch-up strategy, it is necessary to introduce the most advanced technology, which may be the master technology of developed countries, so developing countries may not be able to obtain it, and even if they can obtain it, they will have to pay a high price, so their technology introduction is facing difficulties. Even if developing countries can acquire technology and establish advanced industries through R&D, the established industries violate their comparative advantages and have low efficiency, and little surplus can be created. At the same time, the technology of developed countries is still improving. If developing countries want to maintain the catch-up strategy, they must continue to invest capital to achieve technological progress through research and development or the introduction of machinery and equipment, which is difficult to achieve in the case of small economic surplus. Therefore, countries that pursue catch-up usually become rigid after establishing an advanced enterprise. (2) On the contrary, if a country develops according to its comparative advantage, it will first enter more mature and labor-intensive industries. Most of the technologies in these industries have passed the patent protection period, and even if they are still in the protection period, they are relatively primary technologies, so it is easier to introduce them. After the introduction of technology, because related industries are in line with comparative advantages, products can occupy a large share in domestic and international markets, create a large amount of surplus, and realize rapid accumulation of funds and industrial upgrading. At the same time, material capital in the economy is accumulated because of the emergence of surplus, human capital is also improved because of experience and "learning by doing", and the preparation of material capital and human capital is improved, so industrial upgrading can be carried out. However, in the next stage of development, mature and easy-to-introduce technologies should still be introduced. In this way, developing countries can make better use of their late-comer advantages, making their own technological changes much faster than those of developed countries that rely entirely on their own inventions, and then obtain higher economic growth rates.
It should be pointed out that countries pursuing catch-up strategy may experience a period of rapid economic development at the beginning, but this is mostly investment-led economic growth. After that, because the established priority development industries do not conform to the comparative advantage, they cannot create surplus, while the industries with comparative advantage cannot create surplus because they can't get funds, and the funds that can be used for investment are very few, which leads to the slowdown or even stagnation of economic growth. At this time, if you can borrow funds from abroad, the investment-led economic growth may be maintained for some time. However, if the invested industries still do not meet the comparative advantages and cannot create surplus after the establishment, the economic growth rate will eventually slow down, and even financial crisis will occur. If we develop according to comparative advantages, we can realize rapid technological upgrading and surplus accumulation, continuously improve the industrial level and realize dynamic economic growth.
thirdly, whether a country develops according to its comparative advantage will also have different effects on income distribution. (1) If the comparative advantage is violated in the development, the people who can invest in capital-intensive industries are mostly rich people or people who have special relations with the government and can get loans from banks. The industries they invest in are not viable and need government protection and subsidies, while the subsidies come from the poor who cannot invest in these industries. In this way, the poor subsidize the rich, which will naturally widen the income gap. At the same time, due to the lack of jobs created by the catch-up strategy, a large number of labor can not be employed in the formal sector, and unemployment will occur, and polarization of income distribution is inevitable. A popular "interest group theory" holds that those who invest in priority industries and get protection and subsidies are rich and powerful people, and this kind of protection and subsidy is precisely the institutional distortion formed by the interests of interest groups. I am opposed to this view. Of course, the policy distortion in developing countries seems to be protecting and subsidizing interest groups, but the widespread existence of a large number of state-owned enterprises in countries pursuing catch-up is not conducive to interest groups, and the "interest group theory" cannot give a logical and consistent explanation for this. Therefore, the more consistent reason behind the policy distortion is the catch-up strategy. (2) On the contrary, if a country develops according to its comparative advantage, its income distribution may gradually improve. In this case, industries that are in line with comparative advantages can create a large number of jobs, rural labor can enter modern industrial sectors in large numbers and share the fruits of industrial growth, and the economy can easily achieve full employment. At the same time, because the established industries are in line with comparative advantages, the products are competitive in the domestic and international markets, and they can achieve rapid profit accumulation and capital accumulation, and constantly improve the factor endowment. In this process, the richness of capital relative to labor gradually increases, the return on capital gradually decreases, and wages continue to rise. Because the income of the rich mainly comes from capital gains, while the income of the poor mainly comes from labor income, the income distribution will naturally improve gradually. This is also the main reason why the East Asian economy can achieve "Growth with equity" in its development.
as mentioned above, after the second world war, according to the catch-up strategy at that time, people generally thought that the market failed and needed a lot of government intervention to protect and subsidize the development of advanced industries. This policy generally failed after twenty or thirty years of practice, when the economic development of most socialist countries was even more difficult. In the late 197s and early 198s, the theory of "victory of capitalism" came into being in academia, international development institutions and most developing China countries, which believed that the failure of socialist countries proved the success of the capitalist market economy system. Under the influence of such social thoughts, international development institutions including the World Bank and the International Monetary Fund, as well as governments of various developing countries, generally began to advocate economic reform and transformation. At that time, it was generally believed that developing countries should implement the market system. This goal is correct, but there may be mistakes in some judgments of the problem. The "Washington Knowledge" has ten policy suggestions, the basic goal of which is to withdraw from the government and establish a perfect market system, so that the market can allocate resources and competition can determine incentives. The "shock therapy" promoted in the reform of the Soviet Union and Eastern Europe is a version of Washington's knowledge. According to Washington, the three important contents of shock therapy must be carried out simultaneously in a transitional country, and only in this way can the rapid economic development of the transitional country be brought about. These three contents are as follows: (1) price liberalization, in which market supply and demand determine prices, so as to effectively guide the allocation of social resources; (2) Rapid privatization, only when property rights are privately owned can business owners actively respond to price signals; (3) The government maintains fiscal balance and macro-stability, and avoids hyperinflation, so that price signals can play a role.
In theory, shock therapy is very rigorous, which is consistent with the basic institutional arrangements that an effective market system should have in mainstream economics. When the reform began in the early 199s, economists who carried out shock therapy promised that the economy might decline at the beginning if it was transformed in this way, but it would definitely achieve high-speed growth and "J curve" after half a year or at most one year. But in fact, countries that practice shock therapy actually face "L curve", and some countries' economies have fallen by more than 5% and stagnated for a long time, and it was not until the end of the 199s that they began to improve. In fact, not only socialist countries, but also most developing countries are facing crisis under the old system, and they have borrowed from the International Monetary Fund, and the loan conditions are to implement reforms in the way proposed by Washington. However, in more than 2 years, the economic development performance of these countries reformed according to Washington's knowledge is worse than before.
from the theoretical model, the logic of shock therapy is closely linked, and the most important reason for its failure is that economists who advocate shock therapy ignore one factor-the distortion existing in the original planned economy or developing countries is not random. Most of these distortions are "fruit", and their "cause" lies in the fact that the industries that give priority to development do not have comparative advantages. Therefore, enterprises in these industries cannot survive and lack viability without protection and subsidies in an open and competitive market. Therefore, the government must give them protection and subsidies. Exploring the institutional distortion of developing countries from the perspective of development strategy can explain the failure of transformation more clearly than from the perspective of interest groups. According to the interest group theory, distortion is only the distribution of interests among interest groups and the transfer of wealth, so protected and subsidized enterprises should be able to survive in the competitive market and shock therapy should be successful. From the perspective of development strategy, these enterprises can't survive in the competitive market, which is the crux of the failure of shock therapy.
it can be seen that a theory itself may make sense, but if it can't explain the reasons behind things, it can't stand inference. Shock therapy ignores the endogeneity of system distortion, so it fails to realize that the three contents of shock therapy cannot be realized at the same time. For example, if only price liberalization or privatization are implemented separately, there will be no problem; However, if the two are carried out at the same time, there will only be two results if the enterprise has no viability: or the whole society will collapse and cause a lot of unemployment; Or the government provides subsidies for enterprises that have no viability. This is because enterprises that do not have viability often employ a lot of labor, and the reason why the government subsidizes them is not because they are state-owned, but because they do not have viability. After shock therapy, the original technology and industries have not changed. For the following two reasons, the government tries to avoid bankruptcy and give them protection and subsidies: (1) These industries are very advanced and important for the modernization of the country; (2) These enterprises employ a large number of laborers, and once they go bankrupt, they will inevitably lead to a large number of unemployment, which will lead to social instability. Therefore, the failure of Washington's consciousness lies not in the failure of the goal, but in its analysis of the problem only seeing the appearance, but not realizing the deep-seated reasons of the problem.
it is worth pointing out that in the case of privatization, the government needs to provide more protection and subsidies than in the case of nationalization. When an enterprise without viability is owned by the state, the factory director and manager will ask for protection and subsidies from the government, but they cannot own subsidies; After the privatization of these enterprises, factory directors and managers can properly take the redundant subsidies for themselves. Therefore, in the case of privatization, business owners have higher enthusiasm and more reasons to ask for protection and subsidies from the government. However, because the government funds are not owned by them, their enthusiasm for providing protection and subsidies to enterprises has not changed. In this way, protection and subsidies have increased rather than decreased. In the early 199s, most people didn't believe this, but a large number of empirical studies, including those made by the World Bank and Eastern European countries, showed that large privatized enterprises obtained more protection subsidies than those without privatization. At the same time, the government's income has decreased after the reform, because in the case of nationalization, the surplus of state-owned enterprises belongs to the state and needs to be turned over, while in the case of privatization, the government can only tax enterprises to obtain income, and taxation is not easy. In this way, the government can only provide protection and subsidies to enterprises by printing a large number of banknotes, which will lead to high inflation. For example, in 1993 and 1994, inflation in Russia once exceeded 1,%, that is, prices rose more than 1 times in one year, which was the result of misunderstanding at that time. In contrast, Poland, the best performing country in Eastern Europe, has not fully implemented shock therapy, and its state-owned enterprises have basically remained state-owned and prices have not been liberalized. Another country with a good performance is Slovenia, which has kept the state-owned enterprises for a long time and started privatization only one or two years before joining the European Union.
The transformation of China and Viet Nam is relatively successful, which is due to their gradual, dual-track and "crossing the river by feeling the stones" transformation mode instead of shock therapy. To sum up, this mode of transformation has the following characteristics: (1) There is no attempt to overthrow the socialist system and there is no so-called capitalist victory theory. (2) At the beginning of the transformation, micro-subjects are inefficient and lack enthusiasm, so we should improve their enthusiasm, let well-done enterprises get higher income, let well-done workers get higher income, and implement profit retention in cities; In rural areas, we should also break egalitarianism and implement the household contract responsibility system, so that well-done farmers can get higher income. (3) To reflect the difference between doing good and doing bad, we must give micro-subjects some autonomy, so as to improve their enthusiasm, make their production close to production possibility frontier and create new material materials. At the same time, the market track is allowed to appear outside the planned track, that is, the dual-track system is implemented: on the one hand, some market prices are allowed to exist while maintaining the planned price; On the other hand, collective enterprises, private enterprises and joint ventures are allowed to enter the previously restrained light industry sector (the investment comes from the surplus of state-owned enterprises and farmers, who will naturally pursue profits when investing in the surplus, so they will naturally invest in the light industry sector with product shortage and technology in line with comparative advantages). However, state-owned enterprises and farmers can only sell their products in the market after completing the government's quota of unified purchase and marketing. In this case, the enthusiasm of micro-subjects is improved, and the resources controlled by micro-subjects can be invested in departments with comparative advantages, so the efficiency of resource allocation is gradually improved, and the proportion of planning track is gradually reduced. When most products of a department are allocated by the market, the government can let go of the price and make it completely allocated by the market.
the result of gradual reform is reflected in the following two aspects: (1) there is no self-generation.