Xu Zerong: A Summary of the 21st Symposium of the Chinese Association for the Study of Foreign Economic Theories
On November 9, 2013, coinciding with the successful convening of the Third Plenary Session of the 18th CPC Central Committee, the "21st Annual Academic Symposium of the Chinese Association for the Study of Foreign Economic Theories and 'Foreign Economic Theories and Contemporary China's Economy'" was held in Chongqing. The event was hosted by the Chinese Association for the Study of Foreign Economic Theories and organized by the School of Economics and Management of Southwest University. More than 150 experts and scholars from universities and research institutes across the country attended. Cheng Enfu, President of the Association and Director of the Academic Division of Marxist Studies at the Chinese Academy of Social Sciences (CASS), delivered the opening remarks. Professor Zhang Weiguo, President of Southwest University, and Professor Wang Zhao, Dean of the School of Economics and Management, delivered welcoming addresses. Professor Fang Fuqian of Renmin University of China and others gave keynote presentations. Guided by an adherence to Marxism and centered on the theme of foreign economic theories and contemporary China’s economy, the meeting engaged in lively discussions. The following is a summary of the symposium’s content.
I. Focus on the Academic Thought of International Economics Prize Winners
The World Association for Political Economy (WAPE), a global academic organization, held its 8th International Academic Forum from May 25 to 27, 2013, at the Federal University of Santa Catarina in Brazil. The eminent world economist and founder of dependency theory, Professor Theotônio dos Santos of the Federal University of Rio de Janeiro, and Wei Xinghua, a First-Class Honorary Professor at Renmin University of China, were awarded the 3rd World Marx Prize [1] for Economics. At this annual meeting, Associate Researcher Hou Weimin of CASS introduced and evaluated the academic thoughts of Professors Dos Santos and Wei Xinghua in his presentation. Hou Weimin pointed out that Professor Dos Santos’s academic contribution lay in proposing the "New Dependency Theory." So-called "dependency" refers to a condition where the economies of certain countries are conditioned by the development and expansion of another economy to which the former is subjected. Dependency takes three forms: commercial-export dependency, financial-industrial dependency, and technological-industrial dependency. Currently, developing countries have entered a new period of realizing industrialization by relying on foreign capital. Developed capitalist countries are destined to alleviate internal pressures by opening international markets during their development process. Because they are constrained by the world system dominated by developed capitalist countries and the internal systems of Latin American countries themselves, Latin American countries, as backward regions, have developed a relationship of dependence on the former, which is the true cause of their underdevelopment. Unless there is a qualitative change in the internal systems and external relations of Latin American countries, their dependent relationship on other capitalist countries cannot be altered. Professor Wei Xinghua’s academic innovations lie in: emphasizing the status of productive forces and advocating for the multi-element theory of productive forces; proposing a new mechanism for economic operation termed the "longitudinal two-level regulation" theory and the "theory of the internal unity of fairness and efficiency"; and, regarding state-owned enterprise (SOE) reform, advocating for the advancement of SOE reform through comprehensive coordination, with the focus on strengthening scientific management within SOEs. He opposes using the pretext of making the shareholding system the primary form of realization to negate or replace the two forms of public ownership: the state-owned economy and the collective economy.
In October 2013, the Nobel Prize Committee in Economic Sciences awarded this year's prize to three American economists who made outstanding contributions to the empirical research of asset price theory: Eugene Fama, Robert Shiller, and Lars Peter Hansen. Professor Cheng Enfu, Professor Fang Xingqi of South China Normal University, Professor Guo Qiyou of Xiamen University, and Assistant Professor Li Baoliang of Huaqiao University commented on the major economic theoretical contributions of these three scholars. They noted that the value and significance of empirical research in asset pricing theory lie in its role as a core topic of financial economics research; it has greatly enhanced understanding of the predictability of asset returns over time and the determinants of differences in asset returns, driving the development and integration of neoclassical finance and behavioral finance. Professor Cheng Enfu pointed out that Shiller’s ideas on bubbles, negative impacts, and "irrational exuberance" in stock and financial markets, as well as his suggestions regarding the development of China’s real estate market, deserve our high level of attention. Professor Fang Xingqi noted that Shiller’s theory of economic and financial development is quite distinctive; his understanding of finance and financial development is completely different from prevailing views. A point especially worth affirming is Shiller’s advocacy that finance should not entirely become a tool for a few financial practitioners to pursue wealth and power by any means necessary, but should instead become a tool that serves everyone, thereby promoting sound social development.
II. Comparison and Analysis of Foreign Economic Theories
1. New Explorations in Foreign Economic Theory
(1) The relationship between the "ideological" and "technical" nature of economic research. With the increasing use of mathematics in economics, the relationship between mathematics and economics has become a subject of much debate in academic circles. What exactly is the relationship between the two, and how should we correctly view and utilize the role of mathematics in economics? Professor Fang Fuqian of Renmin University of China discussed several issues regarding the relationship between the ideological and technical aspects of economic research in his keynote speech. Regarding the relationship between empirical and theoretical analysis, Professor Fang pointed out that empirical analysis should be guided by correct theory and based on theoretical analysis; otherwise, empirical analysis may lack a clear target or leave the reader confused. A good economics paper should conduct credible empirical analysis on the basis of persuasive theoretical analysis. Economic research cannot merely answer "what is," but must also answer "why." Furthermore, empirical analysis cannot replace theoretical analysis. As a discipline of explanation, economics primarily seeks to answer two basic questions: the relationship between economic phenomena, and the causes or nature behind economic phenomena. The connections between economic phenomena are often correlations, or at most shallow causal relationships; whereas the relationship between an economic phenomenon and its cause is a deep-seated causal relationship. The former can be explained or revealed through mathematical and econometric methods, but when it comes to revealing the latter, mathematical and econometric methods appear inadequate. This is because the links between economic phenomena and their causes are complex and multi-layered, and can often only be grasped through abstract analysis and logical reasoning. Regarding the relationship between the technical and the ideological, Professor Fang emphasized that economic research is primarily for producing ideas and viewpoints, and for explaining and solving economic problems. Mathematical and econometric techniques are important and useful tools for economic research, providing supporting services for understanding economic relations, discovering ideas, and exploring causes. Technicality cannot replace ideological depth; technology itself is not the task or purpose of economic research. Technical complexity does not equal depth of thought, technical novelty does not equal original thought, and technical rigor does not equal intellectual thoroughness. Regarding the relationship between correlation analysis and causal analysis, Professor Fang argued that from an applied or practical perspective and for short-term needs, correlation analysis might suffice; however, from the perspective of scientific research and long-term trends, causal analysis is indispensable. Correlation research cannot substitute for causal research. He emphasized that correlation must not be conflated with causality.
(2) Multiple reproduction equilibrium structures and economic cycles. In its upward movement along the general trend of economic development, economic activity often fluctuates up and down, exhibiting the characteristics of periodic changes. Researcher Hu Leming of CASS, using the "self-reinforcing" and "lock-in effects" of multiple structures as explanatory tools, pointed out that the process of economic growth is also a process of continuous "reshaping" of the reproduction equilibrium structure. It is the alternating effect of the "structural gravity" of the "multiple reproduction equilibrium structures" that causes economic operations to periodically display different "self-reinforcing" and "lock-in effects" of reproduction equilibrium structures, thereby forming periodic economic fluctuations.
(3) The theory of excessive financial development. After the outbreak of the 2008 global financial crisis, academia, the business community, and government departments, while exploring the causes and governance of the financial crisis, turned their attention to the scale of the financial industry. Professor Hu Haifeng of Beijing Normal University pointed out that research on excessive financial development can be carried out from two perspectives: the growth function of finance and the allocation efficiency of finance. The former focuses on whether financial development is excessive to the point of having a negative impact on economic growth; the latter discusses whether the financial sector, as an independent sector, has grown too large or too fast, absorbing too many physical and human resources and causing inefficiency in social resource allocation. Although research on the over-development of finance has its shortcomings, its emphasis on the idea that one should not focus excessively on the scale of financial development but rather on its function is targeted and has practical significance; when financial development exceeds a certain scale, it should be restricted, regulated, or even downsized.
(4) Weisskopf’s dynamics of the rate of profit. Professor Meng Jie of Tsinghua University pointed out that American economist Thomas E. Weisskopf proposed a method for studying the dynamics of the profit rate, which attributes changes in the profit rate to changes in three factors: the output-capital ratio, the profit share, and the rate of capacity utilization. He mapped these three factors to three Marxist crisis theories. Weisskopf used econometric methods to test the different impacts of these three factors on the decline of the profit rate in the United States in the late 1960s, thereby defending the theoretical explanation of the "profit squeeze" theory regarding the causes of the 1973–1974 economic crisis.
(5) Gibrat's Law and the Pareto-Zipf Law. Firm size is one of the core issues in modern firm theory. Dr. Fang Mingyue of the Capital University of Economics and Business conducted an in-depth study of Gibrat's Law and the Pareto-Zipf Law regarding firm size distribution. Western economists, primarily based on countries with mature markets, have used different national data and research methods to repeatedly verify the above two distribution laws and have explained the corresponding formation mechanisms by constructing various theoretical models. From the perspective of distribution laws, probability models and large-sample data can be used to examine the overall distribution of firm size, thereby judging whether the distribution of firm size is rational and optimized. On the one hand, this theoretically provides a macro-analytical paradigm that complements the micro-dichotomy of "firm vs. market." On the other hand, in terms of practical significance, research on firm size distribution in mature market economies provides a reference benchmark for exploring firm size issues in China.
2. Evaluation of Important Theories in Western Mainstream Economics
(1) The interest-group nature of economics. Unlike the natural sciences, economics possesses a class nature. Professor Chen Hong of Nankai University pointed out that any economic theory is a reflection of the interests of a certain interest group, and the prevalence of an economic theory must be the result of support from interest groups with significant social influence. The Coase Theorem, the Kuznets Hypothesis, and the Comparative Advantage Theory are all logically correct economic theories, and there is no doubt that all three played a role in promoting China's reform and opening-up process—the Coase Theorem aligned with and promoted China’s SOE reform, the Kuznets Hypothesis provided important theoretical support for the "efficiency first, with due consideration to fairness" strategy that broke the shackles of egalitarianism, and the Comparative Advantage Theory promoted the opening up to the outside world in line with the trend of economic globalization. However, we cannot ignore the presence of interest groups behind the prevalence of these theories in China. They hope the Coase Theorem provides a theoretical basis for them to seek economic benefits during the reform of SOE property rights; they hope the Kuznets Hypothesis can mask and legitimize their greed during the process of marketization; and they hope the "defenseless principle" of comparative advantage becomes a tool for them to collude with international monopoly giants.
Professor Cheng Yanjun of Jiangsu Normal University and Professor Zhang Zuoyun of Huaibei Normal University pointed out that it is currently necessary to eliminate the interference of Western trends of thought such as neoliberalism, democratic socialism, and historical nihilism. In particular, we must be vigilant against the misleading influence of Western trends of thought such as "eliminating state-owned enterprises" and "implementing constitutionalism" [2] on the deepening of reform.
(2) Capital Power and Market Order. Professor Zhang Fengchao of South China Normal University argued that without the rationalization and specialization of state coercive power, there can be no market order in the modern sense. "Government intervention," as the exercise of state coercive power, is a necessary condition for market order to exist and function. He maintained that any state’s implementation of government intervention is a rational decision to safeguard its own national interests. This is especially true today, when the predatory nature of foreign private monopoly capital and state coercive power is so blatant, and invasive forces so powerful; thus, the self-protection of the weak does not violate the core principle of free trade. In this sense, it is precisely through the intervention of a "small but strong" government that a competitive market—one suited to national conditions and capable of eliminating so-called "cosmopolitanism"—can be realized and sustained.
(3) Revision of the Aggregate Supply-Demand Model. Since the 2008 global financial crisis, China and the world’s major Western economic powers have yet to fully escape the troubles of aggregate supply-demand imbalances and the failure of macroeconomic policies. Professor Zhu Zeshan of Southwest University argued that the deficiency of the aggregate supply-demand model in Western economics lies in its neglect of consumption, the constraints consumption places on the conversion of savings into investment, and the restrictive conditions for different types of investment. The rationale for revising the model is to integrate consumption into the framework to construct a constrained relationship between consumption and investment, and to integrate different types of investment to build incentive-constraint relations, thereby transforming the regulation of aggregate supply and demand. Professor Bai Baoli of Beijing Normal University, using Marx's formulas for the three departments [3] of social production as a basis, derived the transmission effect of consumption on investment demand.
III. People’s Livelihood-Oriented Reform and Opening Up
In the more than 30 years of reform and opening up, China’s economy has achieved results that have attracted world attention. However, a small number of groups still hope to implement Neoliberal "privatization of state-owned enterprises, privatization of land, and financial liberalization," or wish to change the so-called "semi-command economy" into a "modern market economy system" that functions as a competitive market mechanism without state regulation. Professor Cheng Enfu pointed out that these desires go against the will of the people. China should emphasize a "people’s livelihood-oriented" (民生导向型) reform and opening up, as this is where the interests and tangible benefits of the broad masses lie, and is both the starting point and the ultimate goal of reform and opening up. While continuing to let the market play its fundamental role in resource allocation, China must improve the state's planning instruments and the regulatory role of fiscal and monetary policies to maintain macroeconomic stability, balance, and sustainability, aiming for the unity and maximization of overall interests. Under the prerequisites of integrity, low cost, democracy, and efficiency, the leading position of a "small but strong government" must be established. This involves using the superior functions of market regulation to suppress "state regulatory failure," while simultaneously using the superior functions of state regulation to correct "market regulatory failure." This creates a functional "fundamental-leading" dual regulation mechanism, forming a "double-high" or "double-strong" pattern of an efficient market (strong market) and an efficient government (strong government). This would demonstrate that the state’s benign regulatory functions and effects are stronger or greater than those in capitalist countries. Professor Jiang Fuxin of Nanjing Normal University also proposed that China needs to gradually form this "double-strong" pattern of strong market and strong government.
Establishing a view of wealth centered on people’s livelihood is an intrinsic requirement of China's "post-reform era" [4] and a requirement of the historical shift in the objects and objectives of economic research in this era. Professor Zhou Xiaoliang of Fuzhou University argued that the "people’s livelihood wealth system" consists of three interconnected and mutually influential subsystems: commodity wealth, natural wealth, and knowledge wealth. The core essentials of this system are reflected in three aspects: maximizing livelihood utility, minimizing intergenerational disparity, and maximizing the system's coordinated development coefficient. This system facilitates the deep development of the drivers of wealth and helps further promote the construction of social security and the improvement of people's livelihoods, driving changes in the interest structure of the post-reform era.
Professor Jia Genliang of Renmin University of China argued that while affirming the achievements of reform and opening up, we must learn from the historical lessons of countries that lost their monetary sovereignty and their autonomy over government procurement of self-innovated products through opening up, falling into the "bad trade" trap of "exporting low-end products and importing high-end products."
IV. Other Important Issues in China’s Economic Development
1. TPP and TTIP Trade Negotiations Recently, the process of global regional economic integration has seen two major events: the TPP (Trans-Pacific Partnership) negotiations among 12 countries including the United States, and the accelerated TTIP (Transatlantic Trade and Investment Partnership) negotiations between the U.S. and the EU. Professor Jia Genliang proposed that if China joins the TPP, developed countries like the U.S. will use it to control and dominate China's high-end industries and domestic market, suppressing China's efforts to transform its economic development mode. If China does not join the TPP, the path forward remains broad; in external economic relations, China can implement a "Eurasian Continental Development Strategy" and even propose an initiative to the "Community of Latin American and Caribbean States" (CELAC) to establish a "33+1" Free Trade Area with the 33 Latin American nations. Accelerating the transformation of the economic development mode is the fundamental measure to counter the TPP.
Professor Shi Shijun of Shanghai University of International Business and Economics argued that the negative impacts of TTIP and TPP negotiations manifest as the potential severe erosion of trade multilateralism, the clear marginalization of emerging economies, and the renewed neglect of the economic and trade interests of developing countries. China should pay close attention to these negotiations and promptly determine its corresponding game-theory strategies. Otherwise, in the near future, China will not only lose many economic opportunities and trade benefits provided by the multilateral trade system but will also pay an extremely high price to face the difficult journey of re-integrating into the international economic track. This must not be treated lightly.
2. The Issue of Excessive Money Supply Persistent inflation in recent years has attracted high attention. Professor Guo Diansheng of Jilin University of Finance and Economics pointed out that excessive money supply refers to a situation where the money actually circulating in the market exceeds the needs of economic development, resulting in excess liquidity and a general rise in commodity and asset prices. This has been the driving force behind the near-total loss of control in China’s capital markets, fueling the spread of inflation and increasing the risk of currency devaluation.
3. Industrial Structure Upgrading The process of economic development is inevitably accompanied by profound changes in industrial structure, which in turn becomes a major driver of economic development. Based on a theoretical analysis of the internal mechanisms of "industrial structure advancement" (产业结构高级化), Professor Zhang Weiguo and Associate Professor Gao Yuanyong determined the influencing factors and quantitative indicators of this advancement and constructed a spatial econometric model. Their research concluded that social demand is the most significant and decisive factor in the advancement of industrial structure, with consumer demand playing the greatest role in driving its level.
Professor Zhou Duanming of Anhui Normal University, evaluating the two approaches of "industrial structure adjustment" and "value chain upgrading," pointed out that the future research direction for China's industrial upgrading lies in integrating these two perspectives. This involves using value chain upgrading as the micro-foundational basis and structural adjustment as the macro-environmental context and outcome, thereby constructing an analytical framework for industrial upgrading that includes micro-foundations and can effectively explain structural change.
4. The Linkage Effect between the Virtual Economy and the Real Economy Since the 1997 Asian financial crisis, domestic and foreign scholars have paid increasing attention to the virtual economy. The international financial crisis triggered by the 2008 U.S. subprime mortgage crisis is widely regarded as the result of the overdevelopment of the virtual economy. Professor Xu Dandan of Beijing Technology and Business University used Marshall’s K-value as an indicator of the virtual economy and the share of the three industries in GDP to measure the real economy. Through unit root tests, cointegration tests, and Granger causality tests, a VAR model was established to conduct an empirical analysis of the linkage effect between the virtual and real economies from 1998 to 2012. The study found that China's current problem is a lack of linkage and a lack of support from the virtual economy for the real economy, rather than its overdevelopment.
5. Anti-poverty Issues In the process of global economic development, poverty remains a major problem troubling the progress of human society. Professor Liu Jianhua of Jilin University of Finance and Economics, through deep research into Chinese and Western theories of poverty, proposed that the key to solving China's current poverty problems lies in grasping the positioning of Marxist economic poverty theory to provide a scientific methodology for understanding socialist poverty. He emphasized: distinguishing between "institutional poverty" (制度性贫困) and "systemic poverty" (体制性贫困) [5] to provide feasible ideas for solutions; adhering to the dominance of socialist public ownership of the means of production to lay the institutional foundation for eliminating poverty; deepening the reform of the income distribution system to reverse the trend of widening income gaps and provide economic protection; maintaining "sound and fast" economic development to create material conditions; and improving anti-poverty and poverty alleviation systems to foster a policy environment for eliminating poverty.
Professor Zou Wei of Wuhan University constructed a model of intergenerational transmission of human capital, explaining the problem of persistent poverty in low-income families from the perspective of the risks and decisions of educational investment. In low-income families, an individual’s willingness to invest in human capital is positively correlated with their income level, meaning the poorer the family, the lower the willingness to invest in human capital.
The conference also conducted in-depth discussions on the new construction of Chinese economics, the economic interpretation of the "Chinese Dream," the efficiency of state-owned enterprises, and the transformation and upgrading of the open economy. Experts such as Wang Zhenzhong, Wang Zhiwei, and Yu Wenlie attended the meeting.
(Author’s affiliation: School of Economics, Capital University of Economics and Business)
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