Book Review Explores The Context Of New Structural Economics

By Zheng Lei

The mainstream economic theory is always explaining the economic phenomena of the countries which are in the forefront of the times. In the 18th and 19th century, British and French economists occupied the theoretical highland of economics. After the rise of the United States, American economists have been leading the general direction of economics. The biggest drawback of these theoretical models is that they can not explain and solve the economic problems of countries in the period of institutional transformation. This is because most of the economic models are inductive and related to the specific situation of specific countries, so it is difficult to construct the same theoretical model applicable to many different countries. This is the background of China's economics. The explanation of China's economic problems should also form an economic theory suitable for China's specific conditions《 On China's economy: challenges, confidence and stamina is a new book recently published by Mr. Lin Yifu. As the founder of new structural economics, this book can be used as the main text to understand this theory. Among them, the articles revised by Mr. Lin can represent the original ideas of the theory. We extract some important points from it and do further theoretical thinking.

Mr. Lin agrees that social capital, human capital, technological capital, social network, infrastructure, socio-economic and political organizations, cultural customs, geographical location and climate conditions are also factors that have an impact on the economy. He also points out that "the most fundamental independent variable in an economy can be used as the first driving force". These elements endowment specifically include "capital, human capital, technological capital, social network, infrastructure, socio-economic and political organizations, cultural customs, geographical location and climate conditions" Natural resources such as labor and land ". This view is in line with the mainstream economics, but it does not pay enough attention to the social environment variables. Factor endowments are really easy to measure, so the theory holds that it is the total budget of an economy at a certain point in time and determines the relative price of factors at that time. Based on this definition, comparative advantage is equivalent to the mathematical problem of "how to minimize the opportunity cost of providing products or services based on factor prices". The role of government is the biggest innovation of this theory. Mr. Lin pointed out that "as long as the government plays a positive role in guiding the situation and removing the bottleneck of soft and hard infrastructure for entrepreneurs in the market economy", the economy can develop rapidly depending on industries with comparative advantages. In fact, a large number of enterprises in line with comparative advantage do not have self-supporting ability, especially from comparative advantage to competitive advantage, which requires other important conditions, especially the improvement of technical ability.

As for how to acquire technology, the theory holds that "it can be assumed that there is a given, exogenous and capital intensive industry and technology that can be selected by producers in various economies". Therefore, "the upgrading of industries and technologies can be realized through introduction, so that the cost and risk of innovation are relatively lower." There is an important assumption here: developing countries can import technology according to their own wishes and needs and realize development by borrowing. In other words, technology is exogenous and can be obtained at low cost. Obviously, the technologies that enterprises can choose freely should also be existing or mature technologies. However, after catching up growth, China has no samples to learn from in some areas that are already in the forefront, so we need to develop our own research and development.

The support of new structural economics to industrial and technological upgrading is "driven by the upgrading of factor endowment structure". It is necessary to "study how to improve the factor endowment structure, that is, to improve the per capita capital ownership." However, when the marginal income of investment becomes smaller and smaller, the promotion of economic growth is also becoming smaller and smaller. For the country, the technology of the existing industry must be better and better; There must be new industries with higher added value. In other words, the change of comparative advantage should provide enterprises with opportunities to adopt new technologies and enter new industries. The concept of "comparative advantage" here refers to the concept of economics, rather than the comparative advantage of enterprise management. For enterprises, the choice of industry track and technology depends on whether they have conditions, and consider the risks and costs. This is an intertemporal planning problem. In the short and medium term, it is bound to reduce revenue, and usually there will be unexpected sunk costs. The accumulation and current situation of enterprises are the basis of selection. The enterprises with strong strength have a higher probability of success in choosing technology upgrading, which can be understood as the "comparative advantage" of enterprises. From the perspective of enterprises, this advantage includes capital accumulation and technical level. From the external environment, whether the business cost is low enough and whether there are additional external resources to support.

Indeed, the government can help enterprises overcome the problems that they can not solve in many ways, such as business cost, large initial investment required for innovation and sunk cost caused by high risk“ If the new structural economics can clearly define the boundary between the government and the market and provide necessary help for the transformation and upgrading of enterprises, then the industry will become stronger, the economic structure will be more reasonable, and the advantages will be more obvious. This should not only be the description of macro-economy or industrial economy, but also include the analysis of enterprise behavior. It is a real "structural" economic theory to make a clear distinction in concept and find out the path from micro to meso and macro.

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