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The Marx Economist: Justin Yifu Lin and the World Bank

"In Chicago I learned the market has the best solutions in an ideal world without distortions. In reality there are a whole series of distortions, above all in developing countries. The quality of institutions and historical inheritance must be understood."
THE MARX ECONOMIST

Interview with Justin Yifu Lin, the new chief economist of the World Bank. Lin is a Chinese functionary. Yifu is an allusion to a Confucius quotation. An interview on exports, development and democracy

[This interview published in: DIE ZEIT 10/2008 is translated from the German on the World Wide Web,  http://www.zeit.de/2008/10/G-Interview-Lin.]


DIE ZEIT: What a remarkable career! You studied in Marxist Peking and in liberal Chicago, advised the Chinese government and now are chief economist at the World Bank. What are you now, a free enterprise advocate or a Marxist?

Justin Yifu Lin: A combination. In Chicago I learned the market has the best solutions in an ideal world without distortions. In reality, however, there is a whole series of distortions, above all in developing countries. I am a Marxist insofar as I believe these factors, the quality of institutions and historical inheritance, must be considered. We must understand these things before we press for introducing the market economy.

ZEIT: Is that a new development model for the World Bank?

Lin: I do not go to the World Bank with a model. Rather I believe in a diagnostic approach in development policy. Every country has its special development chances and obstacles that we must identify. As an international institution, we can help with our resources. It would be wrong to say: we have the solution for your problems.

ZEIT: But the World Bank did just that in the past. The World Bank aggressively enforced neoliberal economic reforms.

Lin: When I came to China from Taiwan in 1979, there was a great upheaval...

ZEIT: The policy of opening- and reform under Deng Xiaoping began in 1979.

Lin: Yes. I believe I now come to the World Bank in a similar phase. As you say, the World Bank oriented its earlier policy in a few basic convictions. Now more and more persons in Washington understand a diagnostic approach is necessary.

ZEIT: Could other countries learn from the Chinese model?

Lin: Yes. Another step should be taken. The Washington Consensus...

ZEIT: ... the earlier development policy model of the World Bank and the International Monetary Fund that propagated free enterprise reforms...

Lin: ... only functions in an ideal world. Successes cannot be simply transferred from one country to another. The reform process in China began in agriculture. Land was left to farmers that they could manage themselves. China is densely populated. Land surfaces are small and the distance from the farm to the market is trifling. Thus China's farmers could immediately get going and sell their products. Mikhail Gorbatchev failed when he tried to carry out similar reforms in Russia. The farms and distances are enormous in Russia. Therefore his attempt ran aground.

ZEIT: Some things in the Chinese development model are hard to copy because of the gigantic costs for other countries. Your land violates intellectual property rights. It keeps its currency artificially low to stimulate exports.

Lin: First on the theme intellectual property. The Chinese government has already taken on the problem in its own interest. From a specific stage of development, investments in research and development are necessary. These investments would not pay without a certain protection of intellectual property. In industrial states, there are also cases where property rights are violated.

ZEIT: However violations of property rights are especially widespread and aggressive in China.

Lin: I don't see it that way.

ZEIT: In development policy circles, one occasionally hears that poorer countries shouldn't take protection of intellectual property so exactly. As many people as possible should share in the fruits of technological achievements.

Lin: Some researchers make that argument but I don't think that should be a policy of the World Bank. There are alternatives. For example, governments could acquire modern technologies and pass on the advanced knowledge to the population. Those who do research work should be compensated.

ZEIT: What about the reproach of Chinese exchange rate dumping?

Lin: The matter is more complicated. When developing countries recover economically, they invest intensely in industries that are very important for modernization. More is produced than is needed in their own countries. The rest is exported. That was true in China and also in Korea, Japan and Germany after the Second World War. Promoting key industries was central. Export is a side-effect.

ZEIT: Doesn't the exchange rate play a role? Devaluing the currency stimulates export.

Lin: The role of exchange rates is exaggerated. If you have overcapacities, you will export.

ZEIT: One result of the Chinese export success is a gigantic accumulation of currencies. China can invest much more money all over the world than the World Bank. Isn't your step to Washington a profession descent?

Lin: The World Bank is still the largest international development organization. It has substantially more resources for development policy than China.

ZEIT: That is true for development assistance in the narrow sense but the importance of other capital flows increases.

Lin: Yes. These capital flows are substantially greater than development assistance. But private financial sponsors want to earn money. The World Bank can also focus on other projects like pilot investments.

ZEIT: What about the engagement of state enterprises and funds? The concern that these pursue strategic and geo-political goals grows in Europe and the US.

Lin: The Chinese state fund was established because we obviously have more reserves than we need for stabilization. My impression is that gaining profits is simple for most funds. They act like businesses. For example, the Chinese state fund CIC has to pay five percent interest to the ministry of finance. Many funds do not understand the businesses in which they hold shares and meddle in company policy.

ZEIT: China invests vast sums in Africa. The West looks upon this with suspicion.

Lin: There are two kinds of Chinese engagement in Africa. One is connected with mineral resources, e.g. oil. Business interests and assuring supply are paramount here. These engagements must be good businesses. Then there are projects financed by the Chinese development bank. Infrastructure and the like are primary here.

ZEIT: Development assistance is rarely given selflessly. What strategic interests are pursued by the Chinese government?

Lin: Both sides profit. Without such investments, the infrastructure could not market raw materials to these countries.

ZEIT: China gives its money without insisting on minimum social, legal or ecological standards. Is it wrong to set these conditions?

Lin: When countries become richer, they also become more liberal. When we contribute to the growth of the economy with our projects, we enable governments to do what is right for their people and the nations.

ZEIT: A different understanding of state and society prevails in China compared to the West.

Lin: The more development advances, the more individual freedom rights people will have. They will be able to decide where they want to live and how they participate in the social, political and economic process. When I went to Chicago in 1982, it took six months until I received my passport. I had to fill out many forms. Today this is no longer a problem. People receive their passports in six days.

ZEIT: Will there be a democracy at the end according to the Western model?

Lin: There are different forms of democracy in the West. German democracy is different from the British or the American. I am sure we will have a democracy but it will be a democracy with Chinese features.

ZEIT: At the end let us speak about the current world economy. Many in the US fear a recession. Will that endanger the boom in Asia?

Lin: It depends on the intensity of the decline. A deep and severe recession would impact China but I don't believe that will happen. Political instruments can avert this. Our exports do not depend so intensely on the ups and downs of the business cycle as the exports of other countries. Unlike cars, textiles are in demand even in bad times.

ZEIT: When will China replace the US as the greatest economic power?

Lin: In 20 to 30 years or 15 to 20 years if one considers the different purchasing power of the currencies.

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