The pragmatic disruptor behind China’s economic miracle

Published Friday, Jun. 13 2014

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The week he got hired as the World Bank’s first chief economist from a developing country, Justin Yifu Lin got on a plane and flew to Ethiopia. When he got there, he left the luxury hotels frequented by the suits ostensibly responsible for uplifting the world’s poor, and walked straight into the middle of a boisterous African market.

“I like to know the real economic situation, not just statistics, and the best place to do that is in the marketplace,” Mr. Lin tells me.

While he perused market stalls, Mr. Lin – a long-time adviser to China’s top leadership on economic reform and one of the world’s top development economists – looked hard at what was being sold.

He found cheap Chinese goods, as one will find in markets across Africa, but he also saw basic matches that had been imported from Nepal, a small landlocked country like Ethiopia. He bought a box of matches, a lock, a simple lighter, a flashlight and an electrical switch and took them with him when he went to visit then-Ethiopian prime minister Meles Zenawi – who was surprised when Mr. Lin gave them as gifts. Why, Mr. Lin asked, couldn’t Ethiopia produce these types of goods?

The blunt ploy worked. Mr. Lin persuaded the prime minister to look into import substitution – a taboo notion in free market economics, he says, particularly at his alma mater, the University of Chicago, in which specific policies help domestic products displace foreign imports. But such a strategy could take advantage of Ethiopia’s abundant leather and cheap work force.

On his advice, the Ethiopian government sent a trade mission to China and lured over a Chinese company that set up a shoe factory that would employ 600 Ethiopians. The corporate venture created jobs and reduced poverty, but government was still playing a crucial role in sculpting favourable conditions for economic growth. These ideas weren’t exactly unfamiliar to Mr. Lin, but ran counter to the World Bank’s history of economic liberalization shock therapy and promoting growth by reducing the role of governments in their economies.

On these matters, Mr. Lin has more credibility than most. For decades, he has advised China’s political leadership on national policies that have contributed to one of the most important events in recent world history: The renaissance of the Chinese economy and the lifting of hundreds of millions of Chinese citizens out of poverty.

One of Mr. Lin’s economic analyses looked at excess capacity in Chinese manufacturing of TVs and refrigerators. He revealed that China’s rural population wasn’t buying these goods because rural infrastructure – both water and electricity – was in such a poor state. It wasn’t that they couldn’t afford them – they couldn’t even plug them in. This discovery led to the national-level “New Socialist Countryside” policy in China that sought to boost domestic consumption.

“They attached my name to that,” says Mr. Lin, who is a formal member of the standing committee of the Chinese People’s Political Consultative Conference.

This approach – which he calls “Beyond Keynesianism” because it doesn’t just inject money into a failing system, but invests capital to boost growth permanently and lift people from poverty – was also seen in China’s approach to the global financial crisis, which resulted in a massive $586-billion stimulus in 2008.

“It was my personal aspiration to make a contribution to the prosperity of the nation,” he says.

Now some of the more than 30 books Mr. Lin has authored are spreading his ideas to the next generation of development economists, who will come of age after the death of the Washington Consensus, and hit the ground in developing countries where China’s state-linked corporations, entrepreneurs and diplomats have supplanted many of the traditional actors in international development.

We are speaking over breakfast at Vancouver’s Four Seasons hotel restaurant, Yew, the day after the University of British Columbia awarded him an honorary PhD. After perusing the menu for a while, I ask if he is searching for a Chinese option (there isn’t one), but he brushes my comment aside and keeps looking. Peering down at a poached egg dish that comes with Merguez lamb sausages, I ask Mr. Lin if he has ever been to Morocco. He looks up, intrigued, and says he has. Had he seen the smoke rising from Marrakesh’s Jemaa el-Fna market, I ask? He had. A lot of that smoke is coming from grilled Merguez sausages, I explain.

He is beaming. “I will follow your advice,” he says. We both order the dish.

Soon, the 61-year-old author of more than 30 books is more subdued. It is the morning after a long commencement ceremony and a formal dinner, both of which required speeches. On his way to Vancouver from Beijing – where he is a professor at Beijing University – Mr. Lin made a stop in Kigali to address African leaders. He is flying back to Beijing that afternoon, and admits he didn’t sleep well. He’s exhausted. But this journey is nothing.

He once swam to China.

The story has made him a legend on the mainland in an era of new-found Chinese confidence. He was actually born in Taiwan, attended university there, and then joined the Taiwanese military after he got his MBA. The fierce Chinese nationalist was posted to the Quemoy archipelago, which lies very close to mainland China. One night in 1979, Mr. Lin walked down to the shore, stepped into the water and – with his pregnant wife and child still in Taiwan – defected by swimming to the mainland.

Remarkable as that is, I know this is ancient history to him. I ask how it felt. “I did it,” he replies. After a pause, he adds: “I think I’m the luckiest person in the world.”

Was it not a strain on his relationship with his wife? “We met in college and she was supportive of my dream. She knew if I stayed in Taiwan, I wouldn’t be happy,” he says. They later reunited in the United States.

Of course, the move was not without painful consequences. In 2002, the Taiwanese military issued an arrest warrant for his defection in order to prevent him from attending his father’s funeral – a clear affront to Mr. Lin’s Confucian conceptions of filial piety.

Convinced I’ve already annoyed him by dredging up the past, I see no point in further delaying my question about Tiananmen Square and political reform. Mr. Lin is a serious and widely respected development economist, but he is also an unabashed supporter of China’s government, even as he advocates future reform. I refer to the massacre of pro-democracy students on June 4, 1989 – then approaching its 25th anniversary as we dined – in a long, cautiously phrased question.

Hesitating slightly, and without direct reference to the event, Mr. Lin responds in similar fashion with an answer that traverses the remarkable economic growth of Singapore, Taiwan and South Korea – “They were all authoritarian,” he says – and concludes by driving home the general meaning of his life’s work, which he readily admits was validated symbolically when the World Bank chose him to guide the institution’s poverty-solving attempts after his success in China.

“Intellectuals and academics always use Western, developed countries as reference points,” Mr. Lin says. “If you look back, none of the developing economies who followed their path succeeded.”

After all, he points out, if you subtract the hundreds of millions lifted from poverty in China, the sheer volume of poor people has not drastically changed since the World Bank was founded near the end of the Second World War.

I ask him whether that means the bank has been a failure.

“It did not accomplish its goals,” he replies.

He says the main problem has been the bank’s attempts to jolt developing economies with policy prescriptions that would forcibly make them resemble Western countries – a policy that prominent former World Bank economists, such as William Easterly, have decried as wrong-headed.

Mr. Lin not only helped shape China’s modern economy, but he also seemed to know where it was going. Yves Tiberghien, the director of UBC’s Institute of Asian Research, noted in an introduction at the Vancouver dinner how Mr. Lin’s 1994 book The China Miracle predicted that the country’s economy would eclipse that of the United States by 2015. That, Mr. Tiberghien points out, is what the World Bank now suggests will occur – although it may even happen a few months early. Mr. Lin’s foresight makes him a compelling thinker on the future of China – not just because he’s been right before, but because, in his own way, he’s also helping chart the course.

Some skeptics think China’s economy is destined to crumble under slowing growth and bad debts. But Mr. Lin is fully aware of the Chinese economy’s problems. China, he tells me, must get serious about tackling corruption, reduce industry’s impact on the environment, improve the rule of law and shift away from a dual-track economy that subsidizes inefficient state-owned firms and toward freer market. He has also watched as wages have risen in China and now recommends Chinese firms consider new countries in which to source low-wage manufacturing for the country’s still largely export-driven economy. Would that new manufacturing be in Africa, I ask? He nods.

A few years after they first met, Mr. Lin ran into the prime minister of Ethiopia again. The factory that had provided 600 jobs had expanded to employ more than 2,000. A government-ordained industrial park of 22 factories had filled up with companies from South Korea and Turkey in just three months. Exports were booming. Chinese investment in Africa is clearly complex, but Ethiopian media now write of the footwear industry supporting up to 100,000 jobs over the next 10 years.

“People often confuse aspiration with prescription,” he says, referring to attempts by developing countries to mimic the present-day policies of developed ones without a comparable economy. “It’s a process.”

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Curriculum vitae

Born: Oct. 15, 1952, in Taiwan. Defected to the People’s Republic of China in 1979.

Former position: Chief economist and senior vice-president of the World Bank; Founding director of the China Center for Economic Research, Peking University.

Current position: Professor and honorary dean, National School of Development, Peking University; member of the Standing Committee of the Chinese People’s Political Consultative Conference.

Education: PhD, economics, University of Chicago; MA, political economy, Peking University; MBA, National Chengchi University (Taiwan).

Publications: He is the author of dozens of prominent journal articles and more than 30 books, including The Quest for Prosperity: How Developing Economies Can Take Off (2012) and The China Miracle: Development Strategy and Economic Reform (1994).

Family: Married to Chen Yunying, with two children.

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