Just because I think Matt Yglesias is wrong to hold up the Chinese government as an example to be emulated, that doesn't mean his analyses are always wrong. Today, he had some very interesting things to say about growth in the Chinese economy. Matthew Yglesias » Two Paths to Greater Efficiency:
The basic story is that living standards ultimate derive from productivity, and there are two ways for an undeveloped country like China to obtain productivity growth. One is to simply shift people out of a low-productivity sector (like farming in China) and into a higher productivity sector (in China, factory labor). Another would be to actually raise the in-sector productivity by getting better at farming or manufacturing or what have you. In the specific case of China, it’s crucial to note that the productivity wedge between sweatshops and rice paddies is enormous which strongly suggests that a huge amount of what China’s achieved has been achieved through the former method. And with agriculture still employing over 35 percent of the Chinese labor force, there’s a great deal more China can achieve through this path. And it’s not a path I think should be slighted. Growth achieved through this method isn’t mythical—the higher living standards are very real. What is mythical, however, is the sense of the miraculous. For the reasons Krugman lays out, there’s nothing miraculous about this and there are real limits to how far you can go with it.
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