Chapter 8 System is the core of national competitiveness

Over the years, the Competitiveness Reports released by the Lausanne International School of Management in Switzerland and the World Economic Forum have attracted wide attention.According to many people, the criterion for measuring competitiveness is mainly economic performance, such as GDP growth rate, labor productivity of enterprises, infrastructure, etc.How to view the core competitiveness of a country?What does China rely on to enhance its competitiveness? ◎Reporter: Traditional economics believes that every country has production factors such as land, labor, and natural resources.As long as you know how to use these elements, you can gain an advantage internationally.But today, when various factors of production can flow freely, the competitiveness of countries still varies greatly. Why?

Chen Zhiwu: Before the great geographical discovery of Columbus, due to underdeveloped transportation, there was little communication and understanding between the continents of the world.In that case, people will not talk about national competitiveness, because there is no competitiveness or non-competitiveness without communication.In those days, the only thing that could be related to competitiveness was military power. Later, in the 19th century, steamships, trains, and telephones were invented, and exchanges between countries became more and more frequent. Globalization in the true sense began, and exchanges and trade between countries began, and competition was carried out in a comprehensive manner.However, in the period of agricultural society and early industrial society, when people’s basic food and clothing problems were not solved, the amount of natural resources, the size of land, gold, and silver reserves became the main indicators for measuring and judging a country’s competitiveness.Physical assets determine national competitiveness.

After the end of World War II, industrial production technology was fully mature, and the capacity and cost of transportation were also fundamentally sublimated. Mechanized large-scale production and 10,000-ton giant ship transportation made basic food and clothing no longer a problem for human beings.Especially in the past 20 years, under the transportation and information framework dominated by airplanes and the Internet, the content of state exchanges has undergone substantial changes.With foreign trade accounting for nearly 80% of global GDP, natural resources and land are no longer the most decisive factors for a country's competitiveness.Japan and South Korea without iron ore, as well as China without much iron ore, can become the world's largest steel exporter, become the world's factory, and so on.

So, what is the most important factor that determines a country’s competitiveness today when production factors such as land, resources, and labor are basically free to flow?It is a system, a system that determines the environment of market transaction rules and protects private property rights: which country can provide a perfect system that is most conducive to the occurrence of market transactions, can reduce transaction costs, protect individual property rights, have a fair judiciary and an effective contract enforcement framework, It will stand out in the competition among countries, and that country will be able to engage in high-profit economic activities without relying on hard work.An effective rule of law system can greatly reduce the cost of economic exchange between individuals and deepen the content of transactions beyond simple physical transactions.

From the perspective of the rise and fall of countries in history, economically successful countries (or regions) are often not those countries (or regions) with vast land and resources and rich resources, but countries (or regions) with various systems that can stimulate innovation and breakthroughs—from property rights Protection system to contract enforcement mechanism.And those countries (or regions) that are not so economically successful lack these institutions.In other words, the institutional quality of a country (or region) fundamentally determines its ability and efficiency in allocating resources, and thus determines its competitiveness.Moreover, if this kind of institutional arrangement is very favorable, it can also overcome the shortage of natural resources and social resources.The early Netherlands, the United Kingdom, and later Hong Kong, China, and Singapore are the best examples.From the perspective of traditional economics, they had almost nothing at the beginning and had no resource advantage at all, but they all succeeded. The per capita income of Hong Kong, China, and Singapore is no less than that of the United States and Western countries.How can this be explained?The very important reason is that these countries and regions have taken advantage of the advantages of seaport cities to provide people with a high-quality institutional environment that is conducive to the occurrence of market transactions and thus the improvement of competitiveness through private ownership and market economic systems.

◎Reporter: But in the eyes of many people, competitiveness seems to be mainly competition in the economic field, and the measurement standard is mainly economic performance: GDP growth rate, labor productivity of enterprises, infrastructure, etc.Not only ordinary people, but also the government, the media, and many scholars are like this. Chen Zhiwu: This is understandable.An inborn preference of people is that they like things that can be seen, touched, and understood at a glance. The percentage increase and statistics meet people's psychological needs, and the system seems too abstract.Moreover, in some countries where there has been no breakthrough in system building for a long time, it is very sensitive to talk too much about the system itself.Not only that, but many people think that talking about the importance of the system is a cliché, a cliché, and too subjective.In fact, the institutional impact is real.

From a micro level, even in countries with the most unfavorable institutional mechanisms for credit transactions, securities trading and lending can still appear, and there may even be a stock market.However, this does not mean that these securities markets can be deepened and developed for a long time to prosper.In China, people have a lot of savings, and there is a lot of capital supply. However, due to the irregular and inadequate institutional framework required by the financial securities market, funds have not been allocated to where they are most needed. There is a gap between the supply side and the demand side of funds. Transactions are easy to occur, and further economic development is difficult to occur.

From a national perspective, the business and politics of Japan and South Korea are too closely integrated, gradually forming a very fixed vested interest structure, and it is very difficult to destroy this interest structure.Therefore, Japan's economic difficulties are actually problems of the political system.On the contrary, the reason why the American economy has been full of vigor over the past 200 years is that its political system does not allow the formation of a vested interest structure at the economic level, and the introduction of a series of anti-monopoly legislation protects free competition.

◎Reporter: Over the years, the Hong Kong region of China has always been among the best in the two authoritative competitiveness reports of the Lausanne International School of Management in Switzerland and the World Economic Forum.How would you rate Hong Kong's success? Chen Zhiwu: Friedman has always believed that Hong Kong, China is a model of free market economy, and it is not easy to find similar versions in other parts of the world.Hong Kong's success lies in its favorable system for market transactions: a clear property rights system and contract enforcement framework, the concept of the rule of law, limited government power, a clean and efficient civil service, and the government's principle of not actively interfering in the economy.

The so-called non-intervention in the economy does not mean that the government does nothing and completely lets it go. It means that the Hong Kong government acts as an adjudicative middleman in the entire market, is committed to formulating the rules of the game, establishing and maintaining a fair trading platform, and is committed to resolving disputes, To maintain fairness, the government does not pursue profit, and does not run a large number of government enterprises to compete with the people for profit. Hong Kong is one of the biggest beneficiaries of economic globalization, giving full play to its institutional advantages.

◎Reporter: In recent years, there have been many discussions about the marginalization of Hong Kong.An important basis for relevant discussions is Hong Kong's backwardness in information technology and the shortcomings of technological innovation in supporting sustainable economic development. What is your opinion? Chen Zhiwu: When it comes to innovation, one of the biggest deviations in people's understanding is that innovation is limited to the field of science and technology. When innovation is mentioned, computers, space shuttles, biotechnology, etc. come to mind, while ignoring the impact of financial technology innovation on social progress. impetus.When observing the history of human development since the Industrial Revolution, many people only see the role of technological products such as steam engines and telephones, but do not realize the invention of financial products such as bonds, stocks, venture funds, and corporate governance structures such as limited liability companies. profound value generated.Many economic historians believe that the financial technology of the limited liability company and its matching "stock" invented 500 years ago laid the fundamental foundation for the subsequent industrial revolution and American-style capitalism. Without it, there would be no modern Enterprise system, without modern enterprise system, there will be no development of modern science and technology. Judging from Hong Kong's situation, about 90% of its GDP comes from the service industry, and a considerable part of its service industry is financial services such as finance and insurance.Therefore, in order to pursue innovation, Hong Kong should not focus on innovation in the fields of "hard technologies" such as computers, information and biology, but should adapt to local conditions and focus on financial technology innovation and business model innovation.In this field, Hong Kong has its own independent legal system and long-standing tradition of the rule of law, a large number of strictly trained legal talents and a high-quality soft institutional framework as guarantees, and its unique conditions are most conducive to the innovation and development of financial technology.In fact, innovation is also an important factor for Hong Kong's banking and financial industries to maintain strong competitiveness for a long time.A few years ago, the banking industry in Hong Kong established the first institution in the world to implement the simultaneous settlement service of foreign exchange transactions. Through the real-time simultaneous settlement of the US dollar against the Hong Kong dollar in the Asian time zone, it avoided settlement risks in foreign exchange transactions. The central settlement system for debt instruments was also established Began to connect at the end of 2001.This paperless instant payment system greatly improves risk management and increases efficiency.In addition, considering the actual situation in the mainland, Hong Kong's financial sector has launched various types of financial securities and funds for mainland enterprises and individuals, making its financial industry continue to grow. Therefore, whether people like it or not, Hong Kong will be China's most important and reliable financial center and capital center for a long time to come.Since Hong Kong has advantages in these fields, I don't think it will be marginalized.What Hong Kong is doing is "institutional arbitrage trading". Interestingly, Hong Kong's development history and successful experience in the past 150 years have not received enough attention in the mainland, and not many people have studied its successful experience.People mainly focus on studying the United States, Western Europe, Japan and even Singapore, while ignoring the reference value of Hong Kong, which is close at hand.Many people, out of an inexplicable superiority mentality, think that Hong Kong is today because of the glory of the mainland, and they are unwilling to face up to the significance of Hong Kong's success at the institutional level.Why can't Shanghai, which was ahead of Hong Kong back then, catch up with it today?I personally think that Hong Kong, as a society with Chinese culture as the main body, has a great understanding of its success, especially the successful analysis and absorption of the government's "doing nothing" in the economy and "doing something" in social life. The future development has a strong reference value. ◎Reporter: Competitiveness reports made by different agencies may result in very different rankings for the same economy. How do you view this phenomenon? Chen Zhiwu: The continuous introduction of various rankings is part of the globalization landscape. They provide direct comparisons between countries and force many countries to find out what is lacking and make more efforts. This is a good thing.The difference in the rankings is due to the different indicators selected by the various reports that affect competitiveness, as well as the different weights of these indicators.The selection of many indicators is very subjective, such as the level of the rule of law, and there may not be two jurists in the world who have completely consistent views on this.Therefore, these reports are only a reference, not an absolute indicator.But one thing is for sure, these factors are not isolated, but have a strong linkage.For example, government efficiency and enterprise efficiency. If the government efficiency is high, approval procedures are relatively small, and civil servants are relatively clean, this will improve the efficiency of handling affairs and contract execution, and ultimately, the efficiency of enterprises will also increase. What I want to emphasize here is that China moved 12 places to 19th in the international competitiveness ranking in 2006 compared to 2005, becoming the fastest-rising country and region.China's soft competitiveness has also been improved and developed.But on the whole, the lack of competitiveness in the "soft environment" is still a key aspect that affects China's further improvement of competitiveness, and how to improve it still requires us to make great efforts. One of China's most important competitiveness at present is a large amount of cheap labor.Labor is also a hard resource.That is to say, China's current competitiveness comes from a large number of cheap labor forces, not from a system that is conducive to market transactions.Many people will say, "We don't care what the rise in competitiveness is, as long as it rises." I would say that there is nothing to be proud of to build an advantage based on a large number of cheap labor.We should think about it more, why is our labor so cheap?Western Europeans work about 1,400 hours a year on average, while Chinese work 2,200 hours a year, but their per capita income is many times that of ours.From an absolute level, this shows who has higher absolute competitiveness?They can earn a lot of money without doing hard work, and the Chinese can't make that much money even if they work to death. It is self-evident who has the highest absolute competitiveness. "China has a lot of cheap labor" is an "advantage", which sounds like a paradox: just because China's institutional mechanism has always been unfavorable to the occurrence of market transactions, so in order to simply survive, we not only need a lot of labor , and no matter how small the income is, we have to work hard, which makes our labor always very cheap.The large and cheap labor force that was originally forced out due to the lack of institutional mechanisms should be said to reflect a disadvantage, but today it has become the core of China's competitiveness. Why is Chinese labor always so cheap?In the past thousands of years of Chinese history, perhaps, in order to achieve social control, the rulers deliberately set up many obstacles in the arrangement of laws and political systems. It prevents people from doing business and starting their own businesses, prevents technological progress from being accelerated, and prevents people from increasing their income.As a result, China has not been able to solve the problem of food and clothing for thousands of years, and people can only work hard to survive, and have to work day and night to obtain food and clothing.For rulers, the people who are always working hard for food and clothing are the best to rule, so the imperial courts of all dynasties have not really freed people from the simple struggle for food and clothing.Therefore, it is always necessary to maintain a system that is not conducive to the occurrence of market transactions, and to always suppress business. When production technology cannot be improved due to institutional obstacles, people gradually have no choice but to advocate the value of "hard work is a virtue" and make up for the shortcomings of the system with simple hard work.After overemphasizing this "virtue", many times it will in turn cover up the lack of institutional supply.Because since you can barely survive by working hard, why bother to improve the system and change people's "hard work" into "smart work" through institutional innovation, which will produce twice the result with half the effort?Hard work is not a virtue, and hard work regardless of income is a trap for future income growth. We must not be complacent about the "momentum" of competition that has created a large number of cheap labor forces in China today due to the lack of institutions in the past few thousand years. This "momentum" is not so much an "advantage" as a "disadvantage".We cannot be too intoxicated with the growth brought about by a large number of cheap labor forces, because if we are too intoxicated with this, we will ignore the construction of the rule of law and fail to establish a legal framework that is conducive to the protection of property rights and the enforcement of contracts.In order to improve China's real competitive advantage, it is necessary to create an institutional environment conducive to the deepening development of various markets.When the value that the Chinese can create per unit hour increases so much that Chinese labor is no longer cheap, then China will be considered a highly competitive country.