Asian Economies & Why Geography and History Matter More Than Economics Models with Jamus Lim

"The way that institutions emerge and entrench themselves and become a part of the functioning of an economy and society is because they solve some problems. So they're usually a non-market solution toward solving some problem that the economy, that the market system couldn't necessarily solve. Of course the most prominent example of an institution that solves an. Market problem in the non-market way is a firm, as Ronald Coase, of course very early on, taught us that. When a firm realizes that in some cases when transactions costs are high, you want to internalize things within the firm. That the firm is itself an institution. But these other social political institutions, they also exist to resolve some problem. And once they resolve that problem and they're resolving it adequately, then it becomes really hard to bring about change. So the institution solves a problem. So to be clear, it is better than in the absence of the institution, but it also means that without somehow breaking this institution or having some crisis that leads you to substantially reform the institution, you are going to be stuck at a suboptimal equilibrium." - Jamus Lim, author of "Asian Economies: History, Institutions and Structures"

Fresh out of the studio, Associate Professor Jamus Lim from ESSEC Business School and author of "Asian Economies: History, Institutions and Structures" joined us in a comprehensive exploration of the economic foundations shaping Asia's remarkable rise. Jamus shared his story on how the Asian Financial Crisis sparked his passion for macroeconomics and development. He unpacked the critical yet often overlooked role of geography, history, and institutional frameworks in explaining Asia's immense economic diversity, arguing that abstract economic models fail to capture the real-world complexities driving regional development. Through deep dives into China's demographic transition and export-driven challenges, South Korea's state-led chaebol industrialization model, and Japan's historic shift from deflation to inflation, Jamus demonstrated how colonial legacies and historical persistence continue to shape modern economic structures across the continent. Throughout the conversation, he revealed why China's middle-income trap escape depends on building domestic consumption to absorb its massive manufacturing capacity, explained how institutional solutions that once solved problems can become growth constraints, and argued that understanding Asia's past is essential for navigating its economic future in an increasingly complex global landscape.

Episode Highlights:
[00:00] Quote of the Day by Jamus Lim
[02:27] Introduction: Jamus Lim, Associate Professor in ESSEC Business School and Author of Asian Economies
[04:38] Asian Financial Crisis sparks Jamus' macro economics interest
[07:38] Teaching in Asia reveals regional development contrasts
[09:10] Middle income trap challenges across Asian economies
[10:23] Defining Asia: beyond East Asia stereotypes
[15:10] How Geography and History are overlooked in economic discourse
[17:26] China's transformation: poverty to economic powerhouse
[19:32] Demographic transition challenges across East Asia
[22:21] China's manufacturing evolution and export strategy
[24:28] Lewis turning point: China's labor transformation
[26:11] Housing boom and excess supply challenges
[29:10] Hukou system creates unequal access issues
[33:30] China shock: WTO entry transforms global manufacturing
[38:27] South Korea's state-led industrialization model success
[39:10] Zaibatsu to Chaebol: the colonial influence on economic structures
[42:00] Heavy chemical industry: successful state intervention in South Korea
[44:17] Japan's deflation to inflation transition challenges
[46:32] Structural adjustments in Japanese labor markets
[48:03] Institutional foundations: solving problems creates persistence
[54:04] Academic success vs. real-world policy impact
[55:00] Closing

Profile: Jamus Lim, Author of Asian Economies, LinkedIn: https://www.linkedin.com/in/jamuslim/

Podcast Information: Bernard Leong hosts and produces the show. The proper credits for the intro and end music are "Energetic Sports Drive." G. Thomas Craig mixed and edited the episode in both video and audio format.

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Episode Transcript

(00:00):
Once you start thinking about Asia much more seriously, you
realize that it's impossible to explain the immense diversity of
the economies without also paying attention to the
geography, to the history, and how those things factored into
the development of the existing structures and institutions,
which in turn influence the way that these economies operate on

(00:23):
a day-to-day basis today. Welcome to Analyse Asia, the
premier podcast dedicated to dissecting the pulse of
business, technology and media in Asia.
I'm Bernard Liang. Today, we'll dive into the
economic foundations that shapesthe Asian region rise through
the lens of history with me today, Associate Professor James

(00:47):
Jerome Lim from ESSEC Business School and author of Asian
Economies. First of all, congratulations on
your recent win in the Singaporegeneral elections and now an
elected member of Parliament in Singapore with the Workers Party
for the Singang Group Representation constituency.
So for everyone else here today,our discussion would not be on

(01:08):
anything on Singapore politics, but we actually, I want to dive
into James's experience in an academic book on Asian
economies. With no pun intended, I'm
running a global business podcast from Singapore in my
opinions and views of my own anddo not represent any
organizations I may represent. So, James, welcome to the show.
Thank you Bernard, it's a both apleasure and an honour to be

(01:30):
able to join you and all listeners today.
Yes. So one thing I would like to
start off usually with my guest is their origin story.
How do you start your career as an economist, and what sparked
your interest specifically in development economics and
macrofinance? OK, so thanks for the question.
I is in some ways some of that origin stories preempted by what

(01:55):
a career my mother pursued. So she was in the back office of
a large stock brokering firm in Singapore.
And so even from a very young age at that time, kids had to,
well, the workforce had to work on Saturdays as well for half.
A day? Yes, I remember those days as
well. Those days, yeah.
And so my mother not having resources for childcare, or for

(02:18):
that matter childcare, wasn't that common.
She ended up bringing me into the office on Saturday mornings.
So some weeks she would deposit me at a nearby bookstore.
MPH Those don't. Exist.
Yes, I remember the bookstore isreally one of the best
libraries. I always do that, although I
don't buy any books but I read that.
So, and I did exactly the same thing.

(02:39):
We were not a wealthy family, soI would be reading most of those
few hours where I was dropped off at the bookstore or she
would just bring me into the office.
So I got in a very early exposure to what it's like to be
in a financial institution. And you would think therefore
that was sparked my interest in finance and especially the stock

(02:59):
market and so on. And certainly when I was
relatively young, in my third, when I was a teenager, I thought
that's what I want to do as a career, be inspired, of course,
wanting to go to the front office.
Ultimately, I got my hands dirtyin economics, and I realized
that the field of economics is much wider than just stocks and

(03:22):
finance. It's much, much deeper.
It's about human behavior, as the book talks about.
It's about the way institutions are designed and how they
influence the evolution of economies over long periods of
time. And so that got me really
interested in the bigger questions in economics.

(03:43):
I am by trading and interests and macroeconomists rather than
microeconomists. So I wasn't as interested in
things like the psychological orbehavioral or rational
foundations of human decision making, but I was much more
interested in the big picture things.
Why are there financial crises? Why are there, why do countries
benefit from integrating into the international trading system

(04:06):
and so on. And of course, when I was a
teenager, I also experienced a major event in my life.
Like many of us from that generation, we went through the
Asian financial crisis. And so the Asian financial
crisis really made me realize that getting economics right was

(04:27):
important, but getting it wrong could be really disastrous as
well. And that set me down the path of
really exploring much deeper phenomena in international
finance. And that is a passion that I
continue to hold today. So you work across the World
Bank, sovereign wealth fund and even the private sector.
Before you joined your current academia role, what were the

(04:47):
defining lessons from these roles that would shape your
economic thinking today? So right after Graduate School,
like most of us, that your primary aspiration, I think we
are acculturated into thinking this way, is that you want to be
a professor. That, you know, professors were
professors. They chose it for a reason.

(05:08):
So they make you feel that the ivory tower is the highest
calling that you can possibly have.
So I was infected by that as well.
I very much wanted to be a professor.
I did one year in a small liberal arts College in central
rural Kentucky. So that is a story for another
day. Interesting in and of itself.
But not long after, I got a callback from the World Bank to come

(05:31):
in for additional interviews andit seemed like an opportunity to
get the pass up the idea of both.
You know, at the time I was in my early 30s, so working in a
international city like Washington, DC, but also
interacting with people from allover the world.

(05:52):
So the World Bank, although it deals with development economics
as well as international finance, is very much staffed
by. Basically, you can think of them
as international bureaucrats, and they carry their own
countries, traditions and ways of doing things.
Of course, many of them would train deeply in their respective

(06:16):
fields, not necessarily economics.
And we have agronomies, environmental specialists, legal
experts, as well as economists and finance folks.
So you really get immersed in a deeply intellectual environment,
even though it's not, strictly speaking, an academic
institution. So that was really exciting.
DC is a great place to live. So that's what got me started at

(06:38):
the World Bank. And then after that you taught
Mac macroeconomics and now I think the international
economics across Asia. And also, you have done a bit of
a postdoc after your PhD. How is teaching in Asia shape
your views on, say, regional development, economic
development as compared to othermarkets?
Certainly I'm Asian, so I carry that perspective with me no

(07:02):
matter what. What is what that means, of
course, growing up in Southeast Asia is that you see 2
perspectives. 1 is the experience of countries like
Singapore as well as the other newly industrialized economies,
which grew very rapidly and transformation is constant in
practice. What that means on the ground

(07:23):
is, well, construction is happening all the time.
You see a kind of a buzz or you feel a kind of a palpable buzz
in the air. People are busy, people are
trying to do things. By the same time, you also have
an opportunity if you start wandering around in the other
countries of our neighborhood, you get to see countries that

(07:43):
are also trapped in some ways inwhat's what economists refer to
as a middle income trap, where they reach a certain level of
income, usually somewhere in purchasing power terms something
like 6 or $7000. And then they kind of get stuck
there for an extended period of time.
They grow, but not much faster than their rates of population

(08:04):
growth of the capita incomes remain reasonably stagnant.
And it did. It doesn't seem like they will
make the important leap from middle or upper middle income
status toward that club of elusive high income countries.
And so you see that around you and then you start to wonder
what is it that still seems to be missing in that recipe, in

(08:28):
that formula. And at least for me, I arrived
at the conclusion that a lot of it has to do with economic
history, industrial structures and other forms of economic
mechanisms, together with the role of social, political
institutions. And that's why in that book, the
subtitle Structure and Institutions and History, in

(08:51):
part because I feel that these matter so much when you look at
the world through the lens of. Developing Asia so we're going
to come to the main subject of the day, which we are talking
about your book Asian economies,history, institutions and
structures. So Yep, and it's it's a very
interesting read because I'm economics and history buff.

(09:13):
So trying to get a better understanding of all the
economies around the region, even specifically for myself as
an entrepreneur is actually it helps me to clarify some of my
thinking, even in thinking abouthow to expand my business.
But maybe to start, let us baseline the word Asian
economies. Given the region is so diverse
and span across maybe more than half the population in the

(09:34):
world. Can you help me define Asia in
the context of their economies be developed, emerging or
frontier at this instant? So I teach a course that from
which this book emerged, and when the French have a term, so
I teach at the French business. School and the.
French have a term about basically instructor

(09:55):
sovereignty. As a instructor, you have
absolute sovereignty over exactly how you want to define
how you teach the course. And so for me, teaching in the
Business School, I started to realize that what people cared
about in the Business School is not so much a lot of abstract
theoretical models, but how to better understand a part of the

(10:16):
world that they had much less familiarity with.
And of course, the existing textbooks, if you look at them,
a lot of them deal with either East Asia.
So by East Asia, some people would lump in Southeast Asia,
but suddenly the major economiesof East Asia like Japan, China
and South Korea. But if you think carefully, you

(10:38):
realize of course South Asia is also an integral part, the major
part of Asia. And for much of history, India
was one civilization that included what is today parts of
Pakistan and Bangladesh and so on.
And so that entity has to be thought about and the history

(10:59):
and the development of that partof Asia's be thought about.
And then when you start to wander W, you realize that for a
long time there was this intersection of different parts
of Asia with the West. And that was in that occurred
through the Silk Route through Central Asia.
So then you start realizing Central Asia, which is often fly

(11:19):
over territory in Asia that we tend to neglect that is also
important in the grand scheme ofthings.
And finally, you realize that what we call the Middle East
today, the reason why it's called the Middle East, is
because it's midway to the east of the oxidant.
So this is by Western authors that have defined that region.

(11:42):
But for much of the world's history, that part of the world
was in fact West Asia. And so I felt that, at least in
the book and even in my course, it was absolutely necessary to
weave in West Asia as well. Into.
Into the overall scheme of things.
I actually usually read the forward of every book that I

(12:03):
read so I actually want. This is a probably a quick
question to ask you. What inspired you to write Asian
Economies and how did your password experience informs the
books scope and structure? Yeah.
So you are making me play reviewon my cards here.
So obviously part of it is that I teach the course, as I
mentioned. But one reason why I was

(12:25):
influenced to also include discussions about West Asia is
in no small part because when I was at the World Bank, I work in
what's called the Middle East and North African region.
The meanest region? Yes, and a lot of countries that
I worked on, including most heavily in Syria and Lebanon.
But I also worked a little bit on Egypt and a little bit on the

(12:48):
UAE, where eventually I ended upliving for a few years, so that
I became very familiar with thatpart of the world and with the
culture and the way that they think and the development
process and the story there. So I felt it was absolutely
imperative for me to bring thoseexperiences I had from having
worked in that part of the world, having lived in that part

(13:10):
of the world, into the book as well.
When I discuss West Asia, and ofcourse we have at my Business
School also many students from North Africa that are naturally
more drawn to better understanding the Arab world.
And so it was a natural appeal for an audience as well.
At the same time, I had also worked on many development

(13:31):
issues in East and Southeast Asia where I'm from.
And so it was again very naturalto bring those into the
discussion and then the more prominent way.
So there is in fact a a wonderful textbook called Saudis
Asian Economy, Economies by Professor Lim Chong Yao, who
passed away a few years ago. And I would teach initially from

(13:54):
that book, and I realized that Icould focus and synthesize the
areas that I was more interestedin from that book, which was
mainly the development experience and the continued
heterogeneity between economies in Southeast Asia.
And that's when I made that decision.
Yeah, of course, Southeast Asia would have to be a part of that
story, too. So your book represents Asia's

(14:17):
growth story by weaving I think,the geography, the institutional
frameworks and history. Why do you think these non
market forces are often overlooked when it comes to
economic discourse? That risk of sounding a bit
facetious is because teaching models is actually easy, right?
You abstract from all these. Learning the models may be

(14:39):
difficult, especially if you're not mathematically minded, but
teaching them is easy. Once you've learned the models,
then you don't have to worry about the continued evolution of
recent developments. You don't have to worry about
how the models may or may not map with phenomena in the real
world. It's an artificial space that

(15:01):
you have created. Most economists accept the
assumptions that when we participate in seminars we may
challenge assumptions. But once you are presented with
the model, you take those assumptions as given with which
the model is set up, and you just question about the internal
coherence and the logic and the implications of the model after

(15:24):
you have accepted those assumptions.
So in some ways it's handy and not too demanding to teach
without with abstracting away from some of these finer
details. But I think once you start
thinking about Asia much more seriously, you realize that it's
impossible to explain the immense diversity of the

(15:46):
economies without also paying attention to the geography, to
the history, and how those things factored into the
development of the existing structures and institutions,
which in turn influence the way that these economies operate on
a day-to-day basis today. I think with this kind of a
backdrop setting, I think now I can start to actually zoom down

(16:09):
to a couple of countries. I'm pretty interested that you
have actually discussed in your book.
And of course, without doubt, China is the first country that
we're going to talk about definitely rapidly ascended from
poverty to becoming the world's second largest economy.
In your view, what are the current most critical
institutional or structural factors that actually have

(16:31):
driven their transformation? I would say they're still a
developing economy because thereare certain parts that they are
very significantly advanced, butI think a majority part of the
country is still in development.So, well, thank you for asking
about China. And as you said absolutely
Vernette, I start with China in my course as well after the

(16:52):
overview lecture. And it's the only economy with
which I spend two whole lectureson because of it's size, because
of it's importance. And from an outside perspective,
it's very common to think of China as well.
This is now in so many ways you look at their progress in
electric vehicles. If you look at the high speed

(17:14):
trains, if you look at downtown Shanghai or downtown Beijing,
you realize, well, these are it has all the hallmarks of an
advanced economy and perhaps a little bit more, you know,
payment systems that are far more advanced in some ways than
even those we see in many parts of the West.
But of course is large and extremely diverse even within

(17:37):
itself. Once you start heading West,
once you start heading to certain other less travel parts
of China, you realize that thereare there's a reason why it's
only upper middle income now. It's on the brink.
And certainly by the end of thisdecade, we most observers expect
China to eventually become a high income country or at least

(17:59):
breach into high income status. The question then is given that
China is on the brink of high income status is developed, it
still has many developing challenges.
What are the key impediments forit to not just move from high
upper middle to high income status, but how can it

(18:23):
consolidate that position? We know many countries that have
gone into high income status andthen they slip back and then it
becomes this kind of a dance. That's why I mentioned earlier
on. It happens to Japan, Korea,
Singapore in the sense that become developed and then
population decline is part of that and then transition from

(18:43):
probably a manufacturing to service based economy now to a
knowledge type economy and searching for its next evolution
as well on that so. So China has it's fair share of
problems. Certainly one of the issues that
you have just alluded to which is quite common in advanced
economies is demographic change.So the big factor is we like to

(19:06):
many people like to attribute China's decline in it's
population to it's one child policy and it's tempting to do
so, but we really need to put that in context of what
happened, the way it played out,demographics played out in just
about every other East Asian country as well.

(19:28):
You see, basically as the countries become relatively
richer, they go through the natural process of what's known
as the demographic transition, and the demographic transition
is accompanied by a reduction infertility.
In rural China, of course, fertility has not fallen as much
as in urban China by an urban China.

(19:49):
One could make as credible an argument that it even though the
one child policy came into placeand we saw the concomitant
decrease in fertility, it could well have been.
That way, even if China didn't have that one child policy, so
China was already becoming richer.

(20:09):
As economies become richer, whathappens is households start to
focus on quality over quantity. Many families who used to be in
rural areas where more hands to work in the farm would be
useful, would no longer need those extra hands as they
transition into a more urban living.

(20:31):
And they, you know, even to put in a very morbid way that the
risk of child mortality is also falling.
So parents no longer feel that they need to have as many to
hedge that risk and they focus on the few that they have.
So all that is just to say that demographic transition in China
is playing out. The implications of that

(20:52):
demographic transitions playing out now.
And I think we'll see the continued headwind, if you will,
that comes from having a slowingpopulation growth.
And the simple mechanics of it is that just means that your
labour force is also shrinking over time.
But China has, yeah. So, so, so there are also other

(21:12):
factors at work as well, right. So if you think about China,
they have a very large manufacturing economy.
They are not willing to concede.I think they learnt the lesson
from Germany and from US outsourcing away the
manufacturing. So they're going to see that and
then they are going to move towards a very heavy export
driven economy in the last couple of years doing steel,

(21:36):
electric vehicles and now even AI as well open source.
And but what is really fascinates me is the less
internal consumption and high and I don't, I don't even know
whether is it high savings rate of keeping your money under your
mattress to do the old Chinese grandmother analogy here, how

(21:57):
would China now be able to navigate say the current
headwinds and tailwinds in tradedue to the current tensions?
So first, to be clear, China, while it's true that they are
not conceding the importance of a industrial base, that they
have passed peak manufacturing. So China is indeed in the

(22:20):
process of deindustrializing. It has been doing so basically
since the 2000 and 10s. It so less and less of its
workforce is in manufacturing compared to the peak and along
with that is no longer the cheaplabor location any longer.

(22:41):
So this is what economists sometimes call a Lewis Turning
point named after Arthur Lewis, a West Indian economist that
first developed the model that look at what happens when there
is an exhaustion of workers coming from the countryside into
urban areas. So all that is happening,
basically what you're seeing is that China is trying to move up

(23:03):
that value added chain. So it's not that they have given
up manufacturing, but they accept that you need more and
more industrial machines. In fact, if you look globally,
while it doesn't have the highest intensity in terms of
industrial robots that are installed, so countries like
South Korea and Singapore have greater intensity.

(23:24):
Intensity meaning in terms of relative to the workforce in
terms because China's so big in terms of absolute numbers of
industrial robots. China has about half of the
world's in stock base. Yeah.
So it is also a very capital intensive mechanized economy,
unlike what some might think when you think of China as a

(23:45):
labor abundant country. So with that it has it moved up
the value added chain in terms of what it manufacturers now, a
lot of solar technology, of course electric vehicles as we
mentioned, battery technology and some of these advanced
transportation modes and the like.
At the same time, it has also grown its services sector.

(24:08):
And this gives this brings us toone of the other pathologies
that China is struggling with. And that is, of course, when
China was growing very rapidly with the large population, it
engaged in a lot of construction.
So there was a major housing boom.
In fact, the housing boom first hit a snag in the 1990s.
And then there was a what was known as a debt to equity swap.

(24:28):
A lot of those, a lot of those companies converted the debt
that was accumulated into equities and they were able to
work their way out of that difficulty.
And many of the ghost cities, like Aldorsh in western China,
they eventually filled up because you still had this
population that was coming from the rural parts and filling the

(24:51):
urban centers. That no longer is the case.
China is now exceedingly urbanized.
While it still has a rural Internet like many big countries
do, the flow from the countryside to the urban centers
are no longer as rapid. And so you are starting to see

(25:11):
some of the overbuilding of the housing stock come back to bite.
Many Chinese believe in investing.
You mentioned this as well as it's a high saving country.
Saving rates are in the order of40% or more.
And so a lot of that saving getsdirected toward real estate
because what's safer than houses?

(25:31):
That's a very typical Chinese mindset.
And so many households already have purchased their second or
sometimes even their third homes, especially those that
were growing up during the the rapid of who entered the
workforce during the China's rapid growth phase in the 90s
and the 2000s. And so they are giving these

(25:52):
houses to their children. So there is not that much more
room for additional demand to soak up a lot of that excess
supply of housing. And that's why you're starting
to see some of these real estateagents really heavily leveraged
and starting to face difficulties in terms of selling

(26:14):
the excess stock of housing. So how we understand why is the
internal consumption rate so lowas compared to other advanced
economies for China? Yeah.
So there are probably a few dozen explanations and they are
very esoteric. They range from 11.
Rather compelling I think argument is that China doesn't

(26:34):
have a rich social protection system.
So what this means is that whileit's true that if you have the
cool call, this is kind of an internal passport, the right to
be in the city to access public services there, you would be
able to access education, you would be able to access
healthcare as well as public pensions.
Yeah. So all these you have access to

(26:56):
if you have that hookah. But for many workers, especially
those that migrated to the cities from the countryside but
don't have the hookah for those big cities, they don't have any
of these social protections. They often their children get
educated back in their countryside towns and villages
because that's where education would be accessibly accessible

(27:20):
for their children. So the accessible services is
not actually as digitized. Universal.
No, it's not even universal because you literally have to go
to a private sector provider. If let's say you fall sick, but
you don't have the book, call ina let's say you're working in
right, you don't have. So you have a lot of shadow type
in like the same problem in developing economies as well

(27:43):
where people don't have a bank account which is kind of the
equivalent of that and so. What do people do they save as a
form of self insurance. And so this is one reason.
So because social protection andyou know, mind you, even for
those that do have The Who Co, even those that do have access
to public services, the amount of coverage that you get, the

(28:05):
ability to, the quality of thosecoverage of that coverage that
you get in terms of public pension in replacement income
for retirees and so on, those are still very modest.
You can't blame China. China's still a developing
country in that regard. So it's inevitable that
households would have to make upfor some of that shortfalls with

(28:27):
their own personal SO. Why wouldn't the central
government pushes the states to try, since it's a very
centralized economy in some ways, to push this registration
of citizens into the Hoku? Or is it because it's very state
dependent and that's why? Well.
And do that easily. Well, not well, not necessarily.

(28:49):
So China, it is true that it's acentral state and that's the
central government has a tremendous amount of power.
But for any large economy, any large complex economy,
inevitably you have a lot of devolution of administrative
power to the individual provinces as well as the
individual county governments and so on.
But it, well, firstly, the desirable cities like Shenzhen

(29:12):
or Shanghai or Beijing, the population is starting to reach
20 million. It's hard to imagine it growing
that much more. So what the central government
has encouraged cities to do is for the second tier cities,
those that are known to us. But perhaps not as familiar.

(29:34):
Cities like Wuhan, for instance.And Chongqing for example as
well. Chongqing, I would argue, is
already a first. Tier city?
OK, I'm sure it's a first tier city to some people, but it's
still considered second tier. Yeah, it's one of the largest
inland cities, if not the largest inland city.
So, but the one that you would think of just close to Chongqing
is 2. And so Chung Tu is a second tier

(29:55):
city. And these are the cities where
arguably there have been more relaxed about issuing new hukou
to try to attract workers and migrants into those second tier
cities. So absolutely, there are reforms
to the hukou that are encouraging people to move to
some of the second and third tier cities.
But it doesn't change the fact that in reality, China's still a

(30:18):
high seat. Part of it is, again, we start
to get into cultural and behavioral explanations now.
Part of it is of course, also a sense of wanting to save enough
to bequest to the next generation.
And there's a strong inheritancemotivation that many Chinese
households would have for wanting to give gifts to your

(30:38):
children. And then even some crazy
esoteric ones like remember we talked about how there was a one
child policy alongside that one child policy.
There was a bias and unsurprisingly for East Asian
culture toward boys. In fact, not just East Asian.
South Asia has what's sometimes known as millions of missing

(30:59):
girls because for the same reason, there's the bias toward
boys. Now what that means is that at
the moment, if you look at China's demographic mix, it is a
mix of something in the order of45 girls to 55.
Boys. Yeah, So what that means is that

(31:19):
if every girl to were to pair off with a boy, every male would
pair with a female, you would still have 10 men that are left
with without a parent. So it becomes hyper competitive
among the men to be able to try to secure me.
This has led to some unfortunatepathologies as well, where we

(31:40):
see, for instance, stories of especially in the Southern
Chinese provinces where there are, there's a lot of bright
trafficking. But what it also means in terms
of the economics is that men feel the need to signal their
relative desirability. And in many cultures in the
world, the way you signal it, itwas, it's with a fancy car.

(32:03):
Well, in China you have to up that one step further and signal
it with, hey look babe, I have ahouse.
So it becomes a competitive signalling motive.
Yeah, it's just kind of a statusculture.
But that still so I just. Have one remaining point which I
just before we close China and really go to the other two
economies that really piqued my interest.

(32:25):
So for it's export driven economy now, I mean it flooded
the world with cheap goods, electric vehicles, you know,
batteries, steel. How long can they do that given
the current situation with terrorists and and all these by
I think nations are starting to negotiate very bilateral trade

(32:48):
agreements between them. Yeah.
So it's fascinating that you should ask this question.
One of the research papers I'm currently working on is looking
at this phenomenon known as the China shock.
So the China shock is basically what happened after China
entered the WTO. That's right.
So it ended in 2001 and after its entry, unlike other

(33:10):
economies that entered the WTO, China of course is huge.
So it made a material differenceto the supply of especially low
income, low skilled workers intothe global economy.
And So what that meant, especially for third countries,
so high income countries like the US where there was an

(33:31):
industrial heartland, what it meant was that a lot of things
that used to be produced in these areas would start to
become potentially uncompetitivebecause the Chinese were
starting to produce it cheaper and over time the quality
improved. So they became more and more
competitive. So made in the USA, made in
Europe became a little less of acache and people started to

(33:55):
outsource this all to China. So this became known due to a
number of MIT economists, notably David Otter, as the
China Shock. So the China shock is just this
idea that while it's cruel that China's entry into the WTO did
bring positive effects on many parts of the world in terms of

(34:16):
lowering the price of a manufactured goods, of durable
goods. Unfortunately, it also led to
hollowing out of some previouslyindustrial areas, which is
what's. Happening to the US and Europe
as well. Yes.
And so this is happening in the US and Europe and arguably it is
now at the stage where it's veryhard for the world to continue

(34:40):
absorbing a lot more of these Chinese exports.
Now to be fair, China as I mentioned earlier on has
gradually moved up the value added chain and it's no longer
the case that China is just manufacturing cheap exports.
It's EVs, for instance, some of the best Chinese EVs from BYD
for instance, are price at the level that is not that much

(35:04):
cheaper than a comparable Tesla for instance.
So they are starting to climb upthe value edit chain just like
Japan did before them, just likeSouth Korea did before them.
And so it is true that because of China's enormous
manufacturing capacity and the size, it's still producing a lot
more for the rest of the world than what some of these other

(35:27):
countries did. But I think inevitably what will
happen is that there will be a need for Chinese themselves to
no longer be selling to the restof the world, but as you alluded
to, Berlin, to ultimately absorba lot of that.
Yes, because otherwise everyone else is buying from you but

(35:49):
unable to sell to you. Then there is no trade flows and
trade flows are essential to world economy, right, in a
global economy. And I think people don't realize
this. Yeah, it's.
Essential to the domestic economy too.
So it's not this fact is not unknown to Chinese policy
makers. So I when I worked at the World
Bank, this was back, way back in2015, we were working on a

(36:10):
report about rebalancing the Chinese economy and that was 10
years ago. So a decade ago, the Chinese
policy makers were already realizing the absolute
importance of increasing the domestic consumption.
Now the C administration has rebranded this as what they call
dual, a dual circulation model with this internal circulation

(36:31):
basically set whatever is being produced in China to be sold to
the growing and rising middle class in China.
And I actually think it's possible.
So Henry Ford famously said that, you know, he wants to pay
his workers enough so that they themselves will be able to buy
the cars that they were manufacturing.
That's right. And this is what China will

(36:51):
ultimately have to build a domestic consumption economy
where people are not saving necessarily, but also consuming.
And alongside the consumption, they will be generating that
necessary internal demand to absorb a lot of that excess
supply that China is currently flooding markets with.
I want to tether the conversation on two other

(37:12):
economies. I'm pretty curious.
One is South Korea and the otherone is Japan.
I think I'll go with South Koreafirst because it's been a pretty
compelling example of state LED industrialisation.
Also the Shaboys, most notably Samsung.
What lessons can withdrawn from this evolution into advanced
economy? And can the South Korean model

(37:33):
actually be applicable elsewhere, maybe in one of the
our Southeast Asia economies now?
Yeah. So South Korea is often lumped
together with the other dragon economies, Singapore.
Hong Kong, Taiwan. Taiwan.
But South Korea, as you alluded to correctly, Bennett is
certainly different in one's very specific way and that is

(37:55):
that it adopted a lot of that conglomerate model that resulted
from its Cologne experience withJapan.
And alongside the that conglomerate model is very
active industrial policy and theindustrial policy where the
Korean developmental state, which in turn was influenced by

(38:18):
the fact that it was colonized by Japan and Japan trans
transplanted that model of that.Development.
You're referring to the Karasu model, right?
Yes. So before the Kiriatsu, there
was this model called the Zybatsu.
OK, so the Kiriatsu was essentially what happened in
Japan after the Second World War, where the Americans told

(38:41):
the Japanese, look, your Zybotsen model, conglomerate
model was responsible for the war machine that you guys
generated and ended up creating a whole mess in Asia.
So we want you to dismantle thatZybotsen model.
The Japanese said yes, OK, hi. Hi.
And ultimately they just rebranded is how we would term

(39:01):
it today. There's some appreciable
differences. The Zybotsen model was more
shareholder controlled by one family, whereas the Kiriatsu
model is publicly traded. It's more decentralized.
In terms of a. Little bit more decentralized,
but many aspects of the conglomerate having a financial
institution right at the top level together with the
logistics and trading institution and manufacturing

(39:22):
firm. All that is a key part and a
horizontal and vertical integration.
All that is part of the Kiriatsumodel which is still present in
Japan and was via desire but to transplanted to the table system
in Korea. So the table is, as you alluded
to, a model where there is a conglomerate, but at the same

(39:47):
time has heavy ties to the state.
The state having provided subsidies for directing
research, for instance, in some of these.
These companies also through return earnings, invest heavily
in applied R&D themselves. But there's this kind of dance

(40:08):
between the developmental state and these conglomerates that
plays out, I think. A good example would be Samsung,
right? They have what is in their
business model, what's called the choke point strategy.
So when they started in Samsung,they were in refrigerators.
They what they identified, if I the troll point was the coolant.
So they manufactured the coolants for all the European

(40:30):
companies and then subsequently they built their own
refrigerators and took over the world.
And then they did the same in TV's where they focus on OLED
screens. And of course in the smartphone
time, they did the Nan flash drive, which is the hard disk in
your mobile phone and also the OLED screen.
And then they use it to have this probably frenemy

(40:51):
relationship with Apple where I need to I need your flash drives
and I need your screens, but I can't get rid of you because
you're creating a competitor against me on you step.
So Samsung is very tempting in part because it's market cap is
basically half the Korean economy.
Well, yeah. But actually, I would argue that
a very good example of state intervention that led to an

(41:13):
enduring industrial advantage isin Korea's heavy chemical
industry. Ah OK, I I get your point on
that one. Yes, yeah.
So in the 1980s, Pak Chung Hee was the president.
At the time, he made a decision to target the manufacture of
certain chemicals, heavy chemicals, industrial chemicals.

(41:34):
And Korea has no natural advantage in these things at the
time and even till today, of course, that industry is heavily
dominated by German manufacturers.
And nevertheless, Korea made a decision through the government
that they wanted to target this industry and they began plowing
resources into it. Similar for Korean steel, by the

(41:57):
way. And initially, as you can
imagine, when you're still learning a process, they were
not very efficient. They were not manufacturing the
the highest quality nor the mostprice competitive ones.
But eventually they consolidatedthe Korean engineers, managed to
gradually up the quality of all the industrial processes with
which they manufactured these things.

(42:18):
And they are now one of the major players and exporters of
heavy chemicals as well as steelin the world.
And this is a perfect example ofhow those who argue that you
should, that there's never any role for the state to get
involved, at least in this, in these few examples, Korea.
Certainly disproves. I'm actually very surprised by

(42:42):
maybe. I think this is a more western
economies construct that the state is never involved in any
form of industry development or economic development.
I mean even for themselves right?
The Internet didn't started fromcommercial, it started from
Darba and subsequently moved into the commercial world,
right? So, so Mariana Matsukato, who is

(43:03):
a economist, I believe at UCL, has made a strong argument about
this, about how a lot of how Western economists tend to frame
the absence of the state involvement in industrial policy
as a little bit of a chimera. But the most forcible argument
for how the developmental, stateand industrial policy has made

(43:25):
an appreciable difference in Korea has been that of I think
he's no longer at Cambridge, butHajung Chang, he is a Korean.
Economist that for his work. Pretty good work.
In Cambridge and he made a very decisive argument.
If you haven't read his book, you can go get it about how
Korea disabuses one of thinking that industrial policy never has

(43:47):
any role in developmental process.
Yeah, I think I don't have the title in my mind, but I highly
recommend that book by Hydrogen Chain, which I read it and
actually helps me to also understand the Korean economy.
One question now, I want to go to Japan.
I'm going to go straight to the current situation.
They have currently reintroducedinflation into their economy,
which is actually interesting. What's going to happen to the

(44:09):
economy moving from here? So that's really interesting
part because I was in the earlier iterations of this
course, I was literally teachingabout Japanese deflation.
What happened to 'cause that and, and I still teach it and
how Japan basically had one decade, one lost decade, 2 lost
decades. Some would argue in part because

(44:31):
of this process of low inflationor even outright deflation.
In fact, the zero interest rate policy way before it was an
issue in the in Europe, just prior to the COVID crisis, it
was already on Japanese shores for many years.
Now what has happened is that together with much more

(44:53):
aggressive monetary policy, through the form of
unconventional policies like quantitative easing, the
Japanese call it quantitative and qualitative easing because
they have to do it even bigger, together with the supply shop
that came with COVID, Japan suddenly now has inflation.
Now, of course, what this means is that the economy has to
adjust. This is inevitable.

(45:15):
It's something actually welcome.Japan has been trying to have
some steady state level of inflation, so most central banks
in the world target 2%. Japan, officially the Bank of
Japan, targets 2% as well. But yes, undershot this for
decades and decades, yeah. I think this is like the ideal
government KPI, right? That like you're living in this
country where the inflation justnever hit 2% for them and now

(45:38):
they suddenly have inflation. They have to start to get their
businesses to try to raise prices.
And then there is a culture of not raising prices.
And that also percolate across the entire economy as well.
So one very palpable outcome that you see now, of course, is
that businesses are forced to rejigger the way that the price

(45:58):
contracts. They must be more willing to
adjust worker salary. Worker salaries are often, in
the case of Japan's very moribund.
That itself has problems, especially if you look at the
youth and the early graduate employment rates in Japan.
They have been disproportionately high.
They're always higher everywherein the world, but they were

(46:19):
disproportionately high in Japanbecause the old were not willing
to give up their jobs, because they wanted the security of a
stable income and because they weren't getting more and more
expensive, at least in normal terms, over time, companies just
continued to keep them on payroll.
So that all that is changing. Contracts will have to be
altered in all dimensions of theeconomy.

(46:41):
And in fact that whenever you have these kind of transitions
and it's a little bit wrenching and you have entrenched
interests that were benefiting from the restarting into
political economy here, entrenched interests that were
benefiting from the status quo, then inevitably you will have
frictions. And we the most obvious

(47:01):
casualty, if you will, of this has been the Liberal Democratic
Party in Japan, which. They just have problems now
because now they are having the same problem that's happening
everywhere is starting to show up.
I want to ask you this question.What's the one thing you know
about the institutional and structural foundations of Asian
economies that very few do, but should?

(47:22):
No, well, I would be lying if I said that I I knew something,
some secret sauce. But even if I were to try to pin
it down, I would caution againsttrying to think of one thing,
because that's precisely the point.
Every the the way the institutions emerge and and

(47:42):
trace themselves and become a part of the functioning of an
economy and society is because they solve some problem.
And so they're usually a non market solution toward solving
some problem that the economy that the market system couldn't
necessarily solve. Of course, the most prominent
example of an institution that solves an market problem in the

(48:04):
non market ways of firm on of course, very early on taught us
that when a firm realizes that in some cases when transactions
costs are high, you want to internalize things within the
firm, that the firm is itself aninstitution.
But these other social politicalinstitutions, they also exist to
resolve some problem. And once they resolve that
problem and they're resolving itadequately, then it becomes

(48:28):
really hard to bring about change.
So the institution solves a problem.
So to be clear, it is better than in the absence of the
institution, but it also means that without somehow breaking
this institution or having some crisis that leads you to
substantially reform the institution, you are going to be

(48:49):
stuck at a suboptimal equilibrium.
So this is what, again, for every economy, those
institutions are going to be different.
But if there is a commonality inthat story, it is that if we
want to better understand how tobring about development in some
of these countries, what we truly need to understand is how

(49:11):
the specific institutions that have emerged in these countries
are potentially in some ways holding back the continued
growth and and expansion of the other actors in the economy.
How these institutions may be hampering the entry of new
players. And in turn, these new players
would be the source of growth into the economy in the future.

(49:33):
So that's if you will a common thread I guess.
So my curious question, what's the one question that you wish
more people would ask you about?Any subject within your both
Asian economies that people would ask you more about?
I think one important thing thatpeople tend to underplay other

(49:53):
than institutions, which would be, again, a very natural
answer, but one thing that people underplay is the role.
And this is one of the subtitlesof the book that history plays.
So we've already alluded to someof this earlier on, how the
cheable structure was in part because of that colonial history

(50:15):
that Japan had over Korea. Singapore at a very different
colonial experience. It's colonizer was a different
country. It was British, yeah, the Great
Britain at the time. And as far as colonial
experiences are concerned, it was also relatively more benign.
It's not to say that there weren't atrocities that were

(50:35):
committed by the British on Singaporean shores to the native
population, but compared to other colonies that Great
Britain had where it was purely extractive, what they tried to
do was to basically the best they've managed was the
construction railways. Yeah, railways.
And then they extracted resources and channelled it back

(50:56):
to a British factories in the Midlands, Right.
So in contrast, Singapore didn'thave any of these natural
resources to extract. It was seen as a strategic
asset. And so the British brought with
them their civil servants and their form of government.
They brought with them a certainrespect for the rule of law and
political organization from which the Westminster system we

(51:19):
continue to inherit today. They also brought with them
educational institutions. Many of these were religious in
orientation, but in turn these managed to expand education to
greater numbers in the population that eventually
became the basis for the public schooling system.
So I think when you start to realize that history, it isn't

(51:43):
easily washed away, and that is in fact a deep persistence.
This is literature that over thepast decade or so, economists
such as Melissa Dell and MIT have really talked about the
absolute persistence of elementsin history.
This, I think, really also needsto be taken into account.
And sometimes we think what's past is past.

(52:06):
I wish that they would ask me how that history has continued
to influence what we continue toobserve today.
It's a very interesting point because I think in the last 3-4
years I've been spending more time reading history books than
any other genre. Because I think that a lot of
what's happening now, it's just a revisit of things that we have

(52:27):
seen in the last couple last fewdecades or centuries, but just
not realizing that it's slowly creeping up back into where we
are. The French have a saying too, so
strong to settlement rules so that the more things change, the
more things stay the same. You know, those who ignore
history are and this is another quote, those who ignore history
are doomed to repeat it. So it's one of those things

(52:50):
where I think the greater sensitivity that we have to the
contours of what came before us,the more we might be aware of
not just our unique position, but also how to make sure that
some of the more common human frailties do not once again get
committed by a new generation that is unaware of what

(53:11):
happened. So my traditional closing
question, what would success look like for you as an
economist and educator in terms of the success with this book
and it's broader impact? So the traditional academic
research answer, economist answer to what success is a

(53:32):
publication in one of the top five econ journals.
There are publisher parish, Yeah, there are researchers that
would give their first born for a publication in the American
Economic Review. But for me, I think having also
transitioned a little bit away from academic, I still really

(53:53):
enjoy writing, researching, thinking deeply about issues and
publishing. I love that intellectual rigor,
bringing the intellectual rigor and pondering deeply about
questions on a day-to-day basis.At the same time, I've also
become acutely aware of the importance of making sure that
what we research, the questions we ask, the results that we

(54:13):
find, the implications for policy that we draw are also
ultimately taken on board and adopted by policy makers.
Because in the end, you know, academics, we write for the 100
other people in the world. So if the hundred other people
are interested, your work gets published.

(54:35):
But what impact will you ultimately have?
That impact must, I think, be also measured in terms of a
broad policy impact for the day-to-day lives of you.
And I think as academics, but also academic economists, we set
ourselves to modest a goal if the only goal, professional

(54:57):
goal, is to publish. But we should also look to how
we might be able to potentially influence the public discourse
and the contours and the evolution of public policy in
the countries that we live in aswell.
Seamus, Many thanks for coming on the show.
I would definitely have to get you back because I think we only
cover only the East Asian economies this time around.

(55:18):
It'll be my pleasure. I'm pretty sure.
I'm pretty sure. That there is a lot of other
parts that I I've been thinking quite a lot about and would be
great to have you on again to discuss the other parts of Asia
on that. So in closing, 2 questions.
Any recommendations which have inspired you recently?
In terms of books. Or anything.
No. Some people even give very

(55:38):
interesting things like researchprojects as well.
OK, well, so I will give an example of a book, and this is a
book that I regret to say I've been working my way through for
the better part of a year and a half.
And that is a book about thoughtand it's got fair and equal, I
believe. And the so essentially what this

(56:01):
book does is it's an exposition of certain way of thinking.
Rosian philosophy and economistsare very used to Benthamite
utilitarian thinking, basically maximizing utility as is given
to us and taking maximizing social welfare in that
particular fashion. I think Rosian thought.

(56:23):
So a quick summary of what Rawlsargued is that one of his key
principles was that we should judge ourselves by how well as a
society we are doing by the least.
So basically, how well is the last man?
You're talking about the Ross, the person who wrote the theory
of Justice, right? Yes, from the jurisprudence
book. So it's a great book, by the

(56:44):
way, it's. A great book.
I haven't read the original, butthis.
You should read the original. Yeah, this is a more recent
exposition of his thought with contemporary applications.
So I have been working my way through that book.
So that's one recommendation I think.
Can I add a recommendation on top of yours?
I would highly recommend Thomas Sowell's A Conflict of Visions.
And then the reason why the interesting part I like about

(57:05):
that book is that how he looks at this, any subject, whether
it's economic, sociology, every single subject, the assumptions
of two diverse thinking started off with the same premises but
ended up very differently and very extreme on both ends.
OK, Yeah. OK.
That and that's actually a good intellectual construct, right?

(57:25):
To realize that your underlying assumptions really could
absolutely lead to divergent conclusions that you need to be
sensitive to. That's right.
OK, so. That's one.
I guess I'm trying to think of afood recommendation since I'm
Singaporean and it's totally necessary.
For oh, we haven't had that. We haven't had that in the

(57:47):
podcast. Well.
Give me a food recommendation. OK, so I tend to cook a lot at
home. So one thing that I am actually
going to cook this weekend is a kind of a French fisherman's
Stew. It's called bouillabaisse.
My mother is is recuperating at home from mild surgery.

(58:10):
And so fish soup is kind of the the thing that you do to help
people recover. So I'm actually going to do.
This fisherman's Stew, this. Weekend.
So if you've never had bouillabaisse, you can look it
up. It, like all fish stews,
involves some effort in choppingthe ingredients up that
ultimately you just dump it intoa stock and then you let it go.

(58:30):
OK, so last question, how can myaudience find you and follow
your work if they want to dive people into, you know, your book
and economic commentary? Yeah, so you just if you Google
me, James Slim, one hit that I hope comes up is my website.
It's James dot name N AM EI knowit's a very unusual URL that top

(58:51):
level domain has kind of faded from prominence.
But James dot name is my website.
So you can go there. There.
It will link to a lot of my research papers.
I don't update it as frequently as I really should, but it's
there and a little bit about theway I look at the world, my
teaching and research philosophies, as well as a bunch
of links that I think are interesting that I can.

(59:11):
So you can definitely find the podcast us anywhere.
Just subscribe to us and give usyour feedback.
So James, Many thanks for comingon the show.
And let's have a second conversation again on the other
the Asian economies like for thenext round.
Let's do that.