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Betting on China

Y: One can’t be on campus these days without noticing the administration’s commitment to China. You’ve traveled there twice in the past six months. This summer the top administrators from several Chinese universities will attend a two-week university leadership program at Yale.

L: Yes, and there are dozens of academic collaborations. Several of them are at Fudan University in Shanghai. There’s the Fox Fellowship Program, a grad student exchange. There’s the Yale-Fudan genetics center, with 150 researchers led by Yale professor Tian Xu. At Peking University we have a joint project on plant genetics—about 120 investigators, also with its own joint facility—led by Xing-Wang Deng, who is a biologist here. Another example is a School of Nursing program that is training nurse educators, who are in turn training nurses in China in preventing transmission of blood-borne pathogens, including HIV/AIDS.

Y: And why China? Yale might have chosen to create its most significant partnerships in Russia, India, or elsewhere—but you’ve placed your bets on China.

L: Well, it should be said that we have major academic partnerships in many countries. But China is of special importance because it is, I think, destined to become the second strongest economic power in the world over the next 20 years or so. Unbelievable numbers of people there are escaping poverty. A hundred million people crossed from below the poverty line to above the poverty line in the last decade. Worldwide—including China—only 92 million people, net, crossed that line. That means that the total for everywhere else in the world besides China was minus 8 million.


“There’s a culture of educational attainment in China.”

Another reason is that China is the source of over 20 percent of the world’s population. And they are a people with a history of valuing education and rewarding merit that is unusual among developing countries. For centuries key positions in Chinese bureaucracy, whether the empire or the Communist regime, were awarded on the basis of competitive examination. There’s a culture of educational attainment which suggests to me that China will be at the forefront not only economically, but educationally.

The Chinese universities that are currently the targets of very substantial investment by the Chinese government are going to take their place among the world’s great universities. Having partnerships with them will be an advantage for Yale. We have a historic connection—the Yale-China program—that gives us a foundation there. And if we become increasingly well known, if the Yale name is on buildings at the best Chinese universities, the bet is we’ll get some of the best graduate students. We’ll be very competitive for some of the most outstanding talent in China.

Y: It’s especially interesting to hear you, as an economist, make these economic predictions about China. What leads you to feel so confident?

L: China is going to have a substantial labor cost advantage over the more developed countries for some years to come because they still have a very large pool of rural labor, just as Japan and Korea were sources of low-cost labor at the first stages of their economic growth in the 1950s and '60s. So you will see increasing amounts of manufacturing move into China, both Chinese firms and foreign firms. They’ve had 9 percent growth every year over the last three decades. That process ought to continue for some time.


“In the early ’90s I wrote that Japanese growth was going to slow down, and it did.”

An important factor here is the tension between the remaining poor in the countryside and the growing wealth of the urban communities. How China addresses the income disparities will have a big implication for whether growth will continue at a rapid rate. For example, if you were to subsidize people staying on the land, that would slow down growth. But if, instead, you were to educate the people in the countryside, that would accelerate the progress.

Then there is another factor. In the early '90s I wrote that Japanese growth was going to slow down, and it did. Japan was no longer a source of low-cost labor, and there were some institutional limits on how far they could go technologically. They were very good at applied engineering, but not the strongest at science. China has an educational system that’s more of a meritocracy, and their universities are striving to emulate the structure of U.S. universities. So my sense is that the Chinese will become leaders in basic science. That’s what helps propel economic growth beyond the time when the low-cost labor pool is exhausted.

Y: How does that compare with the U.S. situation?

L: What drives America to still be the number-one economy in the world is science—and the incorporation and the transmission of that science into technology. We have an excellent system for doing that in this country. China has a chance to be like the United States in this respect. It doesn’t have the entrenched institutions and hierarchical structures that are common in, let’s say, the Japanese and German universities.

Y: But there are surely some cultural differences?

L: Yes. There were some interesting moments in our trips to China. For one, I appeared on a television show—an interview show with a lot of audience participation—with the president of Peking University. The host asked us to list three things students should do. And the answers President Xu and I gave were quite different. I said, “Question everything, work hard, and think for yourself.” President Xu’s response was along the lines of “Respect your professors, work hard, and cultivate yourself to be an educated person.” All this is valuable advice, but the audence thought that we had come right to the nub of a cultural difference.

However, students are very lively there—very much prepared to be intellectually curious and active. I think China’s educational system is changing fast, because so many younger faculty are trained in America and have come back with much more openness and intellectual curiosity.

Y: Any political or business leader here who works with China must consider, at some point, its human rights record. What is Yale’s position?

L: We’re trying to take a constructive, reform-oriented approach through the work of the China Law Center at the Yale Law School—advising China’s government how to strengthen its judiciary system and its court system. Paul Gewirtz and his associates have been working with administrative agencies in China, with the law schools, and with the judiciary to help establish better systems of commercial and administrative law. We’re starting there because those are the foundations of a successful, transparent capitalist development. If they’re going to continue to grow in terms of developing a market economy, there have to be the legal protections that make it easy to do business.

In my own view, it’s a natural first step to start with legal reforms in areas that right now are of considerable significance to the Chinese leadership. As the habits of the rule of law become inculcated in China, the demands for greater liberties will inevitably follow.  the end


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