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22.11.04, 14:26
Jest to na stronie American Enterprise Institute
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A critical factor in China's long-term economic growth is the development of
its capital markets, which if properly organized could foster greater
productivity, increased wages, and employment growth.
At the most recent International Monetary Fund meeting in Washington, Chinese
officials again resisted suggestions of setting a timetable for opening up
China's nascent capital markets and floating the currency. The notion seemed
to be: the economy is doing well, so why take action? History is often cited
to support this assessment. China, with its pegged currency, was largely able
to sidestep the Asian crisis of the late 1990s. China would benefit from
moving faster to modernize its financial system. Well functioning capital
markets play an important role in lifting economic growth and spurring job
creation. China needs only to look to the U.S. economy for strong empirical
evidence of the power of the capital markets-the proof is an annual gross
domestic product of $11 trillion.
Investment Productivity
Countries with the best developed capital markets, such as the United States
and Britain, have outperformed countries in which banking-based systems
dominate, such as some other European countries and Japan. The economic
performances of the United States and the United Kingdom have improved over
time as their capital markets have become more developed. This is evident in
a number of metrics: higher productivity growth, higher real wage growth,
greater employment opportunities, and improved macroeconomic stability. Why
is this?In terms of productivity, capital markets raise the growth rate in
two ways:
First, by providing nearly instantaneous price signals, capital markets help
direct funds to projects with the highest anticipated returns. Second,
derivatives markets enable the transfer of risk to those who are best placed
to bear it from those who are not as well placed. This risk transfer helps
facilitate the type of entrepreneurial activity that generates new
technologies and ways of doing business. It is no accident that the United
States is the global headquarters for venture capital investment and start-up
companies.
By ensuring the best projects are undertaken, a better allocation of capital
raises the return on capital. By improving the transfer of risk, higher risk
projects with higher expected returns are undertaken. Higher productivity
growth, in turn, leads to higher real wages and better employment prospects.
Ultimately, workers' living standards are linked directly to their efficiency
in terms of what they can produce for each hour of labor.
Employment Growth
The capital markets also enhance job growth. By raising productivity, they
enable better wages for workers. And by creating a bigger wedge between wage
and price inflation, this higher productivity lowers the level of
unemployment at which inflation pressures start building. Job creation is
also improved by the positive effect capital markets can have on the quality
of economic policymaking. Unlike a banking-based financial system, a capital
markets-based system provides nearly instantaneous feedback to policymakers;
when they are considering bad policies, for example, prices of stocks and
bonds decline. By anticipating future developments, capital markets reduce
the incentives for politicians to opt for short-term political gains that
might improve their prospects at the polls but at the expense of long-term
costs that will ultimately hurt national economic performance.
Finally, capital markets enhance employment prospects by contributing to
economic stability. This happens in a number of ways, first through
development of a securitized mortgage finance system which, in the United
States, has helped halve the volatility of housing activity and stabilize the
pace of growth. Second, the use of credit derivatives obligations has enabled
commercial banks to reduce and diversify credit exposures. In 2001-2003, only
sixteen U.S. banks failed. This compares with 412 bank failures at a
comparable point in the business cycle in 1990-1992, when there was no credit
derivatives market. Other factors, namely a property bust, contributed to
these failures. But it is no accident that as U.S. capital markets have
become more developed, recessions have become milder and business expansions
longer.
The last two periods of U.S. business expansion were the longest and third
longest in U.S. history. The UK, also characterized by a well-developed
capital market, is experiencing its longest economic expansion, and the
unemployment rate has not risen by one percentage point in more than ten
years.
The capital markets path does have bumps along the way. Sometimes these even
include financial market spasms that can be frightening. Flaws that are
identified must be remedied. Accounting standards must be upheld; financial
reports must be transparent. But the benefits that flow from such a system
should not be underestimated. The benefits are not abstractions--they include
more and better jobs and more stable employment prospects, as well as a
better return on the very large savings (as much as 40 percent of gross
domestic product) for households in China.
R. Glenn Hubbard is a visiting scholar at AEI and the dean of Columbia
Business School, and William C. Dudley is chief U.S. economist at Goldman,
Sachs and Co.
