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Justin Yifu Lin (Anthony Jenkins for The Globe and Mail)
Justin Yifu Lin (Anthony Jenkins for The Globe and Mail)

The pragmatic disruptor behind China's economic miracle Add to ...

The week he got hired as the World Bank’s first chief economist from a developing country, Justin Yifu Lin got on a plane and flew to Ethiopia. When he got there, he left the luxury hotels frequented by the suits ostensibly responsible for uplifting the world’s poor, and walked straight into the middle of a boisterous African market.

“I like to know the real economic situation, not just statistics, and the best place to do that is in the marketplace,” Mr. Lin tells me.

While he perused market stalls, Mr. Lin – a long-time adviser to China’s top leadership on economic reform and one of the world’s top development economists – looked hard at what was being sold.

He found cheap Chinese goods, as one will find in markets across Africa, but he also saw basic matches that had been imported from Nepal, a small landlocked country like Ethiopia. He bought a box of matches, a lock, a simple lighter, a flashlight and an electrical switch and took them with him when he went to visit then-Ethiopian prime minister Meles Zenawi – who was surprised when Mr. Lin gave them as gifts. Why, Mr. Lin asked, couldn’t Ethiopia produce these types of goods?

The blunt ploy worked. Mr. Lin persuaded the prime minister to look into import substitution – a taboo notion in free market economics, he says, particularly at his alma mater, the University of Chicago, in which specific policies help domestic products displace foreign imports. But such a strategy could take advantage of Ethiopia’s abundant leather and cheap work force.

On his advice, the Ethiopian government sent a trade mission to China and lured over a Chinese company that set up a shoe factory that would employ 600 Ethiopians. The corporate venture created jobs and reduced poverty, but government was still playing a crucial role in sculpting favourable conditions for economic growth. These ideas weren’t exactly unfamiliar to Mr. Lin, but ran counter to the World Bank’s history of economic liberalization shock therapy and promoting growth by reducing the role of governments in their economies.

On these matters, Mr. Lin has more credibility than most. For decades, he has advised China’s political leadership on national policies that have contributed to one of the most important events in recent world history: The renaissance of the Chinese economy and the lifting of hundreds of millions of Chinese citizens out of poverty.

One of Mr. Lin’s economic analyses looked at excess capacity in Chinese manufacturing of TVs and refrigerators. He revealed that China’s rural population wasn’t buying these goods because rural infrastructure – both water and electricity – was in such a poor state. It wasn’t that they couldn’t afford them – they couldn’t even plug them in. This discovery led to the national-level “New Socialist Countryside” policy in China that sought to boost domestic consumption.

“They attached my name to that,” says Mr. Lin, who is a formal member of the standing committee of the Chinese People’s Political Consultative Conference.

This approach – which he calls “Beyond Keynesianism” because it doesn’t just inject money into a failing system, but invests capital to boost growth permanently and lift people from poverty – was also seen in China’s approach to the global financial crisis, which resulted in a massive $586-billion stimulus in 2008.

“It was my personal aspiration to make a contribution to the prosperity of the nation,” he says.

Now some of the more than 30 books Mr. Lin has authored are spreading his ideas to the next generation of development economists, who will come of age after the death of the Washington Consensus, and hit the ground in developing countries where China’s state-linked corporations, entrepreneurs and diplomats have supplanted many of the traditional actors in international development.

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