Glimpses
Justin Yifu Lin
By Ruth E. Kott, AM'07
Photography by Dan Dry
Justin Yifu Lin, PhD'86
Justin Yifu Lin, PhD’86, left China in the early 1980s to start his economics PhD at Chicago. It was an easier—and drier—trip than his first international journey in 1979, the year China started its move toward a market economy. Taiwan-born Lin defected from the national army while stationed at Kinmen Island, swimming and floating more than a mile to mainland China. While earning a master’s at Peking University, Lin served as translator for visiting Chicago economist and Nobel laureate Theodore Schultz, who arranged for him to attend the U of C.
Now the chief economist and senior vice president of the World Bank, Lin has spent much of his career studying China’s economic growth as an example for other developing nations, specifically in agriculture and state-owned enterprise reform. Joining the bank in June 2008 as its first chief economist from a developing country, he is on leave from Peking University, where he has spent 15 years as a professor and founding director of the school’s China Centre for Economic Research.
The recession in a nutshell: This is the largest crisis since the Great Depression and the first time that we encountered a negative growth rate in global GDP since the Second World War. This is the largest drop in international trade since 1929, so it is the most serious challenge in the world. And it was triggered by the financial sectors.
The craft of coordination: Because this is a global crisis, we need to have a global response. Both high-income countries and developing countries need to have a coordinated fiscal stimulus. If we can do this stimulus well, then certainly we can get out of the crisis faster. According to our estimation, the global economy may hit the bottom by the end of this year and recover next year. But there are some uncertainties, coming from whether we can have an effective fiscal stimulus on a global scale.
Growth of nations: My big challenge is, in the short run, how to help the developing countries cope with this financial crisis and to mitigate the adverse impact, to provide support to this vulnerable group of people, and also to turn this crisis into an occasion to promote necessary reform to lay the foundation for sustainable growth for the future. The issue is certainly how to promote sustainable growth, inclusive growth.
China’s example: China has been doing quite well. But certainly the global downturn also has affected China very seriously. The exports sank a lot. So they have unemployment rising very fast—according to the estimation, 20 million people in the coastal areas, where they used to make labor-intensive products for exports. But because of the global downturn, many of those factories have gone bankrupt. And now about 20 million people have lost their jobs, and so what can the Chinese government do under this kind of situation? Certainly they need to have a fiscal stimulus. And how to make their fiscal stimulus more effective? In the short run they can create the jobs, but can they support long-term growth?
Road to a successful stimulus: [Invest] in infrastructural projects like the railroad system, like urban transportation, like urban housing for low-income people, and also in social sectors like medical care, like rural areas, rural infrastructure. Those kinds of investments can create jobs. But sometimes there may not be enough jobs, and so they need to give some protection to the workers like unemployment benefits and training opportunities, or vouchers for training, to enhance their human capital.
Visions of a post-recession world: The world will change. One reason for the crisis was the high leverage in the financial sectors, and it caused excess liquidity and excess risk-taking. After the crisis financial regulations will increase, and that means that there will be a process of deleveraging—the funds will be less available, and the cost of capital will increase. A second reason is the global imbalance. The U.S. needs to increase its savings, not only to increase consumption. And the global market structure will change somewhat. This too will have some implication for the growth pattern after the crisis. Maybe we will not have the high growth period that we observed in 2002 and 2007–08. That was an extraordinary time in the world.