Sunday, July 27, 2008

Is Olympic Investment Vanity Spending?

Letter from Shanghai by Paul Armstrong-Taylor

Hi Xujun,

I guess this email will be shorter than usual, but I often think that. Let's see! :-)

(Quotes from your post "The People's Republic of Capitalism = Chongqing (3)")
The Chinese government remains very strongly focused on urban development, and seems to think the way to help farmers is to make it easier for them to get to the city. To me, it is not at all obvious that this is true. It seems like redirecting just a small amount of the urban investment to rural areas could have a much more profound impact. This is clearly not a simple topic to come to grips with, but I do think it should have received more attention in the series.
This is interesting. I went to an excellent conference on Inequality in China at Harvard Law School three of four years ago. There were several interesting presenters, including a professor of economics from MIT. I forget his name, but he was Chinese. Anyway, the main point of his research was that the rate of return on investment in the underdeveloped areas of China was higher than in the developed areas. If there was a truly free economy, you would expect the capital to flow to the areas where it earned the higher returns - in other words you would expect capital to shift from developed areas to underdeveloped areas. If this was not happening, it must be because capital was being channeled away from the underdeveloped areas to the developed areas by other factors. His argument was that this was being driven by government policy. He argued that the 1980s were much freer from an economic perspective than the 1990s. As a result, there had been a great deal of investment in underdeveloped regions (e.g. the west of China) during this period. However, in the 1990s, the state owned banks focused lending in the coastal cities, there were tax breaks for certain special development areas, etc. In short, government policy was clearly biased to promoting growth in the developed areas at the expense of the underdeveloped areas.

This is not exactly the same as your point as he was arguing at the regional level - e.g coastal versus central provinces vs west - rather than urban versus rural, but I think similar points hold. In fact, I guess the urban-rural difference maybe even starker than the regional difference.

Just to digress a little bit: From this point of view, the Beijing Olympics really are a big waste of resources and destructive to the environment. I understand the Chinese government and people who take the event as a way to boost China's international image and view it as a matter of national bride. But, while I was disgusted by those violent attempts to damage the torch relay, one good thing I learned from twenty years of living in America is a practical attitude over vanity. To me a better life for people is the ultimate way to improve a nation's image.
I agree with this. I think if you look at democracies, there tend to be fewer "vanity projects". Projects that are spectacular but ultimately have small benefits to ordinary people relative to their costs. Of course, there are some such projects even in democracies - e.g. the Channel Tunnel for UK / France. Of course, you might argue that the ridiculous level of military spending in the US also falls into this category. But I think you tend to see more in non-democracies. Having said that, I am not sure if the Beijing Olympic investment is all vanity spending. Just this evening, I saw a brief news segment on London's preparation for the 2012 Olympics. Sebastian Coe who is organizing the London Olympics emphasized that they were following the Beijing example in making sure that all the facilities developed for the games would be designed to be useful after the games were over. He also mentioned that this has been a focus of the Olympic committee when choosing a city to host the games. I am not to familiar with the Beijing investment, but I guess some of it will be useful after the Olympics. For example, the improved subway infrastructure might help slow the growth of car ownership. I heard they are planning to turn the Olympic village (where the athletes will stay) into a hotel and conference center. Maybe that will not have direct benefit to ordinary people, but at least it will not be wasted. Hopefully some of the sporting facilities will be open to the public and / or used to host other sports teams or events. If so, maybe the Olympics investment is not too bad.

That is it for now!


(posted with permission )


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chamberoftenthousandflowers said...

My answer to the question on vanity spending is 'yes', which is why I am not happy that the next games will be held in London. Huge amounts of money will be spent on prestige/status projects which will have little or no value after the event, no matter what Coe says. The diversion of funds during the preparation years will have a detrimental effect on many other aspects of society [but not the wallets of the architects and contractors]. The same thing is happening in China but on a grander scale.

Xujun Eberlein said...

Yeah, I'm with you on this. On the other hand, an argument can be made that spending resources on sports is better than on wars. Both are favorite activities to many, it seems.