8. Human Capital Investment: The Fundamental Means to Promote Enterprise Competitiveness

Young (1992) and Krugman (1994) cast doubts on the sustainability of the “East Asia Miracle,” as they noted that these economies relied too much capital and labor inputs at that time with little contribution of total factor productivity.

Although this theory has had a great influence on developing countries, many scholars have used it in the observation of such phenomena as “migrant laborers tide,” “rural labor shortage,” and supply and demand of labor in China. China’s own economic development is not only made up of the industrialization from agriculture to industry, however, but is also a process of urbanization from the countryside to the cities, as well as the marketization from a planned economy to a market economy. The concurrence of industrialization, urbanization, and marketization has made it a complex matter to analyze China’s economy. Lewis has established his theory of a dual economy from observing the European experience of urbanization, but in Europe there has been no transition from a planned economy to a market economy. Japan experienced the Lewis Turning Point at a time when his theory of dual economy was in vogue, and there appeared a series of related literature in the country (e.g. Minami 1968). But by the time the Four Asian Tigers started to rise, related discussions had obviously become less pronounced. What was prevailing then was the more neoclassical explanation of the “East Asian Miracle” by the World Bank. Both Japan and the Asian Tigers have government-led industrial policies, somewhat similar to the case in mainland China (Oi 1999; Walder 1995; Herrmann-Pillath and Xingyuan 2004). Neither Japan nor the Asian Tigers, however, have had the problem of transitioning from a planned economy to a market economy.

Refer to Fig. 2 in Cai Fang. (2010). China’s Farmers-Turned Workers in Global Spotlight: On Deepening of Urbanization with Chinese Characteristics. International Economic Review, (2), 50.

The disintegration of the agriculture-industry dual structure is much faster than that of the rural-urban dual structure in China. Despite the acceleration of urbanization in recent years, a sufficient citification has not yet come into shape, which is marked by the conversion of farmers from migrant workers into city residents. This requires the reform of the household registration system and the equalization of public services, both of which will inevitably touch on the existing city welfare.