User:Chunkit91/sandbox

Woo Wing Thye is Professor of Economics at University of California Davis, Executive Director of the Penang Institute in Malaysia, Cheung Kong (Chang Jiang) Professor at the Central University of Finance and Economics in Beijing, Distinguished Professor at Fudan University in Shanghai and Director of the East Asia Program within The Earth Institute at Columbia University.

Woo is an expert on the East Asian Economies, particularly China, Indonesia and Malaysia. He is also known for his contribution in the fields and subfields of transition economics, open economies, exchange rate economics, regional economic disparity, middle-income trap and financial sector development.

Education and Academic Career
Woo was raised in Penang, Malaysia. He graduated from Methodist Boys’ School (MBS) and attended Swarthmore College where he received a B.A. (High Honors) in Economics and a B.S. in Engineering. He went on to receive an M.A. in Economics from Yale in 1978, and an M.A. and a Ph.D. in Economics from Harvard in 1982. For the next three years, Woo worked as a research associate at Brookings Institutions, a prestigious policy-research organization in Washington, D.C. before joining the economics faculty at University of California Davis in 1985. He received tenure in 1991.

From 1994 to 1996, Woo led an international team (which included Leszek Balcerowicz, Boris Fedorov, Fan Gang and Jeffrey D. Sachs) to study the reform experiences of centrally-planned economies. He also directed the Harvard Institute for International Development report on “China’s Integration into the World Economy” (1997-98). In 1998, he headed the project “Asia Competitiveness Report 1999” to analyze the Asian financial crisis for the annual meeting of the World Economic Forum in Davos, Switzerland, February 1999.

Woo Wing Thye was also part of the Consultant Team to China's Ministry of Finance that helped design the tax and exchange rate reforms implemented in January 1994. During 1997-1998, he served as a special advisor to the U.S. Treasury. From 2002-2005, he was the Special Advisor for East Asian Economies in the Millennium Project of the United Nations. In July 2005, he was appointed to the International Advisory Panel to Malaysia’s Prime Minister Abdullah Ahmad Badawi; and in April 2009, he was appointed Chairman of the International Economic Advisory Panel of Penang state, Malaysia.

In 2001, he helped establish the Asian Economic Panel (AEP), a forum of about 80 specialists on Asian economies which meets triannually to discuss important Asian economic issues; selected proceedings are published in the Asian Economic Papers, MIT Press (of which he is the editor).

In 2004, the University of California at Davis awarded Woo its Distinguished Scholarly Public Service Award, and the Institute of Strategic and International Studies in Malaysia appointed him a distinguished ISIS fellow. In March 2006, he was appointed a Chang Jiang Scholar (by the Ministry of Education of China based on nation-wide competition among universities) at the Central University of Finance and Economics in Beijing, China. In July 2009, the Governor of Penang awarded him the chivalry order of Darjah Setia Pangkuan Negeri (DSPN) in recognition of academic excellence, professional leadership and service contributions.

Reform in China and Russia
In 1993, Woo and Jeffrey Sachs came up with an innovative explanation for China’s success and the Soviet Union’s failure in switching from a plan economy to a market economy. The World Bank adopted their explanation when it prepared the 1996 World Development Report. Woo and Sachs rejected the conventional notion that China’s successful economic transition showed that gradual reform was superior to the shock therapy undertaken in Eastern Europe and the Former Soviet Union (EEFSU). Instead, they held that it was China and EEFSU’s different economic structures prior to reform that were key to explaining their different economic performance. China was a peasant agricultural society while EEFSU was urban and over-industrialized. In both, jobs in state enterprises were heavily subsidized that workers refused to move to new industries elsewhere, even when productivity in the later was much higher.

In EEFSU, the state sector covered almost the entirely population, thus impeded structural adjustment: cutting employment in inefficient and subsidized industry to allow new jobs in efficient industry and services. Virtually all EEFSU workers before 1992 were in jobs heavily subsidized by the state and covered by an extensive social welfare system. The sense of entitlement (e.g. expectation of a guaranteed income with social protection) was much more extensive among EEFSU workers than among Chinese peasant workers. As a result, structural adjustment was difficult because workers in the declining sectors fought to maintain their previous living standards. Therefore, EEFSU experienced greater immobility, higher registered unemployment and significant expressions of social grievance.

On the other hand, 80% of China’s labor force was outside the deeply conservative state sector at the start of reforms. China did not suffer from the rigidities of heavy subsidies, soft budget constraints and guaranteed employment of state industry. When the communes were dismantled, workers found themselves outside the socialized economy and subjected to hard budget constraints with little social protection. This spurred enormous flows of workers out of subsistence agriculture into new sectors of the economy, permitting a reallocation of labor that expanded China's new industries. Hence, China was able to enjoy export-led growth while EEFSU failed to improve its economy.

Parallel Partial Progression (PPP) Approach
Woo, together with Beijing economist Fan Gang, introduced the Parallel Partial Progression (PPP) approach as a better alternative to the conventional policy sequencing approach in understanding institutional reforms in transition economies. According to Woo and Fan, the policy sequencing approach fails to recognise the interaction between reforms that sustains the progress of each reform. It assumes that a certain “pre-condition” has to be met before undertaking subsequent reforms in order to achieve successful transition. For instance, advocates of the sequencing approach would recommend that China wait for the completion of its economic reforms before beginning on political reforms. This is problematic because the nature of institutional changes is such that different aspects of institutions are interrelated and interdependent. For instance, implementing market-oriented reforms on China’s state-owned enterprise (SOE) would lead to the shedding of surplus workers and the termination of company-based pensions to retired workers. Without an adequate reform in social safety nets, a social cost is incurred in which there is a drastic drop in welfare in the medium-run. On the other hand, prioritising social welfare reform before SOE reform would cause embezzlement by manager (an endemic feature in SOE sector). Therefore, any of the above sequencing approach would always generate a social cost due to the “incoherence” between reforms in these two sectors. The optimal approach would be to undertake simultaneous partial reforms so that SOE reform would not be out of phase with social welfare reform.

The PPP approach recommends the state to begin reforms in dimensions. Because it is technically not possible to complete any particular institutional reform with a big jump within a short period of time, the state should only undertake partial reforms for each institution. The idea is to keep the reforms in different institutions compatible with each other so that they can enhance and not constrain each other’s progress.

Real reasons for China’s Economic Growth
Woo rejects the Experimentalist school’s explanation of China’s high economic growth which states that China’s growth is a consequence of her gradualist reforms and successful experimentation in non-capitalist institutions. Instead, Woo contends that China’s growth is due to its institutions being allowed to converge with those of non-socialist market economies. It is not gradualism but China’s economic structure prior to reforms that is a major explanation for her rapid growth. China had a high population density heavily concentrated in low-wage agriculture, a condition that was favorable for labor-intensive export-led growth in other parts of East Asia. Only 18% of China’s workers were in state-owned enterprise at the start of Deng Xiao Ping’s reforms in 1978. China had the reserve labor necessary to provide the engine of growth for new non-state sector. Economic liberalization integrated China’s economy into the international trade and financial systems, allowing China to exploit what Alexander Gerschenkron had called “the advantages of backwardness”. Woo further argued that the “gradualist” reforms implemented by China were nothing more than the result of political deadlock and compromises within the CCP between the conservative reformers and the liberal reformers.

Contrary to what the Experimentalist school believes, Woo contends that the SOE reform in China had been a failure. The disappearing SOE profits after decentralization in 1985 was primarily the result of de-facto asset-stripping and embezzlement of firm profits by managers and workers. SOE faced a soft-budget constraint so there was little incentive for state-enterprise managers to resist wage demands because their future promotion to larger SOEs was determined in part by the increase in workers’ welfare during their tenure.

On the ownership structure of TVEs (township and village enterprises), Woo differs from the Experimentalist school which holds that the TVEs represent localized socialism, that is, ownership by the local community. Rather, Woo believes that TVEs include also privately-financed and privately-operated enterprises who register themselves as collectively-owned to seek political shelter from legal discrimination, a charade that Chinese observers have called “wearing the red cap”.

Woo recommends that China implement a “Meiji-style” wholesale adoption of key market institutions from abroad and modify them through practice. Greater privatization of SOEs and TVEs in a transparent and equitable manner and more sweeping industrial and trade deregulation will produce faster growth for China.

China
Woo is an expert in China's economy and has contributed greatly to the understanding of China's economic development. He has also advised the Chinese government on macroeconomic issues.

Economic Reforms and Constitutional Transition
In a paper co-authored with Jeffrey Sachs and Xiaokai Yang, Woo examines the relationship between economic reforms and constitutional transition. Woo, Sachs and Yang argue that China’s dual-track system which developed under market-oriented reforms in the absence of constitutional order institutionalizes corruption and opportunistic behavior by government officers and creates more obstacles to constitutional transition. Under political monopoly of the ruling party, economic transition will be hijacked by state opportunism. The dual-track approach to economic transition may generate very high long-term cost of constitutional transition that might outweigh its short-term benefit of buying out the vested interest of the privileged class.

China’s impressive growth performance in the 1980s and 1990s can be attributed mainly to its low initial level of development and the opportunity to mimic the new export-oriented industrialized pattern. It is possible that after the potential for mimicking has been exhausted, China’s new pattern of socialism may fail to work, as what happened to Soviet style socialism after the successful imitation of old capitalist industrialization in the 1930s and 1950s.

China’s market-oriented reforms can be conducted only within a “bird cage” of communist game rules. Imitation of many Western style laws would not work within the communist constitutional rules. As a result, reforms are hijacked by the vested interests of the party apparatus. This arrangement in which the rule maker, the referee, the rule enforcer, and the player are all from the same party apparatus, institutionalizes state opportunism. The party’s interests are pursued at the cost of lower social welfare. State opportunism is illustrated by the government’s control of private firm's entrance into important economic sectors and state predation of private firms.

Woo, Sachs and Yang contend that there is a universal institutional core that is essential for long-term successful economic development. China’s economic transition illustrates a harmonization process between institutions in ex-socialist countries and the global capitalist institutions, rather than a process to create institutional innovations that are substantially different from the capitalist institutions. Hence, if the dual track approach were replaced by a transition to complete private ownership of land as in pre-1949 China, Woo argues that China’s economic performance would be even better and the current agricultural stagnation would not have occurred. China’s experience verifies that successful economic development needs not only markets, but also constitutional order and the rule of law to protect individual’s rights and provide effective checks and balances of government power.

Hidden household income
Official statistics on China’s urban household income is inaccurate because of underreporting of income by respondents and non-participation by the high income groups in official household surveys. In an attempt to uncover the true level of China’s household income, Woo and Wang Xiaolu conducted a survey to gather information on urban household income and expenditure data in a more reliable and credible way by employing methods of sociology. The obtained survey data was used to calculate the relationship between Engel’s coefficient and income level, thereby deducing the true level of China’s household income.

Woo’s result estimated that the total household disposable income in 2008 was RMB 23.2 trillion, not the RMB 14.0 trillion reported by the official statistics. 64 percent of the unreported income went to the richest 10 percent of urban households. The income of the richest 10 percent of Chinese household was really 65 times that of the poorest 10 percent instead of the 23 times reported in the official data. The actual Gini coefficient was much higher than the reported figure of 0.47.

Woo contended that the existence of “grey income” – the difference between the estimated income level and the official income level – was largely caused by institutional defects. Grey income has its origins in the misuse of power and is closely connected with corruption. For instance, tax evasion is one of the major reasons for the grey income phenomenon. Woo recommended that institutional reforms in the public finance system and the government administrative system be undertaken to prevent such practices of “crony capitalism”.

China's Enterprise Reform
Woo is skeptical about the claims made by numerous studies in the 1980s which showed that China’s enterprise reform was successful since there was a positive growth in total factor productivity (TFP) in Chinese state-owned enterprises (SOE). In a paper written with Wen Hai, Yibiao Jin and Gang Fan, Woo found that the reasons for the positive TFP growth reported to be an underdeflation of gross output and overdeflation of intermediate inputs. Woo’s research showed not only negligible TFP growth in industrial SOEs in the high growth period of 1984-1988, but also excessive compensation paid to SOE personnel, which weakened the financial performance of industrial SOEs, creating a fiscal crisis for the state. Woo argued that the criterion for successful SOE reform should not only include a discussion of TFP growth but also intertemporal efficiency and SOEs’ contribution to macroeconomic stability.

Speculative Bubble in the Foreign Exchange Market
While it is clear that a predominance of irrational investors can cause speculative bubbles, it is also true that a predominance of rational investors does not rule out speculative bubbles. In 1987, Woo surveyed various types of rational speculative bubbles, and provided evidence of their existence in foreign exchange markets. He reasoned that the usual poor performance of bilateral portfolio models was the use of specifications that ignore the existence of speculative bubbles. Speculative bubbles occur only when there is a change in the fundamentals during a period of great uncertainty in the foreign exchange market about some political or economic outcomes.

Saving Behaviour Under Imperfect Financial Markets and the Current Account Consequences
In 1994, Woo co-authored a paper with Liang-Yn Liu, establishing the importance of investment-motivated saving. Woo and Liu argued that the investment motive is empirically as important as the retirement motive and the precautionary motive in explaining saving behaviour. Using Taiwan as a case study, Woo found evidence indicating that inadequate intermediation of imperfect financial markets caused agents to save more in order to undertake lumpy physical investment in the future. There is a positive relationship between the degree of capital market imperfection and the size of private saving rate. The degree of financial market sophistication is measured by the ability of the bank to assess the riskiness of future earning streams competently and develop appropriate financial instruments in response. Because of the extreme imperfections in the Taiwanese financial system, investment-induced saving caused the country to run a persistent current account surplus even when the efficient response to its high rates of return on domestic investments was to run a current account deficit.

The Monetary Approach To Exchange Rate Determination
The empirical validity of the monetary approach to exchange rate determination had been a controversial issue for a long time. Despite the early support for the monetary approach to exchange rate determination, research in the 1980s turned significantly against the model. In a paper written in 1985, Woo stated that the negative research findings were the result of faulty specification of the money demand function. Woo reformulated the monetary approach after ascertaining that a money demand function with a partial adjustment mechanism had more empirical support than a money demand function which assumed instantaneous stock adjustment. Woo incorporated lagged real balances in the money demand equation. The econometric model that he developed proved to be the superior one in making prediction. Woo’s article titled “The Monetary Approach to Exchange Rate Determination under Rational Expectations: The Dollar-Deutschemark Case” was identified by JIE in 2000 as one of the twenty-five most cited articles in its 30 years of history.

Middle Income Trap
Woo identifies China and Malaysia as countries that have fallen into the middle-income trap. He has since actively offered diagnosis and policy recommendations to governments on ways to avoid stagnating growth.

China
Using the Catch-Up Index (CUI) as a standard to measure middle-income countries, Woo contends that China has fallen into the middle-income trap. He postulates that China can only catch up with other rich economies if she adopts a new development strategy.

Woo identifies five types of middle-income trap to which China is vulnerable: (a) fiscal stress from the nonperforming loans generated by the interaction between the lending practices of the state banks and the innate desire by state enterprise managers to over-invest and embezzle; (b) the frequent use of macro-stabilization tools that hurt long-term productivity growth; (c) flaws in socio-political governance that exacerbate social tensions; (d) ineffective management of environmental challenges that threaten sustainable development; and (e) inept handling of international economic tensions that could unleash trade conflict.

Woo contends that China’s new development strategy needs to be based not only on the recognition that marketization and internationalization processes have to be deepened and made more comprehensive, but also on the recognition that China has now become an important shaping force of the global economy, and Chinese civil society has come to possess more of the middle-class aspirations common in the industrialized world. In particular, Woo recommends that China adopt market-based reforms such as labor market deregulation, land privatization and future-ownership-based urbanization. China should also strive to establish a harmonious society through democratic procedures such as increasing use of free elections, free press and adjudication by an independent judiciary. China must also adopt a global perspective in addressing global environmental concerns and protecting the global trading system and global security in order to ensure that China’s convergence to high incomehood is not foiled by the physical environment or the international political environment.

Malaysia
Malaysia’s annual GDP growth rate turned out to be 5 percent in the 2001-2007 period, instead of the predicted 7.5 percent. Its growth rate had also slowed down considerably compared to other South East Asian countries. Woo argued that Malaysia is caught in the middle-income trap because it is still employing the New Economic Policy (NEP) framework that was formulated in 1970 even as the structure of Malaysia’s economy and the international economic conditions had undergone considerable changes. By focusing too much on the redistribution of income and not enough on the generation of income, the NEP rejects meritocracy and institutionalizes racism, thereby preventing full mobilization of human resources. Ethnic quotas on ownership structure discourages successful Chinese Malaysian firms from tapping local stock market to fund expansion or drives Chinese Malaysian firms to move their headquarters to foreign lands. Ethnic quotas on bank loans, business licenses, government contracts and employment promote corruption throughout society. To escape the middle-income trap, Woo suggests that the government implement policies that will ignite knowledge-based growth in Malaysia. To do so, the government will have to get the microeconomic prices, framework institutions and the macroeconomic balances right.

Woo recommends the government to reduce its interference in the price-setting mechanism by withdrawing the near-monopoly status enjoyed by government-linked companies and firms affiliated with families of prominent politicians. Besides that, key economic, social and political institutions have to be reformed to modernize Malaysia’s governance framework. In particular, there should be greater decentralization in policy-making on economic issues to empower local decision-making so that local governments can respond quickly to particular infrastructure bottlenecks. The education system should also be reformed to enlarge and fully utilize the national pool of talents necessary for the sustainability of knowledge-led growth in Malaysia. Lastly, Woo proposes that the government get its macroeconomic management right by rekindling its declining private investment spending to sustain high economic growth.

Penang Paradigm
As the executive director of Penang Institute, Woo spearheaded the Penang Paradigm project, a 10-year comprehensive development framework for Penang, aimed to move Penang out of the middle-income trap by generating knowledge-led growth. The Penang Paradigm formulates a three-pronged approach by strengthening progress on all three fronts: restoring economic dynamism to Penang, improving the liveability of Penang and the sustainability of its natural environment and accelerating Penang’s social development to entrench social harmony and widen social inclusion.

Indonesia
Woo is also an expert on the Indonesian economy: he co-authored the book “Macroeconomic Crisis and Long-Term Growth: The Case of Indonesia, 1965-1990” with Bruce Glassburner and Anwar Nasution. He also delivered the 2010 Sadli Lecture (established by Universitas Indonesia and Australian National University) titled “Indonesia's economic performance in comparative perspective and a new policy framework for 2049” (published in the Bulletin of Indonesian Economic Studies, April 2010).