For much of the 20th century and the first decade of the 21st century, the United States has enjoyed the status as a dominant player in the international states system, with a “preponderance of power” not achieved by any other state from the early modern period. However, in recent years, this hegemony is increasingly brought into question. The growth of China and the BRIC countries has suggested that the global system is beginning to shift toward a multi-polar system. Although this has not necessarily taken away the US’ hegemony status, it has, to a large extent, diminished it.

To a certain extent, it can be argued that the rise of other states has indeed diminished the USA as a global hegemonic power. The first key reason links to the rapid economic expansion of China, which ultimately threatens to overtake the USA as the largest economy. Whilst the USA has a GDP of $20.54 trillion, nearly $7 trillion greater than China, however China’s growth rate of 6.6% is far lower than the USA’s 2.9%. Since its trade liberalisation strategy took precedent in 1978, China was able to sustain a remarkable record of sustained economic growth – by 2010 it became the second largest economy. Their comparative strategy now lies in manufacturing, meaning that many more international industries have diverted demand away from the US and now toward China’s productive capacity. This has led to, for example, China’s FDI increasing from $2.6 billion to $44.2 billion (1985-2001), because greater numbers of foreign investors and multi-national companies are able to forecast strong growth levels. Furthermore, alongside economic capability, China has been able to boost cultural appeal by spreading Asian customs of community to more developing parts of the globe. such as African societies. Often, global news networks such as AL Jazeera and Russia Today have pursued to the US’s human rights abuses which has all-the-more eroded its cultural hegemony. This form of China’s soft-power has meant that China has rejected ‘Americanisation’ and ‘cultural homogenisation’ and instead promoted its communitarian objectives. 

Secondly, China can be seen to threaten the USA’s military superpower status. China is investing heavily in long-range bombers and submarines in order to stake it’s claim as the pre-eminent power in the Pacific. For example President Obama’s decision to to militarily focus on the Pacific rather than the Atlantic was seen as a tacit admission that the US no long has the ability to maintain a two-front war, which was seen as a defining hegemonic status. Similarly, to a certain extend, the USA failed on the ‘War on Terror’ after the 9/11 crisis and Donald Trump having to strike deals with the Taliban recently to prevent further chaos. Despite the US’s plentiful resources, these failures suggest the the the country is unable to efficiently utilise their raw hard power, and thus sheds light on the government and military’s weaknesses. Beyond China’s prevalence, other BRICS countries such as India and Brazil, through their large sums of natural resources and low fiscal deficits, pose a similar problem to the USA in the 2020’s as they gain from economic growth. As evident, through Donald Trump’s action to exit the Paris Agreement in 2019, the global role for acting on environmental changes is now more at the hands of other growing regions of the world. From a liberal perspective, this gradual move to a bi/multipolar world system will generate more peace and stability. They argue that in the absence of a global hegemony, states would be more likely to cooperate with governance institutions and provide better check and balances on one another. In sum, we have seen that through the rise of other states, there is substantiated evidence that USA’s military and economic power status has certainly been diminished. It seems as if the USA is unable to react quickly to China’s fast and accelerated growth and has led to their diminished role in co-ordinating the global system of trade, and therefore they have less of a hegemony status.

On the other hand, there are several reasons which suggest the US’ hegemony status has not been diminished, despite the rise of other states. The first reasons concerns itself with the sustainability of China’s aforementioned accelerated growth. To an extent, the inexorable rise of China and the inevitable eclipse of the USA, may prove to be a delusion. This is because whilst the the economy at one point grew by 10%, growth rates in China have fallen in recent years to more normal pace. China’s top-down growth model has invited challenges such as the need for economic restructuring to generate growth more from domestic demand, and find new ways of shifting from cheap manufacturing to more sophisticated, high-technology production. Ultimately, the debate on whether China can mange capitalism in a one-party system has become highly relevant in determining whether they truly are a threat to US’ hegemony power, since if China would have to take measures to alter the political system, this would cause great damage to their domestic and foreign economic appearance in the short-run.

Secondly, the USA still retains several strengths that many of the BRICS countries lacks. The first key trait is the US’ soft structural power. For example, the USA provides nearly $45 billion in funding to the IMF which enables them to have a 16.45% voting share for all decision taken by the IMF. On such a basis, the US still has a large say in international intervention policy since they can tailor the decisions of the IMF to achieve self -interested causes. Another form of US’  superior soft power is with Research and Development. Since it is responsible for 32% of global spending of R&D, it suggests that the economy is continually pursuing to innovate and discover new ways of enhancing their country’s productive capacity. This has been shown, for example, by the fact that US is able to provide competition to China’s microchip industry through new innovation in technology. Additionally, by being a member of the G7 and UNSC, it continues to retains a strong advisory status and power of veto that other rising states do not share. On top of structural power, the USA continues to exhibit hard power through its incomparable military size. Given that they spend $794 billion on the military, more than 3x their nearest rival, as well as over 800 military bases, it is evident that they have the option to deploy military attack when necessary. In sum, it has been made evident that the USA still retains severals aspect of hard and soft power. Although China has presented a threat to US hegemony, however as analysed, there continues to be uncertainty as to whether China can continue to maintain such rapid rates of expansion. Ultimately, the US still retains several aspects of global superpower. Since there is substantiated evidence that the US is still strong, It seems that the arguments presented in this side are stronger.

In conclusion, having analysed both side of the argument, it seems that arguments for the USA’s hegemonic power not being diminished are stronger. This is perhaps mainly due to that fact that there is uncertainty regarding how China will be able to manage capitalism in a one-party state, and that is yet to be seen. What has been assured is that China will be having to restructure the economy eventually, and the US is still the largest economy, accounting for 25% of world nominal GDP. Nevertheless, in the future, as BRICS countries begin to grow sustainably, there are definitely threats posed in USA’s hegemonic power

This global system is currently suffering from accelerating change. Authorities have taken on a new role that no person has ever had to previously assume in their careers. As someone with only an observer status as the epidemic unfolds, what struck the most was the magnitude and speed of reorganisation that our country has gone through. Before continuing with my perception of the stability of world order, I should say with respect that the human race is, above anything, a tough species. Being in the middle of a gathered united force in the UK and across the whole world, the recent efforts made – do bring to light how strong we can be in fighting against such an existential crisis. Of course, comments can be made on how accountable our world leaders have been, but ultimately we are only progressing in as steep a rate as we are humanely capable to doing and that should be respected by all. Nevertheless, for the sake of continuity in this blog, I am as always eager to question international responses and future prospectuses, to this crisis.

The destructive impact of this virus can be found in great descriptive and statistical detail across the Internet. For the purpose of clarity, it seems that the most significant statistic from the IMF is that world growth in 2020 will be -6.1% assuming the virus will be eradicated before the end of the calendar year. Proof of this can be the fact that birdsong can be heard in even the busiest of London’s streets. Speaking if the IMF, it’s recent blogs, to my knowledge, haven’t been able to fully convey the action that they are taking to slow the crisis. Despite headlined blaring that the IMF has readied a $1 trillion rescue fund without any specific breakdown of how it will be distributed, they do make an interesting analysis of the uncertainty generated by COVID-19. The unique and innovative metric they used was to count the number of times the word “uncertainty” is mentioned near a word related to pandemics or epidemics in the Economist Intelligence Unit (EIU) country reports. To make the WPUI index comparable across countries, they scale the raw counts by the total number of words in each report – and reach a conclusion that the coronavirus hits an uncertainty level of 14, in comparison to Ebola just short of 1 and SARS nearing 5. With consideration of how globalised the system has become, it doesn’t come as a surprise that many forecasters are anxious about the prospect of near-future operations.

With climate change having gained strong momentum, most significantly in the several months preceding the outbreak, some outlets have gone to consider any indirect effect that this halt in domestic growth affairs may have on climate changes. All reports publish substantiated evidence that there have been significant short-term positive impacts as a result of the manufacturing slowdown. But this begs the questions, is there truly a positive outcome in the context? On the surface, it suffices to say yes. However, governments are currently pursuing all policies at their disposal to stimulate a surge in growth. On such a basis, it would be strategically tenuous to promote green net targets, alongside, which would evidently undermine a corporations rapid resuscitation. Furthermore, surely the aforementioned momentum gathered would have been somewhat dismantled by the sudden separation of the regional movements. It boils down to how sustainably the economy will recover, which spills into how firms will decide on their profit goals in the coming year. If the overall target is rapid recuperation, then the positive effects displayed on climate changes will only stay short term.

In previous posts, I have gone to discuss at length how commendable China has been in achieving record rates of growth whilst simultaneously becoming a liberalised country. Yet as recent new unfolds, there has been a deep look into how and why China manipulated data surrounding victim numbers. China’s lies began January 3rd when the national health commission ordered institutions not to publish any information relation to the ‘unknown disease’ despite several attempts by higher medical authorised to warn medical staff of the event dangers. This manifested into authorities still claiming that there was no human to human transmission as far into the outbreak as January 20th. To an extent, it could be that China need to maintain a good image to retain powers, but any detractor would raise that such an autocratic regime has no need to broadcast the strength of political affairs. Simply put, the Chinese were naïve of the consequences and thus generated global turmoil. 

So the questions props, is China so much to blame that they deserve to pay reparations?

Granted, they are key to blame for the outbreak for plenty of reasons, one of the most relevant which attacks the lack of regulation of so-called ‘wet markets’ but also their lack of initiative to halt the spread at the very beginning.  China’s budget surplus of $40.1 billion certainly puts them in a potential positions to give payouts. But this would be wrong. Ultimately, reparations signify an attack on the quasi-communist opaque regime that they maintain. Realistically, however, the burden of reparation payouts would only be passed down to the citizens – presumably through raised taxes. 

Otherwise, it may lead to some unanticipated economic collapse due to the inability of the state to handle finance, which would, in turn, lead to another global meltdown given the role China plays as the manufacturing hub of the world.  Reparations are strong in meaning, but if implemented would not achieve the intended aim of helping countries recuperate and punish Chinese authorities. In my opinion, China will eventually have to bear the burden of trying to manage capitalism in a one-party state, but it should happen without foreign involvement.

In conclusion, any nation coming out of such an unprecedented ordeal will be sore. It doesn’t have to be said that it is the role of those advanced economics to provide adequate funds to Africa and South-east Asian counties, to ensure the livelihood of citizens across the globe can become better eventually. As always, it comes down to the decisiveness of people in positions of power to make a change in good time. Now, our role, as people with observer status, is to keep a calm attitude toward the events unfolding and ensure we play no role in exacerbating the consequences. 

To be frank, I could go on all day about where I fault with this subject, why I feel that people in the industry are unable to use this study even to the slightest efficacy, and why ultimately that it may seem futile. On such a basis, to provoke myself into new depths of knowledge, I will try to ensure this is the last of what may seem as a journey into assessing the shortfalls of economics. On such a basis, in this blog, I intend to discuss the ‘grand unravelling’ of the story that economics presents. This idea will hopefully present itself clearer as the writing follows.

As a starting point, and indeed what inspired me to discuss this topic, I’d refer to the diagrammatic representations of economics first. Through studying the subject, I am continually exposed to graphs that supposedly illustrate and make sense of the economic decisions that are made by those actors in a transaction. Yet despite the reasoning behind why certain intersections between curves on a graph explain the purpose of e.g. the conditions of a specific market structure, there is a sense that such illustrations are vague and abstract. This lack of a lucid portrayal stems from the general misconception that all ‘businesses’ seek the same objectives and thus reveal similar working patterns. Therefore, even the very initial sketches of how, for example, marginal and average costs relate to each other are flawed in understanding, thus inhibiting the potential for us to understand the 15 or so graphs that are predicated on that understanding. What’s more, on raising a query surrounding why the curves of a monopolistic competition graph are to be meeting at a tangent, the explanation received was, ‘otherwise the theory could not be illustrated correctly’. In other words, diagrams are manipulated in the hopes of confirming non-existent theories thought the act of shifting curves and finding new and discreet points of intersection to assign a definition to. From the most basic demand & supply equilibrium diagram learnt, there have been numerous inconsequential representations of economic theory that provide only the most basic, mediocre and thus essentially invalid expressions of phenomena that greatly fail to assess the dynamism of society.

Like any extended narrative, a background context serves as an important factor that may determine consequential events. Interestingly, the same applies for economics. As I have mentioned in previous posts, what I consider to be the most prevalent source of economic failure is the narrative fallacy – the idea that humans tend make order-intwined brain maps of past events to attempt to narrate how future events would appear to be. To take a relevant example for this point, the 2008 crash, we see in today’s news that forecasts are playing off a potential recession in 2020 as it doesn’t follow the same patterns as what was witnessed in 2008, ie the inversion of treasury bond-yield rates did not occur under the same conditions. How does this relate to a so-called ‘story with no meaning’. The justification for this comparison lies in saying that past events do not, and thus should not, play any role in determining how decisions now are made (past stories are insignificant today). Of course, the easy rebuttal to this would be to rephrase what I am currently advocating, ie. experience plays no significant role in today’s operations – an economist would throw a rock at me. In response, I would ask for one singular example where knowing the sequence of a past event has aided a correct anticipation of the future (after all I write these blogs so that someone can tell me I’m wrong and explain why). It seems to me that human perspectives within a society are so potent that the repercussion of an event, whether positive or negative, with never be verifiable and therefore past failures shouldn’t play any role larger than implying the potential effects of a crash. Yet, again, an ingrained humane behaviour tends to transcend this potency and will only craft past events to shape their outlooks – or simply disband any reference to them.

So we may ask, if a story such as economics has no meaning or illustration of principles, there where does the subject lead to. One may argue that an economist can fathom an infinite number of graphs following basic principles that showcase each area of economic theory, but what is the point of this if it is all predicated on unqualified nonsense stemming from the core idea of supply and demand. I’ve only began to learn economics and I am unable to see from where, at this stage in the development of the study, a true analysis of the interactions of a society can be exhibited. My idea is to change the story entirely, so much so that it is lo longer a story and finally an academic study. What does this entail? Firstly, scrap all useless diagrams that would never be employed by firms themselves. Secondly and most key, alter our way of learning economics. In the current day, we are narrated past economic phenomena as well as a list of plausible causes and verifiable impacts(order is forced into explanation and randomness extracted). Instead, let economics teach how we approach decision-making, how to assess factors, and how to assess past events.

Evidently, all that has been displayed on this page is abstract and perhaps somewhat extreme. I feel that having a bold stance on my opinions is a good trait, it distances me from the ‘on the one hand…on the other’ type of analyst. It continues to surprise me, and I’m sure will do so for a very long time, how people interpret information before them. The factor of evaluating the depth of information is thrown out of the window when the information is required to back up ons’s line of thinking. Albeit my solution to the problem may seem extreme, it only expresses my characterisation of economics as vague. Hence, I see that a ‘story with no meaning’ is a far better justified term, than before, to be used for evaluating economics.

An interesting test to appreciate how academic methods would fare was conducted Spyros Makridakis. He made people forecast in real life and then judged their accuracy. The last test was held in 1999. Makridakis, with the assistance of one Michele Hibon, reached the conclusion that ‘statistically sophisticated’ or complex methods do not necessarily provide more accurate forecasts than simpler ones. 

Like a few previous blogs on this page have led me to conclude, the outcome of this simple study seeks to grossly undermine what mathematical economics seems to be about. For the sake of clarity, what is this critique? It follows that economics falls short of being able to efficiently carry out its key function of forecasting; this is primarily thought to be due to the inability of econometrics to capture the dynamism of a modern society.

However, as an apt reply to the previous post of the ‘impairments’ of economics, it is perhaps necessary to reflect on some particularly unqualified strand of thinking surrounding the issue. After all, the studies of economics have been built around a basic narrative of how we think and are not meant to be taken as a directive for action. 

The first renowned example to touch upon is the Lucas critique (after the economics Robert Lucas) which voices that forecast may not be always accurate the way we see it due to reactionary events that follow an asserted prediction. It is said the perhaps forecasters create feedback which cancels their effect. To quote Taleb on this, ‘Let’s say economists predict inflation; in response to these expectations the Federal Reserve acts to lower inflation.’ So you cannot judge forecast accuracy in economics as with other areas of study as the world is far to complex for this discipline. One way to apply this right now, today, can be the topic of a looming U.S. recession in the coming two years by way of the bond-yield inversion. Forecasters say, concerning similar past sequential events, that this inversion signposts a lack of confidence in the economy and thus threatens a collapse. But we may think, upon acknowledging this news, financial institutions may adapt. In any which way they may pursue a course of action, such as hiring more analysts to innovate for the firm, that would impossible for an expert beforehand to see. Granted, there may be a flaw in this thinking; it assumes that all such predictions will have this reactionary response, thus derailing the prediction, but this is not the case for some 90% of predictions. Hence, this may seem like a ‘mere excuse’ for these failures, but nonetheless, it can contextualise the basis upon which one may argue economic flaws are beyond the study’s call.

As claimed by Keen in his book ‘Debunking Economics’, he reminds us that economics is often compared to meteorology; in that it shares a fundamental raison d’être to understand a complex system. I agree. Where he diverts from realistic statements, however, is in adding that the economy would exist with or without economics, just as the climate would exist with or without weather forecasts. A popularly foregone thought in such writers is that economics is a social discipline and so what we believe about economics does have an invisible impact on human society. Consequently, as far I as can see, any critic of economics must remind themselves that in the absence of such a science, society would collapse much more profoundly than at the hands of a mistaken prediction.

One argument celebrated by those yearning to debunk economics is that it misunderstands human nature. As I have referred to several timed, economics wrongly predicates its study on the assumption of human rationality. However, we may reply, in fact, by asking what are we actually like. To say that we are self-interested hedonistic creatures are becoming ever-increasingly naive and ignorant. After all, society nowadays is drawn to being communitarian about issues that are disproportionately affecting some geographical locations more than others, namely climate change. To an extent, the human tendency to unite as a society is well assumed in economics, for example when it suggests we all act likewise to one another in economic transactions. Thus, this view of a utilitarian, individual – pleasure-seeking society does not seem to be so coherent with the society since utility can be seen as less subjective; it seems economic theory is, in fact, closer than ever before to mimicking the interactions of our world.

As a concluding statement, it needs to be clarified that economics, in its entirety, is an abstract theory. After all, any development in economics would be the complex long-sighted outcome of changes in psychology and mathematical methods. This short paper has, on top of looking at reasons why economic forecasting may be as bad as it, sought to contradict some unqualified critiques of the subject. The biggest failure factor for economics is humans. As seen already, we have a love for certainty which plagues our interpretation of the complex laws presented; thus, critiquing the theory may not be as worthwhile as developing an understanding of how the theory pans out. Who knows? This basic approach to human rationality may be a far better representation of us in the distant future.

The study of economics, as I have seen thus far, seeks to steal aspects of mathematics and psychology to somewhat forecast society’s current and future operations. Professions ranging from pastry-chefs to presidents incorporate the widely assumed theories of this subject to support  their decision-making. 

However.

To a large extent this subject can be seen as flawed, for several destructive reasons. This piece will the first of (x) many ‘rants’ where I will seek to explain where this subject falls short of suiting our decision-making. Are these flaws verifiable and do they truly disrupt our use of economics? Perhaps and most probably not. Yet upon discovering such flaws, I changed the lens with which I viewed Economics.

This piece, as appropriate, will draw a focus on the most integral part of economic studies; us humans. We casually hear the phrases; ‘that’s natural, its okay’ and ‘better luck next time’ in the context of making mistakes, no matter what the mistake is. What does this actually mean? One may say it highlight an underlying assumption that humans may have some natural inability to perfectly understand what is before us, and thus makes our final outcome flawed. This is fully and one-hundred percent true. Economics, however, is largely predicated on a widely difunctional assumption that humans are rational and so are fully aware of the circumstances they present themselves in. Hence, the theories will only pan out in such a circumstance which is impossible to recreate in our world. 

When discussing this point with my peers, one point is often raised and it follows something on the lines of, ‘Just because it doesn’t adapt to our circumstances perfectly, does not mean we should begin to disregard the theory and not apply it at all!’ To that, I would reply, ‘That’s fine, but even if we don’t disregard it, it still does not help us.’

In addition to the concept of rationality makes economics a more taxing job to understand, there exist a vast number of issues that plague our inherent application of economics to the real world. The first is the concept of the domain specificity. There exists an inability for us to ‘transfer knowledge and sophistication from one situation to another, from a theory to practice; a key attribute of humans.’ On such a basis, our reactions, mode of thinking, and intuitions all depend on the context that a matter is presented in. This ultimately means that we are, to an extent, wired to solely attribute merit to one theory depending on the context of where it seen. Linking back to economic theory, even if the theory was perfect, it would lead to a diluted and inappropriate outcome because we would be unaware to process the true working mechanisms of namely theories. In general, humans are effortlessly able to manage problems in a social situations, but consequently struggle when its presented in an abstract manner. If we refer to science, the brain lacks an all central coordinate system which make us fail to apply logical rules to all possible situations.

The second instance of human induced flaws relates to how we view evidence. Often, humans are faced with a tendency to interpret evidence in an abstract manner. We naturally look for instances that confirm or verify our line of thinking. Alas, these instances are easy to find and mistakenly support our flawed interpretations. This systematic error is defined as the confirmation bias and unknowingly plagues our thinking. Considering this, economic theory may never guide mistaken decision-making, but rather merely support it. Why? Since it is never truly applicable, it wouldn’t provide a true examination of how one action will pan out. Nassim Taleb, in his interpretation of the Black Swan, gives us news that there is a way around this naïve empiricism. He suggest that we can get closer to the truth by negative instances and not by this false verification.

The third instance, somewhat surprisingly, is rather more abstract but still worthy to mention. Let us assume economic theory is valid. But one more inherent flaw in us may still lead to a causal misinterpretation of this general theory. We like to summarise and simplify. It is what makes comprehend the more complex interactions explainable to anyone who seek economics. This, called the narrative fallacy, is associated with our vulnerability to over-interpretation and thus, severely distorts our mental representation of the world.  If we were able to look at a statistic without weaving our personal explanation into it, the statistic would stand. However, upon wearing any bias explanation, we unnaturally bind fact together to make them easier to ‘understand’ – this goes wrong when it creases out understanding of how the world operates. Referring back to our brain, the left side has the function of interpreting the facts that are stored in right side, meaning we are inclined to explain what we see. What we may argue is that our propensity to make sense of what we see would invariably block our awareness of the key intricate detail making up the concept. 

In school, for example, when learning about past key event, education strives to drill a cause for every event that occurs. As a result, we forget that there may be some metric of randomness embedded within events like recession in 2008 and the Cold War. Similarly, branching from the aforementioned point, our drive to make sense of complex interactions and theories places more order into them and thus extracts that key aspect of randomness. That ‘randomness’ may be the area where economic theory falls our and fails to enable us to accurately forecast how society operates. This concept of such a narrative also means that our interpretation of what lies in front of us in always in state of change. Called reverberation, we ‘continuously re-narrate past instances in light of what appears to make sense after events occur. On such a basis, we are never truly able to learn from past events as much as provide an explanations for why it happened.

It has been discussed at large some of the human induced flaws of economics. On a concluding point, although economic theory, as I see it, is inherently flawed, there still exists numerous factors beyond economics that distort how we make our decisions in light of the theory. Our inherent need to incorporate human embedded bias and explanation simple distances our forecasting from the real truth.

A survey of 159 meta-analyses of economics revealed that empirical economics research is often greatly underpowered. Regardless of how ‘true’ effect is estimated, typical statistical power is no more than 18%. Nearly half of the areas surveyed have 90% or more of their reported results stemming from underpowered studies. Take, for example, the crash of 2008. How could it be that economists all over the world couldn’t predict such a destructive event despite all the date lying before them?  Many point blame toward the pre-designed used to understand the economy. models. If economics is to be considered a science as opposed to a somewhat political narrative, it has to be derived from scientific principles. Yet the weakness of empirical models and parameterisation in economics highlights a significant flaw in economic forecasting. 

A criticism often arises, is economics merely a mechanism for ineffectual policies to be made more interpretable. Take, for example, the ties between American politics and the Laffer-curve. Art Laffer theorised a relationship between tax rates and revenues. At one end of the curve, when taxes are 0%, the government will receive no revenue. Similarly, when taxes are at a maximum level, there will be no revenue as labour wouldn’t function without pay. Hence, the Laffer-curve is accurate in extreme circumstances. However, the curve also indicated a turning point suggesting that there was an optimal state of revenue – beyond which, any increment in tax would directly reduce the level of employment and consumer investment. Yet this was misrepresentative. It wrongly suggested that cutting tax rates on the rich, as a method fiscal stimulus policy, would enhance growth. By way of the curve, the Reagan administration as academically justified to cut taxes in the 1980s from 70% to 28% – in the hopes of reducing budget deficits. In fact, Reagan doubled it to $155 billion and tripled government debt to more than $2trillion. What does this show? Similar to the 2008 financial crash, it again lies at the fault of economic modelling to accurately forecast how the economy will operate under planned conditions.

This relates closely to the famed criticism of the over-integration of mathematics within economics. Paul Romer, in his paper ‘Mathiness in the Theory of Economic Growth’, criticised the misuse of mathematical reasoning in economic analysis to suggest that ‘mathiness’ created ample room for slippage between statements of theoretical and empirical content. In essence, the use of mathematical symbols has solely perpetuated the misconception of economics being a knowledge-based science.

Does ideological bias play a large part in the failures of models? Scholars hold different views on whether economics can be a ‘science’ in the strict sense and free from ideological biases. However, perhaps it is possible to have a consensus that the type of ideological bias that could result in endorsing or denouncing an argument on the basis of its author’s views rather than its substance, is unhealthy and in conflict with scientific tenor and the subject’s scientific aspiration, especially when the knowledge regarding rejected views is limited. The study prompted by  Mohsen Javdani and Ha-Joon Chang found clear evidence that changing or removing source attributions significantly affects economists’ level of agreement with statements. Mainstream economics, as the dominant and most influential institution in economics, propagates and shapes ideological views among economists through different channels. As far as this goes, the recurring theme of biases within economics indicates that models may possibly be misconceived by means of one’s political standpoint, for example, the Laffer-curve.

On the other hand, however, it is necessary to argue for the validity of economic modelling. To an extent, it is possible to argue that ideology will always have an unofficial influence over the outcomes of empirical models. Take, for example, the debate surrounding the state of economic globalisation. Despite the heaps of evidence and calculation that went into illustrating the growing interdependence of world markets, one string of realist thinking will always object this idea of a co-operative society. Therefore, as in all cases of a final judgement, a natural human bias will be present. Adhering to Gulker, ‘economics as a field does not lend itself to single watershed results forcing researchers to immediately rethink their prior views. But an approach that lives with bias rather than trying to extinguish it allows researchers to gradually evolve over time’ (Gulker, 2019)

Recently, there have been claims of an ‘econometric credibility revolution’ with a focus on how such models can be scientifically improved to be applied universally. As Angrist and Pischke have said, the advantages of a good research design are perhaps most easily apparent in research using random assignment, which not coincidentally includes some of the most influential micro-econometric studies to appear in recent years. It’s difficult to imagine a randomised trial to evaluate the effect of immigrants on the economy of the host country. However, human institutions and the forces of nature can step into the breach with informative natural quasi-experiments. As they concluded, ‘empirical work in this spirit has produced a credibility revolution in the fields of labour, public finance, and development economics over the past 20 years’ (Angrist and Pischke, 2010).

As evident, there will always be a clash of the validity of economic models. In my opinion, the progression toward a more free-market status in several developing countries, in fact, may aid the creation of stronger econometric modelling. Despite this assertion, it is necessary for the statistical power of econometrics to become more prevalent, thus limiting any sway of opinion through an appeal of bias or unofficial influence. I myself began to question the effectiveness of economics to reflect our interactions in society. Yet, models like the Laffer-curve, despite being widely disregarded continue to be referred to in policymaking- and what’s more, taught to be applied to the next generation of economists. Perhaps, for empirical economics to take its next step in credibility, it has to abandon those recognised flaws and adapt to govern itself on principles that are universally accepted. It seems this new trajectory of econometrics has taken the stand.

The reform-era beginning in 1978 saw the rise of Deng Xiaoping as chairman of the People’s Republic of China(PRC). By initiating structural changes that would significantly alter the trajectory of Chinese growth, his path of reform deviated from what was initially set out by Mao Zhedong and the 5-year plan which aimed to achieve socialism. Now, a consensus has arisen 

that sees China to be the economic hegemony by 2050 – growing from its current GDP of $12.24 trillion to c.$55-70 trillion. Thus, there is immense relevance in analysing how the sustainability of China’s growth has been impacted. 

Before the arguments are presented, it is necessary to to clarify the metric used to determine the relative influence of each factor. The analysis of this debate revolves around the a broader condition. It considers one point and deciphers the extent to which it impacts or reflects the potential for sustained growth.  On one side of the debate, this paper will be looking at endogenous reforms. Specifically, it will look at the development of a one-party state, the promotion of liberalisation in the economy, and the fostering of incentives to operate in international markets. On the other hand, an analysis of exogenous influences will incorporate the threat of Indian growth, the downfalls of foreign competition, and the US-China trade war.

On such a basis, the argument of whether endogenous or exogenous factor have the greater impact of the sustainability of Chinese growth shall be judged. I intend to analyse, as well, what previously carried investigated econometric models and historical events may construe about this area of focus.

Historical context of China’s progression as an economy

An analysis of Chinese growth should first discuss how and why growth came to be. China’s expansion as an urbanised city dates as far back as the eighteenth century. The works of Joseph Needham, a biochemist who wrote on science and technological advancements China depicted how apt the republic initially was in providing a platform for innovation and research. As he found, exports thrived in textiles, silk and muslins, their high levels of productivity with the iron-tipped plough has started to be put into use more than half a millennium before the likes of IndiaNeedham, J., 1954.

Serving as precursors to China’s eventual period of industrialisation in the early 20th century was the beginning of their steel industry, dating back to the Song dynasty(960-1279) during which, even levels of deforestation had risen to supply energy for industry Ebrey, P.B. and Walthall, A., 2013.Predictably, this history drove China’s economy down a path of industrialisation, and fostered a comparative advantage in the production of basic goods such as steel and machinery. China’s agricultural procedures also prevailed due to the centralised management system where a uniform collection system and land ownership pattern emerged effectively.

Why was China unable to achieve significant growth previous to 1979?

State control dominated the economy, the manifestation of their inefficiencies led to profound downfalls meaning organic growth could not be achieved. Prior to the late 1970s, China’s commodity trading was almost entirely determined by economic planning. The State Planning Commission designed import plans to increase the supply of machinery and equipment as well as industrial raw equipment and had export plans specifying the physical quantities of c.3000 individual commodities. Since planning was carried out in physical terms, the exchange rate and relative prices played little role in determining the magnitude and commodity composition of China’s foreign trade. Lardy explained in his analysis that this inefficient form of resource allocation meant China failed to enjoy a comparative advantage for a large portion of exports; producers lacked incentives to act on production targets and encourage efficient processesLardy , N. 2005. 

Further inhibiting trade potential, state dominance saw China supporting highly complex and restrictive systems of controls; it involved limiting the number of countries allowed to carry out trade transactions, as well as providing guidelines on what could and could not be tradedLardy , N. 2005.

How was China’s growth spurred?

Liberalisation prevailed in the early 1980s as trade gradually became more decentralised and increasingly market-determined. Economic theory as determined by Sachs and Warner (1995) concluded that open economies, defined by the absence of five conditions, experienced an average annual growth rate of 2 per cent above that of closed economies in the period 1970 to 1989 – this goes to show the basic understanding that liberal economies are more capable of encouraging growth. Comprehensive foreign exchange regimes introduced in 1994, for example, simplified the procedures for acquiring and using foreign exchange for current account transactions Ding, S. and Knight, J., 2011and therefore fostered development in international relations and growth via the trading sector. Mobilising radical reforms to the rural, urban and private sectors of the economy initiated growth, serving to liberalise small enterprises from state control and stimulate competition within the industry. 

Following a growth in economic prosperity, the Human Development Index(HDI) rose from .163 in 1950 to .726 in 2000, an 84% larger increase than what was seen in India – Chinese trade rose from 1.5 to 4.8 as a share of global trade since 1950. Essentially, reforms since 1978 inched China toward a more market-oriented stance and saw them reap the benefits.

The impacts of endogenous reform since 1978

The argument concerning the impact of endogenous reforms having an impact of sustainability of growth in China rests on 3 pillars. The first pillar asks how growth can continue sustainably in a one-party state, looking at what China’s political setting and and judging whether the unofficial restrictions on organic growth will inhibit sustainability. The second will draw to the state-devolution of power to private actors of the economy, and find how it has shifted China’s growth strategy to a more sustainable route. The third and final pillar with look look at China’s relatively recent integration into the international market to analyse the steps taken by the PRC to facilitate foreign relations and the inflow of FDI. This paper assumes that an impactful endogenous reform can be seen if it has a clear and direct parallel to sustainable growth, or has set a clear path to achieve so.

Growth in a one-party state

The prevailing argument says that Chinese growth cannot be sustainable in a politically restrictive economy. As mentioned before, economic progress can only foster in a politically liberal environments so China’s one-party state envisages an unofficial restraint on potential growth. Under Megnad Desai’s analysis, China’s implicit answer seems to be that if the Chinese Communist Party (CCP) ‘ can deliver on fast and sustained economic growth while restructuring the economy continuously in a capitalist direction, then the CCP monopoly on political power [would be feasible]’ Desai , M. 2005.

Concern surrounding the prospect of the China’s political setting limiting growth stems from nation’s ‘extractive political institution’, as theorised in ‘Why Nations Fail’ by Acemoglu and Robinson. Several studies have backed this impact on the sustainability of growth by looking at the influence of political and economic freedom upon potential growth. Bjørnskov and Foss (2007) investigate differences in the level of entrepreneurship across countries; by interpreting differences in economic policy and institutions they find e.g. that the size of government (i.e. the extent of government intervention) and overall financial environment strongly determine the quality of entrepreneurship Bjørnskov, C. and Foss, N.J., 2008 pp324. Aghion et al. argue that democracy facilitates innovations since successful innovators will not be expropriated by the use of political pressure in more democratic economies Aghion, P. et al., 2013, pp 25.

In comprehending the dominance of the state, by looking at the large percentage of state-owned enterprises, we can challenge the concept of Chinese sustainable growth, since innovation, what China needs to harness beyond their comparative advantage of manufacturing with cheap labour and processes, can only be fostered in a truly free society, and so is essentially lost in a one-party ‘extractive’ system. Chinese growth draws several commonalities with that of the Soviet Union’s,  where markets were highly constrained and both political and economic institutions are highly extractive. As Acemoglu and Robinson highlight, it raises concern by questioning whether the collapse of the Union will forecast China’s short-comings Robinson, J. and Acemoglu, R., 2012 pp 93-95.

In essence, China’s inability to pass reform that tackles the consequences of a one-party dominance has affected the potential quality of growth in the future. A particular problem as highlighted several times in the case of China refers to the legal framework – while civil and political liberties can be curtailed, once China begins to grant property rights, certain liberalising consequences will inevitably follow Desai, M. 2005. Therefore, the ability to sustain to growth may lie China’s ability to handle such dissent and consistently act upon their aforementioned implicit answer. Touching on historical episodes such as the Boxer rebellion in 1899, for example, go to highlight the state’s previous inability in handling public defiance. A repeat of such an episode would have destructive impacts on the productive capacity of the economy, destabilising their economic outlooks for potentially long-persisting effects.

Improvement of micro-management institutions and agriculture

This pillar of analysis considers the how China’s initial distribution of managerial autonomy impacted sustainable growth. Previous to the reform era, Chairman Mao Zhedong(1954-59) famously supported that the state monopoly of purchase and marketing was an important step toward achieving socialism. In implementing the First Five-year plan, they began to transform large private sector factories into joint state-private ventures. The private sector effectively vanished as the state-issued compulsory guidelines and indicators for State-Owned Enterprises(SOE’s). Similarly, in pushing for the collectivisation of agriculture, which also played a large part in the collapse of the Soviet Union, all sector profits were filtered through the state – less was returned to producers.

The first point of action was reforming the highly centralised and inefficient economic system. By pursuing structural reform and implementing the ‘Household Responsibility system’ in 1979, China began to delegate managerial autonomy to farmers and SOE’s. It strived to enable greater productive efficiency through less intervention from public actors and better wage incentives by taking fewer profits away from the labour force. Following this reform, the state further quashed intervening aspects of the system such as the dual-track pricing systemLin, J.Y., Cai, F. and Li, Z., 2003, which previously enabled the state to translate their fixed pricing into the market and the planned resource allocation system.

Economic theory tells us that private enterprise would shift resources into areas of production from where they could reap the most profit. With the lessened influence of a centralised system, the Chinese economy saw new streams of goods and capital equipment. This therefore led to the creation of a dual-track allocation system unlike a previously distorted production structure. More resources where funnelled through to labour-intensive industry to facilitate production efficiency. It promoted annual growth rate to c.10% for a consecutive 16 years Lin, J.Y., Cai, F. and Li, Z., 2003. The provision of autonomy within the private sector also fostered a higher degree of competition and potential for consumer spending. With firms holding greater managerial capacity over what goods to focus on and supply, there would face rivals in getting their goods to the consumer, hinting at predictable competitive tactics such as lowering prices and increasing investment into innovation. This, paired with a better financial position for consumers since more profits were more equally shared by the state, meant that quality of growth improved. 

Tying this to our point of debate, the provision of autonomy to public enterprises meant the economy began to prosper whilst state intervention shifted to where it would best enable growth. Delegated flexibility to the private sector encouraged enterprises to hone in on what is now China’s area of comparative advantage, capital machinery and production goods due to the profit motive. Allowing the market to run more naturally led to, for example, wage growth and a more competitive economy, two phenomenons that go hand in hand to further stimulate growth that could not initially be stimulated under Mao’s joint state-private enterprise. Analysing the sustainability of growth gives consideration to how healthy the growth achieved is; through this grant of autonomy, China’s private economy became more free and flexible like many other strong economies of today. Therefore, it reflects the beneficial impacts of these reforms in promoting sustainable Chinese growth.

Trade liberalisation and foreign investment

The highly centralised planned system that existed pre-reform ensured that exchange rate and indirect controls played very little part in China’s trade. It essentially displaced China from the international market system through this unofficial anti-competitive advantage.

The final pillar of endogenous reform targets the polices that aimed to open China’s gates to trade. As the system of planned trading began to dismantle in the late 1970s, more firms were allowed to engage in the foreign exchange. Reform applied to the pricing of traded goods making them increasingly market-determined. As state control eased, they took to more traditional tools such as tariffs and quotas to regulate the levels of imports and exports. In 1978, China was ranked 32nd in the world for export volume. By 1989 it had doubled its world trade and became the 13th largest exporter. Between 1978 and 1990, the average annual rate of trade expansion was above 15% Wei, S.J., 1993. This point will analyse two key reforms adopted by China to facilitate global trading.

1. Currency de-valuation

Pre-reform, China often overvalued their currency, most often by intervening in the foreign exchange system and purchasing RMB to artificially boost an appreciation. In doing so, importing became unfairly cheap; it enabled producers to source cheaper resources from overseas, reducing their overall cost of production which could then be translated into more competitive exports. 

Come reform, the state’s response was to correctly devalue the exchange rate; the RMB fell from the nominal value of Y1.5 to the US dollar in 1979 to Y8.7 in 1994 Lardy, N.R., 2005 and in doing so reduced the excess demand for importing foreign goods. Chinese exports began to trade at market value and took the republic to a more open and liberalised status. 

2.Export/Import Tax rebate

Moving toward a more market-oriented trade platform, reforms gradually shifted to the foreign exchange. Previously, under the planned foreign exchange system, firms and enterprises were not rewarded with their own profits from foreign dealings. In 1983, to encourage an export-oriented economy, the state introduced an export-tax rebate to gather incentives for exporting. Through this, exporters had essentially been fully rebated for any product-related tax, e.g. VAT that applied to export goods. It meant exporting became a more profitable industry with fewer profits taken away by indirect taxes. 1988 not only introduced the full export rebate but also saw local governments and enterprises gain autonomy over international dealings. 

The similar rebate principle was later applied to imported goods. By having the state virtually subsidise and make cheaper imports into Chinese firms, the domestic pricing of goods became more relaxed as importers were capable of maintaining profit margins whilst reducing prices. Exports, as Lardy researched, free from domestic pricing distortions, became more competitive. The rapidly increasing share of exports contributed by export processing reached £200 billion and accounted for 55% of total Chinese exports Lardy, N.R., 2005.

The reforms, with an initiative to foster better trading equality, allowed China to thrive when facing competition in the global market. Providing stimulative competition, by making Chinese price reflect supply and demand, opened up the economy. It enabled the state to encourage producer incentives and more routes to growth. By the time China entered the WTO in 2001, Chinese tariffs, previously at 56% in 1982 fell down to 15% by 2001Lardy, N. 1994. Growth, therefore, was made far more approachable; with an ability to enhance wage driven incentives and increased possible numbers trading partners, previously unforeseeable, the sustainability of growth was greatly aided.

3. Introducing export processing zones

To encourage growth, China has had to attract large sums of FDI. In doing so, the constant inflow of capital has facilitated large-scale operations and further investment into their comparative advantage and economic innovation.

China reciprocated the procedures of Taiwan and South Korea to establish 4 Special Economic Zones in 1980, in the Guangdong and Fujian Provinces. The main objective of the SEZ policy was to attract foreign direct investment by offering favourable terms and a good business climate in order to establish an outward-oriented economy Huang, J. and Chen, C. 1999. They were given, as an initial experiment, unique freedom to manage and operate their economies on a market basis and were allowed to offer concessionary tax polices to foreign investors. Foreign investors were made to be more confident in investing in market-oriented economic models. Although limited geographically to proceed further with large numbers of SEZ’s, China FDI was boosted enormously via this reform, reaching US$44.2 billion by 2001. 

The changes made to their economy made them capable of, for example, exploiting their comparative advantage via the export-focused industry and supplement the rapid rate of growth. The process of decentralisation limited the manifestation of state inefficiency. Therefore, the liberalisation of the economy reflected an integral step taken by China to facilitate organic and sustainable future growth.

The impact of exogenous influences and changes

By opening its gates to trade, China strengthened its dependence on foreign economies – the republic was essentially integrated into the global market. Through this integration, the economy began to face more competition and consequently numerous setbacks that put into question their ability to manage the capacity of the growing economy. Additionally, recent trade escalations they face with the Unites States blurs the Chinese trajectory toward securing stable growth. In analysing the sustainability of Chinese growth, it is necessary to look at the economy within the global environment and assess how China can sustain.

The threat of India’s growth

India’s and China’s economies both only share a few commonalities namely their growth rates and population sizes, but differ more significantly, for example, in the political environment they have adopted for fostering growth. India, similar to China, has achieved comparatively high growth-rates for an economy of its size, at a rate of 6.8% .Therefore, this analysis will judge the ability for China to grow whilst India develops a manufacturing competitive advantage. After all, if India is able to surpass the productive capabilities of the Chinese economy to be a more efficient supplier of resources,China’s economic strengths may be discounted.

India, in aiming to support democracy, adopted a softened version of socialism namely Fabian socialism to, therefore, enable the nation to achieve economic growth with greater degrees of transparency and economic freedom. This more democratic stance has allowed for India to provide a more nurturing environment that better encapsulates innovation and entrepreneurship This is backed by the several companies competing in the international market such as software giants Infosys and Wipro as well as pharmaceutical companies namely Ranbaxy and Dr Reddy’s Labs. A research paper by Huang and Khanna, when judging India’s growth, found that the Forbes 200, an annual ranking of the world’s best small companies included 13 Indian firms but just four from mainland China Huang, Y. and Khanna, T., 2003).

The period 1980-1995 also constituted as a reform era in India, during which trade controls and foreign exchange mechanisms had been adjusted for rapid and sustained growth. Previously restrained under numerous industrial controls, one point of reform in 1985, was the expansion of industrial delicensing. Following this, 25 and later 31 in 1990 firms were made free of overarching state control Panagariya, A., 2005. Similarly, in 1986, larger firms within 26 industries were granted the ability to switch productional lines between similar products, e.g. cars to trucks Panagariya, A., 2005 making for greater flexibility and potential to grow. The impact of reform in India could be seen by the consequent acceleration in industrial growth from 4.5 in 1985 to 10.5 in 1989 Goldar, B. and Renganathan, V.S., 1990, illustrating the success of India’s organic growth strategy.

Secondly, the quality of Indian growth. The point emerges; does the ‘ground-up’ growth of India, fostered by traditional economic tools and domestic investment, triumph over the ‘top-down’ growth of China, where foreign input playing the largest role. Maddison’s calculations show that while FDI per capita for China in 2001 was US$183, in India it was only US$14 Maddison, A., 2001, with China’s FDI amounting to US$44.2 billion. This led to a greater initiative by India to support domestic private enterprise, for example by delivering on stronger infrastructure projects Huang, Y. and Khanna, T., 2003. By relying primarily on a more organic grassroots form of growth, India has been more efficient with the utilisation of its resources and has chosen a path that may well deliver more sustainable growth than China.

This comparison identifies that China is not a singled-out growth phenomenon. The Indian economy, through a similar process of reforms, threatens China. Nevertheless, as Panagariya explains, the response to liberalising reforms in India’s economy was not as significant as in China. Exporting goods grew at an annual rate of 12.9% in China, more than a third the rate on India Panagariya, A., 2005. Despite general praise for the facilitating aspect of India politics, many studies criticise the high level of corruption, ranking 78 out of 180 in the CPI stemming from the high level of state intervention within enterprise. In effect, China’s strength in attracting FDI has ensured the economy will not fall short of expectation. The hot money inflow ensures the stability of the economy by strengthening its exchange rates and competitive advantage. However, China’s capacity to build on and invest into the efficient utilisation of resources, to reduce economic profligacy and sustain their growth potential, plays a significant factor in sustaining growth within the global economy.

The after-effects of liberalised trade

Opening the nation’s gates to trade amounted to them facing higher degrees of competition in the international markets. To decipher the increased levels of competition, one relevant metric is the import ratio to GDP. This shows how much the domestic economy had to compete with foreign affiliates to supply for Chinese consumers. According to China’s statistical yearbook( a state conducted comprehensive collection of information on China’s social and economic development), the import ratio increased from 13% in 1990 to 31% in 2003(CSY, 1990-2003), nearly three times as much as India’s ratio. Indicators also go to illustrate China’s capability to manage competition, hinting at their strength to adapt as to the economic setting. The analysis of the after-effects of liberalised trades will show how China fairs in a closely integrates foreign market, and therefore forecasts any threats the nation may fail. There are two indicators to weigh the impact of this competition on China’s economy.

1. State sector employment decline

As China’s economic reform picked up, employment in the state sector continued to grow, exceeding 100 million by 1995(CSY, 1995). However, this flourish was reversed between 1995 and 2002, where state sector employment dropped by more than a third; by 40 million and fell below the employment level in 1978 by 1999(CSY, 2003). This unpredicted collapse in employment had its manifestation on China’s manufacturing output which shrank alongside. FDI inflows(as % of GDP) fell from 5.13 to 4.84(CSY, 1993-1997). It also led to a growth in domestic reliance on foreign trading partners since SOE’s failed to operate efficiently with low productive capacity. 

Competition shined light on the economy’s inability to sustain the constantly growing levels of employment and led to events characterised by a recession. Additionally, the fall in FDI demonstrated how close China was to collapse considering their top-down growth strategy – heavily reliant on foreign input.

2. Shrinkage in inventory accumulation

Inventory accumulation refers to the number of unsold goods that producers may find hard to move, usually after an unplanned economic collapse. China had to support very high levels of inventory accumulation, reaching 6% of GDP by 1995(CSY, 1995). In context, economic growth in this period averaged 11% in real terms, whilst 6% of output had gone to inventory, a large portion never to be sold Lardy, N. (2002. This rising threat, however, similarly climaxed. Inventory levels fell from 6 % in 1995 to an average of 0.9% by 2001, reflecting China’s ability to cope amidst an economic collapse to co-ordinate the lay off of excess workers in order to reduce over-production. As profitability became the main indicator of a firms success, instead of how many workers they employ, the state fostered an incentive in firms to rationalise productive inputs and therefore prevent a misallocation of resources domestically.

Contrary to the unexpected impact of rising unemployment, the shrinkage in inventory accumulation, prompted by the state in the face of the foreign competition, showed China’s ability to resuscitate growth despite a near recession. For example, the profitability of state-owned manufactures rose by 6% of GDP from 1997 to 2002(CSY, 1997-2002). It can be seen that foreign competition, an exogenous influence, highlighted the effectiveness of the economy to adapt and maintain high growth rates. Yet the evermore fiery conditions of global system questions, to a larger extent, helps forecast the destructive impact of future crises on strength of the economy.

The US-China trade war and foreign relations

Since 1949, U.S.-China relations have evolved from tense standoffs to a complex mix of intensifying diplomacy, growing international rivalry, and increasingly intertwined economies. By 2011, the U.S. trade deficit with China rose from $273.1 billion in 2010 to an all-time high of $295.5 billion Maizland, et.al 2019, signifying the interdependence that is held between the two economies. Analysing the recent ignition of the US-China trade war seeks to judge how China will cope in the absence of a major trading partner. Trump’s decision was to impose a 10% tariff on $300 billion worth of Chinese exports. Previously set at 25%, which would have theoretically led to -0.8% change in China’s GDP, the rectification to 10% delayed to December 2019 has meant GDP at this stage is to fall 0.3%. Although seemingly a small change, this accounts for $36.72 billion in loss, solely through the tariff. Cerutti highlights that beyond just the causal effect of a tariff, the consequences e.g. fall in FDI and exporting power has led to the IMF forecasting a 1.6% GDP loss Cerutti, E et al., 2019.

Economic theory states that as China is embroiled in this play of tariffs, their imports are made more expensive for the American buyer, meaning demand would fall. Less exporting abilities in China, considering their debt levels of 46.7% of GDP, and the fact that most new corporate lending has been going to the country’s least-profitable state-owned companies, suggest the nation is nearing a debt crisis and prominent balance of payments deficits. The imposition of tariffs also causes concern for future employment in China. With a decreased demand for China’s export goods, where this industry is so prominent, surveys have predicted an average 40% drop in demand for labour. Unemployment, in this case, may have a persisting effect in requiring the future expense and long-term intervention from the state to build new job opportunities. 

Means of adding to the impact would also be the demise of investor confidence. The effects of deteriorating trade relations cast doubt on the ability of the nation to recuperate. Any consequential result on the FDI would have predictably threatening impacts on the stability of an FDI driven economy. Chinese consumers are predicted to hold off spending on consumer goods in the face of an economic collapse. The option of saving money has been made to look risky by way of the 4.31% base rate and 3.06% yield on a 10-yr government bond showing the economy, in effect, to be in a plea for help.

Witnessing China’s struggles to finance the growing regional problems caused by the U.S’s tariffs puts into question their strength in facilitating rapid growth. In fact, assuming such rifts would directly impact the inflow of FDI, it is essentially impossible to sustain growth in a global market where rivalling economies often succumb to the traditional tools of tariffs and quotas to enhance protectionism. Their economic inability extends to their weakness in maintaining trading relations with other economic powers, most crucially the U.S who is their top trading partner, with $479.7 billion, $176.7 billion more than Hong Kong in second Workman, D., 2019. The US-China trade has not only displayed the immediate setbacks to the economy from deteriorating relations but has highlighted many failures in China’s economic procedures to ensure the economy is stable and hinders future sustainable growth.

Conclusion

Having analysed the opposing viewpoints surrounding this debate, it is highly evident that both the formation of economic policy and political setting, as well as exogenous shifts and influences have grossly reflected and impacted China’s potential to achieve sustainable growth. 

The reform-era since 1978 initiated several liberalising changes that were directly oriented toward converting the PRC into a market economy, with the granting of greater autonomy to private actors through decentralisation and facilitating an export industry by encouraging trade incentives. Improving the market mechanism played an essential role in the allocation of resources which created an equal, competitive environment for the entry and exit of firms Cai, F. and Lu, Y., 2016. The quasi-privatising of numerous firms led to managers investing more into profit-driven incentives, most importantly a drive to build on China’s comparative advantages, thus improving domestic total factor productivity(TFP) and output. Such improvements in building an allocatively-efficient economy has amounted to their more stable trajectory for growth. `state inefficiency was replaced with healthy competition between domestic firms; it illustrates how endogenous reforms have helped China to find a new more organic path to sustainable growth. 

The PRC’s political setting has had reforms predicate on the intent of integrating traditional economics principles with one-party capitalism. This aspect of reform has continually strengthened the unofficial limits to prospective growth. All previously considered evidence amounts to the fact that China’s politics restricts innovation, an ability that the economy needs to but has failed to harness. The ability for economic institutions to capture technological innovation and mobilise the talents and skills of a large number of individuals is critical for economic growth Robinson, J. and Acemoglu, R., 2012 pp 79. Therefore, through the evidence of studies by Sachs and Warner and many others, we can predict the sustainability of Chinese growth is restricted by the presence of a one-party state.

On balance, exogenous shifts have construed the difficultly China may face in achieving growth whilst operating in international markets. With an exporting surplus of $421 billion, the international market is China’s most dependable source of growth. There is no doubt, therefore, the escalations in tariff wars with the U.S. has highlighted China’s inability to maintain integral trade relations, and so may threaten their potential to grow if such relations are to deteriorate often. The more reassured and organic growth of India questions the top-down FDI driven approach that China boasts, raising concern for whether Chinese growth is too highly dependent of external factors such as investor confidence that are highly susceptible to change. Furthermore, the failures China suffered in the face of international trading competition, seen for example by large fall is state employment, alerts whether they can sustain rapid growth in an international market where economies often employ competitive tactics to ensure their exporting industries are more advantaged. In effect, exogenous setting questions China’s capacity to support its market amidst strong competition and the employment of traditional protectionist tools, and so reflects the potential threats to growth.

In answer to the question at hand, the evidence shows that endogenous reforms arguably have the greater impact to China’s sustainable growth trajectory. Granted, the impacts on the sustainability of growth are only predictable and are largely dependent on how China fairs in the global market. However, productivity, innovation, allocative efficiency and growing labour supply are still areas that endogenous reforms have yet to tackle. Doing so would go ensure China strengthens its economy for sustainable growth and means the impacts of exogenous shifts have a less severe impact on an already thriving domestic economy.  

Bibliography

Research papers from the collection ‘India and China’s Recent Experience with Reform and Growth’

Lardy, N.R., 2005. Trade liberalisation and its role in Chinese economic growth. In India’s and China’s recent experience with reform and growth (pp. 158-169). Palgrave Macmillan, London.

Panagariya, A., 2005. The triumph of India’s market reforms: the record of the 1980s and 1990s. Washington, DC: Cato Institute.

Desai , M. 2005. India and China: An Essay in the Comparative Political Economy

Available at: https://link.springer.com/chapter/10.1057/9780230505759_1

Research Papers

Lardy, N.R., 1994. China in the world economy. Peterson Institute Press: All Books.

Huang, J. and Chen, C. 1999. Effects of trade liberalisation on agriculture in China: institutional and structural aspects (No. 1438-2016-118940).

Wei, S.J., 1993.Gradualism versus big bang: Speed and sustainability of reforms. Research Programs, John F. Kennedy School of Government, Harvard University.

Goldar, B. and Renganathan, V.S., 1990. Liberalisation of capital goods imports in India. National Institute of Public Finance and Policy Working Paper, (8).

Cai, F. and Lu, Y., 2016. Take‐off, persistence and sustainability: The demographic factor in Chinese growth. Asia & the Pacific Policy Studies, 3(2), pp.203-225.

Ding, S. and Knight, J., 2011. Why has China grown so fast? The role of physical and human capital formation. Oxford Bulletin of Economics and Statistics, 73(2), pp.141-174.

Aghion, P., Van Reenen, J. and Zingales, L., 2013. Innovation and institutional ownership. American economic review, 103(1), pp.277-304.

Cerutti, E., Claessens, S. and Rose, A.K., 2019. How important is the global financial cycle? Evidence from capital flows. IMF Economic Review, 67(1), pp.24-60.

Books

Lin, J.Y., Cai, F. and Li, Z., 2003. The China miracle: Development strategy and economic reform. Chinese University Press.

Needham, J., 1954. 2004. Science and civilisation in China, 7.

Robinson, J. and Acemoglu, R., 2012. Why nations fail. Crown Publishing Group.

Ebrey, P.B. and Walthall, A., 2013. East Asia: A cultural, social, and political history. Cengage Learning.

Maddison, A., 2001. Development Centre Studies The World Economy: A Millennial Perspective. OECD Pub..

Bjørnskov, C. and Foss, N.J., 2008. Economic freedom and entrepreneurial activity: Some cross-country evidence. Public Choice, 134(3-4), pp.307-328.

Websites

Maizland, J., 2019. U.S. Relations with China

Available at: https://www.cfr.org/timeline/us-relations-china

Workman, D., 2019 China’s Top Trading Partners

Available at: http://www.worldstopexports.com/chinas-top-import-partners/

Huang, Y. and Khanna, T., (2003. Can India overtake china?. Foreign Policy, 137(July–August), 

pp.74-81

Available at: https://foreignpolicy.com/2003/07/01/can-india-overtake-china/

China Statistical Yearbook [editions from 1990 to 2003]

Editions since 1999 are available at: http://www.stats.gov.cn/english/Statisticaldata/AnnualData/

Source Evaluation

India and China’s Recent Experience with Reform and Growth containing: Lardy, N.R., (2005 Trade liberalisation and its role in Chinese economic growth. In India’s and China’s recent experience with reform and growth (pp. 158-169). Palgrave Macmillan, London.

Panagariya, A., 2005. The triumph of India’s market reforms: the record of the 1980s and 1990s. Washington, DC: Cato Institute.

Desai , M. 2005. India and China: An Essay in the Comparative Political Economy

Available at: https://link.springer.com/chapter/10.1057/9780230505759_1

This book contains a collation of research papers written by many well-renowned authors and economists. The papers are were gathered by the International Monetary Fund(IMF) indicating their credibility – the publications of the IMF greatly influence the decisions taken by economic actors, the spreading of any misinformation would, therefore, be somewhat illegal. The books are published by Palgrave Macmillan, a relatively popular source of literature. The books contain one paper of Nicholas R.Lardy who is a Senior Fellow at the Peterson Institute for International Economics and writes extensively on China’s economy and their foreign relations. Therefore, his work is highly recognised and credible in this field of study, he is regularly cited in other research papers meaning his work is very reliable. Another featured author, Meghnad Desai, is a very prominent British politician and economist. His work has primarily focused on analysing economic principles and educating on Indian history; it shows that he is likely to be an expert in this field. Despite being heavily biased toward left-wing politics in the British Parliament, this would be hard to force in an analysis on the development paths of India and China and so does not raise any concern. Overall, I am not worried about any information being incorrect or misleading as the texts from this book are completed to a degree of high expertise and have been referenced by other authors on several occasions.

Development Centre Studies The World Economy: A Millennial Perspective by Angus Maddison

This book is published by OECD Publishing which is led by the Organization for Economic Cooperation and Development(OECD); an intergovernmental economic organisation which has 34 democratic market economies working to encourage growth and sustainable development. Thus, it is evident that this source is highly credible as it comes from a source that is designed to encourage prosperity on a global scale – it can be assumed that all information channelled through this publishes would be heavily challenged to be made reliable. The author of this book is Angus Maddison, a British economist who predominantly focused on measuring economic performance through models for different regions and subtopics. He played a role in education as Emeritus Professor at the Faculty of Economics at the University of Groningen, meaning his work has the purpose of proving reliable information rather than expressing his individual view. His credibility in assessing China came through his study of economic growth in China over the past twenty centuries which strongly boosted the historical debate on Chinese and European growth. Referencing throughout this book has been evident meaning his calculations are more reasoned and therefore better reflective of China’s economy. Therefore, this book is reliable in using to refer to China’s growth statistics – I have used it for the very crucial economic statistics regarding FDI per capita.

Innovation and institutional ownership by Aghion, Van Reenen and Zingales

This paper was released in the American Economic Journal, which is considered to be the most respected scholarly journals in economics. It has several notable papers published, with 13 published authors going on to win the Nobel prize in economics. Therefore it can be be seen that this paper draws a high degree of credibility as it was assessed and published in this journal. Authors of this paper include Philippe Aghion who is a professor at the LSE and fellow of the econometric society. His background in the fields of economic growth and endogenous growth theory construes his credibility to carry out reliable econometric analysis on the relationship between institutional ownership and innovation. Similarly, co-author John Van Reenen has focused lengthy on productivity growth in OECD thereby giving the paper good relevance to the study of Chinese growth. Throughout the paper, several references had been made to other studies, with endnotes at the end of the report, showing their research to be a more reasoned and better representative of the Chinese economy. Overall, I see this paper to be very reliable in demonstrating econometric models that contextualise the trajectory of Chinese reforms and so I have referred to it in a very crucial area of this report. The only setback for me referencing this paper was that it was presented in 2009, over 10 years ago – it signalled potential ambiguity in whether their finding would stand in the present day. Yet since the paper still proves that a liberal political setting can encourage innovation, it doesn’t hinder the credibility of my reference to this study.

Science and Civilisation in China by Joseph Needham

The Science and Civilisation books are a series by the biochemist and historian Joseph Needham. The books are published by Cambridge University Press which has published over 50,000 academic titles and so assures a relatively high degree of reliability in all its publications. The author Needham is widely known for his research on Chinese science and technology and so asserts the credibility of his work to analysing the procedures on Ancient China; he has had his work referenced in many papers that draw insight as well into the background of Chinese growth. Overall, I am confident his work can be relayed in mine. Although these books date back several years, they still proved clear evidence of the process carried out by China, as so does not hinder the reliability of the paper. I have only referenced this paper once, it provided important insight into the early beginnings of the Chinese economy through their domestic processes. 

The China Miracle by Yifu Lin

This is an academic book published by Chinese University Press, a press that publishes only c.50 titles each year. Therefore, the reliably of this work should be questioned since this publication may not be reviewed by many and so cannot be corrected if mistakes in the research are evident. Nevertheless, the reliability of this book is ensured through the credibility of its author Justin Yifu Lin who was appointed Chief Economist and Senior Vice President of the World Bank where he served from 2008 to 2012. Additionally, as the founder of the China Center for Economic Research, the author has been largely exposed to Chinese growth and so would be reliable to comment on the threats to China from rapid growth and whether this can be continued. Throughout the book, referencing was thorough, with a list of apparently credible sources listed at the end to the book; it shows his work was not only built on one independent theory but was also influenced and built upon by other studies. The only negative aspect of this book is that it was published in 2003, over 15 years ago. Although it plays to significant impact on the quality of analysis, I was caution in picking out my material as I had to ensure none of it was outdated i.e. misleading. The book was useful for my report, the credibility of its information meant I wouldn’t have to worry over any incorrect information and I extracted past statistics that were not affected by is early publishing.

Can India overtake China by Khanna and Huang

This article was published on ‘Foreign Policy’, a relatively small private website that discusses current news events and economic conditions. Since the posts on the website regularly offer balanced arguments from neutral viewpoints, I am confident that the website does not hold any significant bias which would make any information potentially inaccurate or misleading. One of the authors for this paper, Tarun Khanna, is a professor at Harvard Business school after having previously studied the methods of social and economic development. Therefore, his analysis of the differences in paths to growth in India and China is reliable as he has expertise in realising and commenting on the growth trajectory of the two countries. Furthermore, Yasheng Huang, the other author and professor at MIT Sloan School of Management has written considerable amounts on China’s FDI-driven growth. He is, therefore, a very reliable source of information to manipulate when I search for analysis on why China’s top-down approach to growth may not be sustainable. Overall, despite questioning the reliability of the website due to its lack of popularity, I am confident in using this source for my report to analyse the threat of India’s growth on the sustainability of China’s, since the authors are experts in this field meaning their analysis is highly focused and detailed.

Why has China grown so fast by Ding and Knight

This research paper is published on the Oxford Bulletin of Economics and Statistics, a platform on behalf of the Oxford Department of Economics – it hosts papers of applied economics with an emphasis on practical importance and theoretical interests. One author, Dr Sai Ding, a senior economics lecturer at the University of Glasgow, has done extensive research on trade, growth and development and the Chinese economy, meaning the research content of this paper on the predicators of China’s growth is largely reliable. Since this paper was written in 2011, I had to keep in mind that the presented views were slightly short-sighted, as I felt the views of China’s rapid growth could have changed in the following 8 years. Although this paper is not as credible as my other sources, considering the ambiguity in the quality of its research, it assesses growth looking at China’s degree of openness and institutional change which remained highly useful to my EPQ.

Effects of trade liberalisation on agriculture in China: institutional and structural aspects by Huang and Chen

This paper, written in 1999, condensed the topic of international trade by looking deeper into the agricultural market. The author Chunlai Chen specialised in studying the evolution of the Chinese economy through trade liberalisation and FDI. I looked into this paper with the objective of inquiring into China’s methods of trade liberalisation – Chen’s analysis of export-processing zones proved to be very useful for me in understanding how they stimulated growth. His background on studying China’s FDI and trade liberalisation policies meant it was unlikely that the information on the report was not factual. The other contributing author, Jikun Huang, is largely incorporated into China’s agricultural policy which means that the contents of this paper have no misleading information. Overall, the source proved to be reliable and so I used it to find evidence on the policies China adopted to open the economy to foreign trade. My only fault with this paper was the constant connection it drew back to agriculture in China. To use this source to its maximum capacity, I had to carefully pick up which parts that would directly apply to my focus.

China Statistical Yearbook

The CSY is a collection of statistics which reflect the social and economic development of China. It is research that is conducted and published by the National Bureau of Statistics of China which is a deputy-cabinet level agency directly under the State Council of the PRC. Since it is directly under the supervision of the state, there is an obvious bias toward trying to make the economy looks stronger than it really is. As I conducted research on the reliability of the CSY, I found several articles to conclude that the NBSC has always tried to adjust the local data before producing the national estimates since there are few discrepancies between local data and the weighted national data. Knowing this, I still decided to refer to the CSY for several data points as it is still the most reliable data available. Additionally, when taking notes on several of my sources, I found the CSY to be referenced often, meaning my report can maintain its credibility. For this reason, I am confident to reference many annual reports of the CSY as it proves to be the best source of information and there is no inherent evidence of intentional falsification by the NBSC.

Existing management theories, amidst their difference, agree with each other in numerous ways. They seek to project optimum output by utilising small administrative work units that work cohesively. The ‘Systems Management Theory’ interprets a successful system as, essentially, multiple components working harmoniously so that the larger system can operate optimally. The ‘Scientific Management Theory, similarly, raises that the division and simplification of complex procedures into smaller and more manageable tasks will amount to greater output and reward for a business. Yet the theme of managerial economics is not limited to previously projected theories – it looks at the concept of strategic decision which aims to stimulate business prosperity. A basic introduction to management covered, this paper intends explore where the potential strengths of a traditional business may lie. 

Leadership

The first pillar of business strength analysis is leadership. Research and observation have shown the concept of leadership to be misjudged. Leadership is wrongly seen as an indication of one worker, in the mechanism of business, set above another worker or group of workers, and the role is leaders is to manage the job of those below them. However, as I and others see it, there is a clear-cut division between managing and leading. Managing is, indeed, watching over and managing the work of those beneath them. Leadership, however, is watching over the ‘people’ who do the work and contribute. To raise a point by Simon Sinek, ‘a potential problem that arises in current society is that those in a position to assert leadership have failed to make a transition from managing.’ Managing indicates they have excelled at their profession and have therefore been granted the position of watching over the previous tasks they themselves carried out. Nevertheless, leadership is a skill much like any others – it requires practice and learning. The ability to transition into a leader would amalgamate into a core tenet of a strong business. Essentially, leadership transforms the working environment of a company. One example being an empathetic leader who, unlike the corporate world today, cares more about the person outputting rather than just the output. 

The cost-effectiveness of emotional intelligence is a relatively new idea for business, one some managers may find it hard to accept. A study of 250 executives found that most felt ‘their work demanded their head not their hearts.’ In the Status Quo, many fear that feeling empathy for those they managed would put them in conflict with their organisational goals. Criticism in all cases is voiced as personal attacks as opposed to the intended complaints that are to be acted upon. On the contrary, being attuned to the feelings of those we deal with, being able to handle disagreements so they do not escalate, having the ability to get in to flow states while doing work all demonstrate the strengths and potentials of business following this new interpretation of leadership.

Adaptability and Organisational set-up

Considering, for example, the Brexit negotiations or the threat of US-UK-EU recession, all businesses are looking for opportunities to prepare for a worst-case scenario. To a certain extent, it comes to the role played by managerial economics to foretell and explain how a firm may refine its trajectory of output when faced with the relevant data points. When specific components of a business model are affected by external or internal incidents, enterprises should be able to take appropriate countermeasures. By this means, business models have to be flexible enough to adapt their strategies and business processes to changing factors to stay competitive. So far, existing approaches in most cases focus on static aspects, not sufficiently taking into account the huge amount of dynamic factors that influence a company’s business model (Chesbrough & Rosenbloom, 2002; Bouwman, de Vos, and Haaker, 2008). 

To adapt, a company must realise changes in the external environment, decode them, and aptly redefine its business strategy and even reshape the industry’s information landscape. The speed of adaptation is a function of the cycle time of decision making. In a fast‐moving environment, companies need to accelerate change by making annual planning processes lighter and more frequent and sometimes by making episodic processes continual. An adaptive organisation can’t expect to succeed unless it provides people with some substitute for that certainty. 

A veiled reference can be made, as well, to the implementation of organisational structures as part of the business model. The concepts of ‘private bank work ethic’ and ‘individualism’ are often synonymously used. Therefore, there comes a question whether the essence of implementing an organisational structure tase any considerable impact on the strength of a business. Following an enquiry into such models, I assumed through public banks tend to adopt a ‘Flatter organisational model’ whereas private banks have more hierarchical structures. As evident, flatter models facilitate output as a combined effort, where co-operation trumps individual rivalry. Since there aren’t any such universally recognised structures, it is impossible to judge their relevance to the strength of a business. Yet it does raise questions as to how a business sees workers working as a unit, and how worker motives impact the strength of a business.

Playing the game

The final assessment of business strength comes down to their objectives. Not profit objectives as much as how they intend to compete and grow. 

In Game Theory, there are two types of games – there are finite games and infinite games. Finite games are those where all players are identified, the rules and guidelines are clear, and all players have an agreed-upon outcome. For example, Monopoly. Infinite games, however, are far more ambiguous, it consists of both known and unknown players, the rules can be altered and the objective is to keep the game in play. For example, the Cold War. So we begin to ask ourselves, what game is business?

Business is unequivocally an infinite game, there is no winner. Business started before all companies that exist today, and will continue to exist once all existing companies have passed. Business does not have any agreed-upon rules. Take, for example, a ranking system for the top companies – a company ranked 1 means nothing if there is no consensus surrounding the guidelines for picking that one company as the best, over all others. Weighing factor may range from employment statistics to levels of pay, meaning there essentially no recognition of a ‘winner’. Despite this, companies still say their strategic aim is to tackle competition and be the best company in the market.

What does this mean? Companies, in an infinite playing field, are playing finite games, with few exceptions namely Apple and Wal-Mart. In essence, company strategy is predominately focused on beating competition so often that they fail to realise internal defaults and weaknesses. They fail to give themselves a comparative advantage over other existing companies. To an extent, we can argue that all past examples of mergers&acquisitions and bankruptcies are examples of the infinite game in action, since companies are not able to sustain themselves in the game, and therefore drop out. A businesses’ strength, in fact, comes from realising the game that they are playing, and act accordingly to prioritise their trajectory of output.

Final remarks

This is a highly opinionated paper on what I feel are few of the many key tenets to a strong business, therefore any assertion I make is only corresponding to my views. Nevertheless, it is highly evident that all three pillars of analysis adumbrate to the concept of re-allocation and decision making with respect to the conditions of the market – a clear reference to the management of a business. Therefore, the first conclusion is that managerial economics has a large influence over the strength of a business, through its discussion of allocative effective with respect to market setting. 

We can also conclude that, currently, there is reason to see many corporations built on an ill-judged foundation of the concept of leadership and competitions. Redefining these terms may be the first step into ensuring the strength of a business.

The creation of EFSF and ESM was thanks to an unprecedented show of political will and innovation. As global financial turmoil caused tremors that would shake the new Euro, as well as the sovereign a sovereign debt crisis in Europe, investors became more and more sceptical and pressed ever-low prices to buy the sovereign debt of countries. The interest rates on these debt payments crippled the national budget. Amidst this challenge of economic willpower, the euro area erected a firewall. Beginning with the temporary EFSF and following with its permanent successor, the ESM, the institutions were tasked with holding the euro.  The institutions were able to tap financial markets and provide rescue funding for 5 of the 19 euro area members. Despite that, for example, the collapse of Lehman Brother had Greece suffer a fiscal deficit as it faced high market pressure and faltering economic independence from the Eurozone. 

A debate, therefore, arises concerning the effectiveness of the ESM as it intervened in between crisis. Judging from past events, this paper will briefly analyse the extent to which the ESM has successfully assumed its role as a firewall to European economic crises. It will consider the EFSF/ESM’s involvement in the Greek and Spanish crisis, as well as look at the foundations of the EFSF and the role this institution plays alongside the Troika.

Coming into this paper, my opinion was fixed that the involvement of the ESM/EFSF was highly ineffective.  Here are the reasons:

1. The first predominant reason is the EFSF’s efforts during the Greek crisis – its attempt to restructure the severe, concerning debt crisis that Greece faced was unsustainable, and therefore required more-than-necessary inputs of aid to restore the failing economy. Europe’s rescue programmes were essentially consisted of short-term lending at elevated rates, that which intended to spur aid recipients into quickly reinstating sound monetary and fiscal polices, so that they could return to market financing that would be cheaper than rescue loans. Yet despite this, for example, in 2013, the EFSF had to make several disbursements to Greece totalling €25.3 billion. Although this financial aid was met with short-term Greek economics success, the lack of supervision of the EFSF had the fragile economy stumble under the weight of political turmoil and a 6-year recession. Considering this, it seemed the the only aid provided by these firewall institutions was confined to financial aid. The integral aspect of pursuing structural economic  reform was not tackled through their involvement. The EFSF’s actions, in this case, were belittled by Greece’s unexpected turmoil and therefore fell short for supporting the economy.
2. The second pillar concerns the inherent procedures within the EFSF. For countries in economic distress, the EFSFS’s chief downside was that the granting of financial aid could only be decided by unanimity. As with many current-day institutions that operate with similar ‘veto’ powers, such as the British Houses of Parliament as well, the decision-making procedures are made highly complex, restrictive and frustrating. Beyond this, the inherent forming of the EFSF was under the unspoken understanding that it would not be called upon, at least in the short term. Strauch, its Chief Economist, said the new institution was ‘part of a learning curve and it had to crystal clear that rescue funds would only be used as a last resort. These previously built-in restrictions posed a dilemma on its primary aim of crisis management – it already highlighted the institution’s weaknesses through illustration that any involvement by the EFSF would have costly trade-offs.
3. Lastly, the mere presence of the EFSF, later the ESM, could be argued by considering the already existing European and global institutions that hold the same purpose of crisis management. The so-called Troika consisting of the European Commission, the IMF and the ECB have been incorporated in all the interactions involving the EFSF/ESM. In fact, the Troika launched a €110 billion bailout plan for Greece, grossly exceeding the commitments made by the ESFS and therefore played a far more integral role in managing the Greek Crisis. For this reason, the involvements of the ESFS were played down and less significant as opposed to ineffective. 

On the other hand, however, the roles that the ESM played in other crises, namely Spain’s, as well as a brief on its future commitments go to illustrate the potential that this institution can fulfil. 

Spain’s crisis was a boom-bust cycle turned to a crisis after the Eurozone contagion effect of sovereign spreads. In its second evident recession of 2012, unemployment rates averaged their highest at 26.2%. In this period of downfall, the EFSF was fully prepared to act readily, and pre-funded €30 billion in notes that could have been deployed to Spain if needed. The ESM, later intervening in place of the EFSF, realised it would be most efficient to tackle the fire with a programme limited to banking as doubts were predominantly placed upon Spanish financial markets. Opposed to the previously used example of Greece, this time, the financial adjustment programme was intended predominantly for indirect market capitalisation, meaning the ESM would lend for the sole purpose of restricting the banking sector. In this case, the IMF’s role has been limited since Spain’s initial agreement was signed with the EFSF – the IMF took an advisory role to ‘monitor the economy’. In effect, the rescue programme was a true firewall, giving Spain the time and security to put its economy back on track. 

Furthermore, during the crisis, it is safe to argue that that the ESM graduated into being an established institutions. It gradually became closely aligned to the Troika to ensure its management programmes would succeed. The ESM has proclaimed that its next challenge, after having previously strengthened the Euro area, is now to strengthen the foundations of the Euro. Only two of the ESM’s 6 available tools have been implemented to date, the long term loans in Greece and indirect aid in Spain. Therefore, the potential of the ESM remains at large.

‘If we fail to implement the agenda to deepen the monetary union now, the next crisis will force us to do so. If we do what we know needs to be done, we have the potential to save jobs and economic heartache.’ Klaus Regling(ESM Managing Director)

To conclude, having judged the key reasons that weigh the effectiveness in the involvement of the EFSF/ESM, it is fair to say their involvement in Greece raised concern surrounding the significance of the institution. However, upon researching, the foundation of the institution never adapted itself to manage large-scale crisis. Currently, the structural formation of the 2010 founded ESM is. Therefore, the evidence and debate amalgamates to the fact that the ESM, now essentially incorporated into the Troika, will have more integral involvement in crisis management, and will be efficient when doing so.

Kashmir, a region locked between India and Pakistan, where troubles were ignited after the momentous partition and the Indo-Pakistani war of 1947, has stayed the primary focus in national conflict. Being an ethnic Indian, the recent news on Modi removing what little autonomy was help by Kashmir through revoking Article 370 seemed short-sighted. Shashi Tharoor, Congress party MP said in the Low Sabha, ‘this is an assault on the constitution of India, an assault on the spirit of co-operative federalism, an assault on our democratic practices, and an assault on the individual liberties of each and every one of our citizens.‘ This short paper will fetch to analyse why conflict has continued, what this impacts, and what I see happening in the near future.

Background, why have conflicts sustained so long?

The region’s GDP of £14 billion(2017-18), matched only 5.57% of Pakistan and only 0.654% of India’s. Solely under the simplest of economic measures, there shouldn’t be any economic drive to have Kashmir. The economics behind this conflict, therefore, goes beyond economic theory, and lands in political and national sentiment. Pakistani support is rallied on the lines that the state naturally falls into the ethnic dimension of their country, Kashmir hosts a 96.4% muslim population. On the other side of the LoC, India require Kashmir to herald a multi-ethnic crowd within India. Since the clash was never resolved, despite promises and treaties being thrown around, a Line of Control(LoC) was formed across the division of areas dedicated to Pakistan and India. With several hundred thousand soldiers arming the borders, shellings and skirmished are often and simple add to tensions, they have since fought three wars over Kashmir.

The feasibility in finding rationale and commonplace between the two nations is lost in their politics.On the one hand, Pakistan is held in a political deadlock. The  leading centrist party, ‘Pakistan Tehreek-e-Insaf (PTI), can be seen clamouring to get the votes of several independent candidates that not only have active corruption cases on going, or have been involved in corrupt practices in the past.’ No real national political party has existed in Pakistan where the citizen will be guided to act as one nation. There are numerous regional parties whom propagate and spread the venom of authenticity and isolation. Similarly, India’s political industry is simply confused. Modi over-domineering domestic enterprise, encourages nothing more than a growth-mirage.’Corruption’ best reflects for example how the election campaign of India is one of the most non-transparent when it comes to funding.

How does this struggle impact the two nations?

From an economics point of view, we can argue such growing tensions affects the certainty and stability of the economy for an investor. The pressing threat of an outbreak  between the two nuclear powers hinders confidence and so may lead to a plethora of consequence, the most obvious being falls in FDI and depreciation due to less hot money inflows. Nevertheless, Indian growth, for example seen via FDI which has increased 35.03% since 2014, has not faltered. Although such data suggest no evident impact from the conflicts arising, there is certainly an aforementioned blanket of doubt cast over the promising stability of the economy. 

To assess this ‘impact’ we ought to ask as well, what could a fully liberalised Kashmir provide for. Beyond an obvious boost in government revenue via tax and tourism, the area would serve as a platform for new business investment and opportunity, expanding the territorial reach of the economy and so add to their growth stimulus. Currently and preceding the shutdown following the revocation of Article 370, the interlocked region repeatedly fails to output near maximum capacity due to the innumerable number of restrictions; it serves only as a hole for Indian and Pakistani governmental resources to be poured into their army to maintain security. A breakthrough for Kashmir would remove huge fiscal pressure of the nation, particularly Pakistan with a debt 68.5% of GDP and a predominant reliance of World Bank funds.

What can we forecast in the future?

As highlighted before, the political system of both nations place unofficial barriers to the liberalising of Kashmir, despite the several agreements how it should be run, they fail to stand. Beyond economics, geographical reasons prevail as well, on the lines that it opens up India to terrorism and open attacks that are bred in their counterpart.  A potential solution has been to hold plebiscites in Kashmir for the Muslim-majority to decide where they belong, but is also predictably disputed. In sum, it again rests in the ability of India and Pakistan to reach an agreement on how the region is utilised. Adhering to their proposed lines of action mean resources can be used to their maximum efficacy and resources, as discussed previously, are not thrown at indisputably unnecessary causes. Going beyond theory shows why conflict have sustained, but economics shown us how this conflict theoretically hinders each nation’s capabilities, and so stimulates an incentive to climb out of the struggle.