China, the fiscal stimulus, and development

I'm reading an article in the Wall Street Journal about how China's fiscal stimulus is being implemented and how it differs from the US fiscal stimulus (as well as how US businesses benefit from China's rapid stimulus.) Here's a key difference:

"Caterpillar Inc. Chief Executive James W. Owens says [...] China continues to have a great need for infrastructure and that projects there could start much more quickly than could similar projects in the U.S. 'It's something like nine months [in the U.S.] versus nine weeks' in China, he says."

This is, obviously, what the (American) administration means when it announced fiscal simulus for "shovel-ready" projects. Where between 9 weeks and 9 months does shovel-ready lie?

Here's another interesting take on what happens when you don't have any shovel-ready projects, errrrrr, shovel-ready:

"In Los Angeles County, cities are buying federal stimulus funds from each other at deep discounts, turning what was supposed to be a targeted infusion of cash into a huge auction."

In contrast, this is why the Chinese stimulus seems to be coming on-line so much faster than the American one (again from the WSJ article):

"The swift start on the Xiangshan Island Bridge project reflects years of preparatory work, a top-down administration that tolerates little dissent and a pipeline of projects.

Indeed, by the time building on the bridge began, it had been being planned for 15 years.

'China has a strong pipeline of well-prepared projects,' says Robert Wihtol, China country director for the Asian Development Bank." [emphasis mine]

I've always struggled with the (apparent and maybe latent) debate and/or contradiction in the development literature over what's better for development, democracy or authoritariansim. Here are some excerpt's from A.K. Dixit's excellent "Evaluating Recipes for Development Success" for some background:

At a broad and general level, cross-country regressions yield mixed results on the
question of whether democratic or authoritarian governments are better for growth. For
example, Barro (1999, p. 61) found a relatively poor fit and an inverse U-shaped relationship.
He suggested that “more democracy raises growth when political freedoms are weak, but
depresses growth when a moderate amount of freedom is already established.”

[... bla bla bla, some stuff about pathways, local knowledge, the usual good things]

These are just a few examples from a vast literature, and they add up to a message that
is pleasing and even uplifting to many modern academics and policy practitioners alike –
democracy is good not only for its moral and human appeal, but also for its economic
performance. [...] But not so fast. There is an equally impressive emerging literature that makes a serious case for authoritarian governments and institutions when it comes to starting growth and development.

[...]

First a conceptual matter: what feature or features of policies are important for good
economic outcomes, regardless of what kind of government makes those policies? Here much
of the literature does find one point of agreement: credibility of commitments is vital. [emphasis mine]

Indeed, it appears that China retains several aspects of democracy at
lower and middle levels of institutions and economic policymaking: there are some genuinely
contested elections at these levels, press criticism of officials at this level is tolerated and perhaps even encouraged, and corruption is swiftly and severely punished when detected.
Only at the top level is the Communist Party’s rule rigid and unchallengeable."


I would argue that the Chinese administration for all its shortcomings does have very good credibility of commitment. In fact, I don't quite agree with Merrill (was it Merrill?) when they expect China to grow at 6.5% this year. If the Chinese administration says China will grow at 8%, they will grow at 8%, I think.

Don't get me wrong. I'm not a hater of democracy--in fact I pretty much adhere to Sen's view that development must essentially be viewed as freedom--and China obviously has a horrible score here but I think the Chinese set-up has some lessons. Not only did it manage to deliver the biggest pro-poor growth miracle in the post WWII era (or maybe ever) it seems to be good at making the stimulus work, too.

I'm not really sure about all the development implications, different definitions of development, effects on growth, effectiveness of growth for lower income strata, &c. But I do believe that China is going to come out of this crisis much earlier than the rest of the world and that the rest of the world will owe something to China in terms of dragging us out as well.

How is low-income fiscal stimulus delivered?

I’m just reading a brief Merrill March update on Thailand. In it is the following section:

“Farm income in March fell 7% due to falling crop prices.
Therefore, consumption remains at risk with an expected rise in unemployment.
However the Bt2,000 allowance for low-income earners, distribution of which
began from the end of March, is expected to cushion consumption in 2Q. The
total amount is Bt19bn. So far, Bt11bn or (0.5% of quarterly GDP) has been
converted into cash”

And that got me wondering: When governments provide fiscal stimulus in economic crises or just simple fiscal countercyclical measures and when they provide this to the poorest strata of society (as they should) how do they do this? I’m not sure how this looks in Thailand but I’m sure in very rural economies a significant number of workers (especially among the very poor) don’t have checking accounts. Or if we’re talking about slums then people won’t have mailing addresses where checks can be sent either. And I doubt they just wire the money. So then how is fiscal stimulus delivered to those people. Does someone drive around with an armored truck into a favela and hands out cash? That person would never make it out! My guess is fiscal stimulus is not delivered to the very poor, just to the poor that the state can “see” (in a Jim Scott Seeing Like A State kinda way) through its administrative matrix. And then how do you solve that problem? There obviously is a role for microfinance – providing people with access to financial institutions, not just credit but checking and savings accounts. But still… people without IDs, without proof of address (which can be a large part of a poor country’s population)… they’ll just be excluded.