I recently visited China for the first time. I saw that scholars are still trying to understand the China economic miracle and predict its future growth / stagnation / decline. Some time ago I considered this issue in the context of the previous Asian miracles and from the view of economy as ultimately a product of ecology. With a simple model that focuses on the need of households to provision family members, an answer becomes clear.
In the 1970s-1980s it was Japan, in the 1980s it was Taiwan (and others), and in the 1990s-2000s it has been China (and Vietnam). Each of these countries urbanized quickly as rural migrants streamed into new factories for the manufacturing of first simple products and later high-tech. In the case of Japan and Taiwan, growth peaked and has since stagnated. China’s growth may be slowing.
Something that connects them is this. Previously rural countrysides supported large populations in each country. That meant that much, if not most of the energy/emergy that supported the households was from free, renewable sources, primarily household gardens, but also the other free natural resources of the countryside that process human waste, clean drinking water, and cool households.
Why do households matter?
The era of nuclear families in the West is a historical outlier. Traditionally, children, parents, and grandparents, have depended upon each other, in a perpetual cycle of birth, growth, and death. In rural communities, the individual, or the married couple, are not the isolated unit that they are now in the West (yet, changing in many Western countries where jobless young adults are staying home with aging parents, a sign of stagnation there too). Traditionally, extended families were the unit of reproduction, and thus the unit that requires inputs and maintenance. In rural communities, a large proportion of those inputs were from free renewables.
In each of these countries, as rural teenagers made their ways to the urban factories they left their aging parents and younger siblings at home. Their extended family continued to be supported, or at least subsidized, by large, free, renewable inputs from nature. The wages sent home by workers merely topped-off those inputs. The workers in urban factories could be paid small wages because their parents or siblings needed so little.
However, 5 to 10 years after migration, the new workers are starting families of their own. Those new families are purely urban families and the subsidies that families had received from nature are now lost. Unsurprisingly, the workers now demand more wages, as they and their offspring must be supported together from those wages in an urban environment. Higher wages mean that the economy must produce the higher-tech products, and the low-tech and heavy industries move elsewhere (first to Taiwan from Japan, then to China and Vietnam from Taiwan). Farmer families can live reasonably without much cash because of the free work from nature. But when that disappears, in new urban environments, so does the cheap labor. And stagnation begins.
So the answer to this riddle is not found in consumption, or raised aspirations, or even worker greed. It is simply about a new minimum level of support that is required as extended families leave the countryside and try to live in urban environments.
Why do economists not see this?
Why do traditional economists not see it this way? Because they look at the countryside and see only poverty. They have no way to judge the value of free inputs from nature. They see farmers with little cash and lament their sad state. But in a way, urban worker families are just as ‘impoverished’ as their country ancestors. They have more money, of course, but they must now buy all of their supporting inputs. After those purchases, few workers today have remaining income for savings. And risk increases, as they typically lack the social safety nets provided by community life, that allow families to buffer the inevitable large perturbations that hit any household.
Admittedly, this is just a verbal model, not an analytic result, it is based only on first principles of environmental accounting. It needs to be tested with data and perhaps in simulation. But as an argument or hypothesis, to me at least, it deserves consideration.