The Wuzhen Summit of this year’s World Internet Conference was successfully held last Sunday (September 26). When attending a development speech, Vice Premier Liu He emphasized the development opportunities of digital economy innovation. During the period, he pointed out that China’s current digital economy must be developed. Overcome "Baumol disease" to achieve inclusive growth.
The theory of "Baumol's cost disease" was developed by the late American economist William.
Baumol (William J. Baumol) began to propose it in the 1960s.
This theory divides economic production into "progressive sectors" (faster productivity gains) and "stagnation sectors" (slower productivity gains) based on the rate of productivity increase.
Traditionally, the progressive sector refers to the manufacturing industry whose productivity is easily improved through technology, while the stagnant sector refers to the service industry whose productivity is difficult to increase.
For example, technology has improved production efficiency. Today, fewer workers can produce more steel than a hundred years ago. This is called "progress." There is not much difference, production efficiency is "stagnation."
Baumol pointed out that the production efficiency of "stagnation sectors" such as the service industry is relatively slow. If their demand is inelastic, they will attract more labor concentration in the long run, and will also reduce the efficiency of overall economic growth and make society There is a chronic economic slowdown.
Digital innovation overcomes "Baumol disease"
This theory has been well verified in advanced countries such as the United States and Europe.
The manufacturing industry continues to shrink, and the low-end service industry has become a major labor-intensive market, slowing down the overall economic development speed.
Recently, because of the epidemic in the United States, "Baumol disease" has become more serious.
As the people lose their desire to work because of the US government’s cash policy, a large number of low-end service industries are experiencing shortages of manpower, which forces them to raise their salaries and compete for limited manpower.
This has caused artificial rises and consequently accelerated inflation, but the production efficiency of these jobs is still very low, and the economy has not undergone corresponding development, which will aggravate the crisis of "stagflation" in the economy.
Compared with so-called advanced regions such as Europe and the United States, China's manufacturing industry has maintained an important proportion in the overall economy with the support of national policies. In 2020, 38% of GDP will come from the secondary industry.
At the Digital Economy Innovation Conference, Liu He proposed to overcome the "Baumol disease", not only to emphasize the manufacturing industry, but also to fundamentally overcome the premise of "service industry = stagnant sector".
In the past century, the form of the industrial revolution was mainly based on industrial production, so the improvement in productivity was mainly in the manufacturing industry.
However, the development of the digital economy may have revolutionary changes to the service industry.
If digital achievements such as artificial intelligence (AI) and big data can greatly change the production efficiency of the service industry, it means that the service industry can get rid of the fate of becoming a "stagnation department."
In 2020, 38% of China's GDP will still come from the secondary industry.
Hong Kong needs to think more about the industrial structure
Mainland China, which has a strong manufacturing and innovative service industry, is still thinking about how to overcome "Baumore's disease," but Hong Kong, where the secondary industry accounts for only 6.5%, rarely mentions this problem.
The economies of Hong Kong and the United States are very similar. The manufacturing industry has already flowed out, the service industry has become a "stagnation sector", and the economy has slowed due to lack of growth points.
In addition to advocating the return of manufacturing industries, Hong Kong can also think about how to change the productivity of the service industry.
The productivity of Hong Kong’s low-end service industries, such as retail and tourism, has not improved for a long time. For example, the catering industry is still highly dependent on low-end labor, and the degree of automation is extremely backward.
In the high-end service industry, financial growth is considered ideal, but its main driving force does not come from the increase in productivity generated by technological and digital reforms, but only from financial opportunities such as the US water release and the southward flow of mainland funds.
In terms of innovative services, Hong Kong lacks companies that can compare with the digital giants in the Mainland.
Hong Kong's rulers must think about how to use innovative technology to change the overall efficiency of the service industry in order to overcome "Baumol disease."
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