Many studies have identified a “middle-income trap” at around US$15,000 per capita, where a society’s growth slows and may stop. The HEAD Foundation’s Secretary-General, Professor Gordon Redding, highlighted in this public lecture that societies relying largely on interpersonal trust to stabilize economic relations are at greatest risk of leveling out at this plateau. Professor Redding explained that in China’s case, the middle-income trap is caused by:
- Government control of economic action (mercantilism), which results in inefficiency at large scale, and
- Reliance on Small Medium Enterprises that cannot grow large because of a lack of trust.
Professor Redding closed the presentation with six hard questions that China would need to address in order to overcome its limitations and escape the middle-income trap.