Globalization has become a scapegoat. Globalization is not the main reason for the domestic problems. And if we try to reduce the globalization, what we have is anti-globalization. On the one hand, you will not solve your domestic problem. On the other hand, you make the growth and the development more challenging.
The New Structural Economics is trying to advocate the use of modern economic approach to study the determinant, the determinants of structural evolution in the process of economic development. Because what I see the nature of economic development is a process of structural transformation from agriculture to manufacturing to service-oriented economy, from more traditional technology to more modern technologies. And in this process, you also need to improve the hard infrastructure and institutions. And all those are structures in the economy.
And economic development is a process of structural changes. And I advocate using modern economic approach to study the determinants of the structure and structural evolution. When I say the determinant of structure and structural evolution, it means structure is endogenous. And structural changes, it's also endogenous. And in order to understand what causing the difference in economic structure in country at a different level of development and how to move from low level of productivity structure to higher-level productivity structure, so you can have the increase income in a country. So that is the main focus of the study of New Structural Economics.
But how do I call them New Structural Economics? Because the first generation of Development Economics which emerged after the Second War is structuralism. And I tried to distinguish my studies from the structuralism. So I call it New Structural Economics, just like in the 1960s when Douglass North started to advocate the use of modern economic (studies) approach to study institution and institutional changes. He should have referred his study as Institutional Economics, but because there was an institutional school in the US at the end of the 19th century, early 20th century, and he wanted to distinguish his approach from the institutional school. So now he referred those type of research as "New Institutional Economics." So New Structural Economics, the new had the same implication as New Institution Economics. But overall, it's the use of modern economic approach to study the determinants of structural and structural transformation in a country's economic development.
China, since 1978 to now, the average annual growth rate was about 9.4%. It was miracle in human history because we never observed such a high growth rate to occur in our country for such a long time. And the possibility for China to achieve that, on one dimension, certainly, it was a transformation from a poor agrarian economy to modern manufacturing economies. And in this process, China climbed up the industrial ladders step by step. And that certainly can be explained by the structural transformation that I just described. But on the other hand, China in this process also transit from a planned economy to a market economy. And China was able to maintain stability and dynamic economic growth simultaneously, unlike other transition economy. Although the intention was similar to move from planned economy to market economy, but they encountered economic collapse and stagnation and hit by crisis from time to time. But China maintain stability and dynamic economic growth. That was also related to how China cope with the distortion before the transition, because distortion itself are also endogenous. And the main reason for the distortions in a transition economy was because the country inherited with some kind of industrial structure due to the development strategies before the transition.
As I mentioned, economic structure should be endogenous. But we know that after the Second World War, the country gaining the independence, they wanted to catch up the high-income country immediately. So they developed all those advanced industries. But they did not have comparative advantages in those kind of sectors. And the firms in those kind of priority industries were not viable. And without the government protection and subsidies, then they cannot survive. In a transition economy, they inherited a lot of those kind of non-viable firms. And China was able to maintain stability because China adopted a pragmatic dual-track approach in the transition. In a period, the government continued to provide some kind of necessary protection and subsidies to the older industries to maintain stability. But China also liberalized the entry to the new industry, which are labor intensive, which were consistent with China's comparative advantages, and also facilitate their growth by improving infrastructure in the industrial park, or export processing zone, or special economic zone, so turn those kind of industry from comparative advantages to national competitiveness quickly. And that was the reason why China can maintain stability and dynamic economic growth.
In the same time, this approach also creates a condition to remove the protection and subsidies to the older sectors. The main reason the protection and subsidy to the older sectors were essential, because they were again China's comparative advantages. But if we have new sectors to grow very rapidly, capital will be accumulated very rapidly, and comparative in the country will change very quickly. So all the sectors will be changing from against the country's competitive advantages to be consistent with the country's comparative advantages. When they are consistent with the country's comparative advantages, protection and subsidies will be not necessary and can be removed. And that is the reason why China can maintain stability and dynamic economic growth, and move very close to the well-functioning market economy because the government can eliminate the transitory protection and subsidies when the comparative advantages were consistent with China's changes.
Well, I think that during the period of globalization, we also observed some issues in the US or other high-income country. For example, the incretion increases in the income disparity, and also the declining of the share of the middle class in the US and other European country. Those kind of problems causing some kind of social tensions. But we also need to understand the stagnation of the income of the middle class and the enlargement of income disparity. Are they really caused by the globalization or not? I think a lot of empirical evidence or studies show actually not.
The stagnation of the income of the blue class is mainly because of the automation that been adopted in high-income country. And the declining shares of the middle class are mainly caused, on the one hand, the concentration of the wealth in the Wall Street by the financial sectors, as well as the concentration of wealth in the Silicon Valley by those technological geniuses. And those causing the income disparities.
So I would, again, globalization, certainly, it improved the possibility of trade. And trade is always a win-win for all the countries involved. And in this process, we have some problems. But globalization becomes a scapegoat. Globalization is not the main reason for the domestic problems. If we try to reduce the globalization, what we have is anti-globalization. On the one hand, you will not solve your domestic problem.
On the other hand, you make the growth and the development in the individual country and globally in a more challenging situation. So I think that, again, just like try to address the issue of trade imbalances, if you really want to improve the problems, we need to understand the true causes of the problem. Otherwise, the action with good intention may bring with bad results.