Commencement Address by Richard C. Levin, President of Yale University, at Tsinghua University School of Economics and Management


The Challenges Ahead

July 14, 2013

President Richard C. Levin

Dean Qian, distinguished guests, members of the faculty, and, above all, graduates of the Tsinghua University School of Economics and Management: good afternoon.

It is a great honor to stand before you today as your commencement speaker. It is also a delight for me to return to Tsinghua, a campus that I have visited many times and an institution with which my university has many connections. I have many fond memories of conversations with your presidents Gu Binglin and Chen Jining, and I value also my friendship with your energetic and creative dean Qian Yingyi.

The School of Economics and Management enjoys a special place in Chinese higher education, because of its close association with your country’s reform, opening up, and astonishing economic growth. For nearly thirty years, your school has produced a steady stream of talented leaders who populate key government agencies, state owned and private enterprises, and the banking and financial sector. Your founding dean, Zhu Rongji, was a consistent advocate for economic reform, and his record as Premier is extraordinary both for contributions to the prosperity of the Chinese people and for strengthening the integration of China into the world economy.

I speak to you today with special empathy, because, like you, I am at a point of transition. You leave the Tsinghua University School of Economics and Management after courses of study ranging from two to five years, and I leave the Yale Presidency after twenty years of service. I imagine that, like me, you are hopeful that your work in the years ahead will contribute in meaningful ways to the advancement of your nation and the world.

Each of you has had the opportunity to learn from teachers who are among China’s leading scholars, and to grow in the company of some of the most exceptional young adults to be found anywhere – your classmates. You have lived in an environment of high intensity and high achievement, mastering difficult material and learning to think more carefully and analyze more critically. In the course of all this activity, you have undoubtedly come to know yourselves more completely. These pleasures now give way to a new set of challenges and opportunities as you explore the world that is before you.

You are fortunate to live in a country that has made tremendous improvements in its material standard of living, and despite recent concerns about the excessively rapid expansion of credit, the long run fundamentals still favor growth. Equipped with an excellent education, you will have abundant opportunity to participate in, and help to lead, this growth, which will continue to move millions of people every year from poverty to greater prosperity.

But your country, like mine, faces many challenges in the years ahead. Some of these challenges are global in nature, and thus are also confronted by Americans of your generation. Many, however, are unique to your nation, and perhaps to rapidly developing countries elsewhere.

Let’s talk first about three challenges that you share with Americans of your generation. First and foremost, there is the challenge of global warming. Without decisive action, the emission of carbon into the atmosphere will require, within your lifetimes, the relocation of coastal populations and severe droughts in once fertile agricultural regions. Earlier this year, atmospheric carbon dioxide concentration exceeded 400 parts per million for the first time in over three million years. This level is more than 40% higher than concentrations prevailing when the Industrial Revolution began in the mid-18th century. Now is the time for stronger economic incentives, stricter performance standards, and large investments in carbon-free energy technologies. Both China and the United States have introduced new measures this past month, but they are nowhere near enough to solve the problem. Without more, your children and grandchildren will live in a world burdened by the enormous costs of coping with environmental disruption and human dislocation.

A second challenge facing your generation in both China and the United States is providing for the elderly. This problem takes different forms in the two countries. In America, we seem unable to control the rising cost of health care, especially end-of-life care, and with longer life expectancy it will be necessary to increase the retirement age or raise taxes appreciably on the working-age population. In China, the sheer number of elderly citizens will overwhelm the capacity of the working population to provide for it. China has already begun to increase the funding of its public pension schemes, and it needs to accelerate these measures, especially now, while the government has large surpluses that could be directed to this purpose.

A third challenge we face together is the need for a strong and stable partnership between our two countries. Fortunately, we are making progress toward this goal. President Xi Jinping has announced that he is seeking a “new form of relationship between great powers” – a relationship based on mutual understanding and one in which conflict between an emerging and an established power can be avoided. President Obama has embraced this objective. But we will all need to be vigilant in order to prevent nationalistic sentiment from overwhelming the rational interest of both our nations in a peaceful evolution of our relationship.

Your generation also faces challenges that are unique to China’s historical situation. Let me mention two of them.

First, as many commentators have noted, China’s rapid economic growth has led to some significant distortions, such as the large and increasing share of investment in gross domestic product, which has been fueled by an unsustainable expansion of credit. While the ratio of debt to GDP in China remains well below the pre-crisis level in the United States, its recent rate of expansion is much more rapid than that experienced by the U.S. in the years prior to the crisis of 2008. China’s macroeconomic imbalances can be corrected with prudent policies, both by controlling leverage, which seems now to be an objective of the People’s Bank of China, and by favoring, through fiscal policies, a shift in demand from investment toward consumption. Indeed, a greater emphasis on the development of the service sector, which is more labor intensive than manufacturing, could help, for a time, to absorb China’s steadily growing supply of urban labor while accommodating the inevitability of a lower overall rate of GDP growth.

Second, as recognized in the 12th Five-Year Plan, for China to continue to prosper in the long run, it must develop the capacity to innovate at a world-class level. Until now, China’s growth has followed the pattern typical of smaller, successful developing countries: a rate of economic growth well in excess of those achievable in more developed countries, made possible by the transfer of surplus labor from the agricultural to the industrial sector, from low productivity jobs to higher productivity jobs. But experience teaches us that as a nation’s surplus labor begins to be fully absorbed in the higher productivity sectors such as industry, and even highly mechanized agriculture – and as those sectors approach international best practice – there is no way for the rate of growth to exceed the average experienced by more developed countries, unless the nation is itself improving the standard of international best practice.

This line of reasoning helps to explain why Europe’s growth rate was faster than that of the United States in the first twenty-five years after World War II. Its productivity was well below that of the United States after the war, and hence much of its higher rate of growth was explained by “catching up” to U.S. levels of productivity. Japan’s superior performance prior to 1990 can be explained in the same way. But in Europe since 1980 and in Japan since 1990, growth rates have lagged behind that of the United States. And the explanation is a simple one: the United States has excelled at innovation. If Microsoft, Intel, Apple, and Google had been Japanese companies, the Japanese economy would not have stagnated since 1990. Had a greater share of worldwide innovation in the last thirty years occurred in Europe rather than the United States, European growth rates would not have lagged behind.

The lesson for China is clear. Some time in the foreseeable future, Chinese GDP per capita and Chinese total factor productivity will begin to approach the level of the United States and the other most advanced economies. At that point, China will only be able to sustain a growth rate faster than its peers through its superiority as an innovator.

Both the 12th Five-Year Plan and the more recent report of the World Bank and the Development Research Center of the State Council, China 2030, identify the need for China to become a leader in innovation. This will be a major task for your generation. It requires research and development infrastructure, which is already being assembled, and a strong regime of enforceable intellectual property rights, which will need to be created over time. Most significantly, leadership in innovation will require strengthening China’s leading universities through a transformation of traditional Chinese pedagogy. The skill of creative problem solving is not easily transmitted by a pedagogy that encourages students to accept without question the wisdom of the teacher. Learning to think creatively and to innovate requires more active classroom engagement, in which students are made to think for themselves, to put forward their own arguments and defend them in vigorous debate. The leaders of Chinese higher education know that this transformation is needed, but it will require faculty to change their traditional teaching methods, and it will require students and their parents to accept the idea of vigorous classroom interaction in which all assumptions are open to challenge.

You have had the benefit of studying in a school in which a majority of the teachers have studied in environments where interactive pedagogy is the common practice. To help your country reach its potential as an innovator, you will need to advocate for interactive pedagogy for the sake of your children.

I have identified five challenges for your generation, perhaps I should call them imperatives: mitigating global warming, providing for the elderly, ensuring a strong relationship between China and the United States, correcting macroeconomic imbalances, and developing your nation’s capacity for innovation. None of these challenges will be easily met; all will require commitment, patience, and persistence. But the rewards are manifold: better health, more prosperity, and greater security.

You might reasonably ask: what I can do personally to make progress in relation to these great challenges? Let me give you a couple of suggestions.

Consider the challenge of global warming. Clearly, the problem will not be solved without the action of governments around the world, most notably those of China and the United States. But the actions of smaller-scale institutions can have an impact on raising the awareness of your fellow citizens, and of your government. For example, Tsinghua is a leader in research on both energy efficiency and the development of low-carbon energy, and its work has had a major influence on policy formation in China. Many universities, in addition to conducting research, have set high standards for their own environmental practices – constructing new buildings with minimal environmental impact and retrofitting older buildings with technologies that reduce energy use from fossil fuels. By these means and others, Yale has committed to reduce, by the year 2020, its greenhouse gas emissions 43% below the level prevailing in 2005. One thing you can do in your workplaces is to encourage your organizations to adopt similar high standards and become models of good environmental practice. Such efforts by organizations can help to convince governments that reducing greenhouse gas emissions is truly feasible and not prohibitively expensive.

You can also have personal impact on the future of US-China relations. Your Vice Premier Liu Yandong has been a powerful and consistent voice for the importance of people-to-people exchanges between our two countries. Her instincts are right. The deeper the personal ties between Chinese and Americans, especially among those who will rise to leadership positions, the greater the likelihood of peaceful cooperation as China assumes great power status. You, who will serve your nation in important roles, might wish to visit or even live in the United States for a time – whether for further study or as part of your work experience. And you might also welcome more interaction with Americans who visit or work here in China.

Personal engagement of the type I have suggested can be very helpful. But, in the end, meeting the five major challenges I have outlined will require policy changes at the national level, and in this domain your efforts will be important and your potential impact will be greatest. There will be many obstacles. Reform is always difficult. Entrenched interests favor inaction. But you can make a difference. In both China and the United States, we need fresh voices at the table, and you, who are among the best-educated citizens of your generation, need to be among them. Rise to these challenges, seize every opportunity for engagement, bring to bear all that you have learned here at Tsinghua, and lead your generation to a better life.