To­ward an in­no­va­tion-led econ­omy by 2020

China Daily (USA) - - VIEWS -

China, as chair of G20, made in­no­va­tion a key theme for the G20 Sum­mit, pro­vid­ing a new im­pe­tus to pol­icy ac­tions around the world to re­vive the global econ­omy and achieve strong, sus­tain­able and bal­anced growth. In­no­va­tion can be a pow­er­ful driver of pro­duc­tiv­ity growth, the only way sus­tain­able long-term growth can be guar­an­teed. And at theHangzhou Sum­mit, the G20 economies vowed to im­ple­ment a se­ries of am­bi­tious struc­tural re­forms and ac­tions to fa­cil­i­tate in­no­va­tion, and in­vest in the science and tech­nol­ogy in­dus­try, which in it­self can help re­vive growth in many parts of the world, es­pe­cially some G20 economies.

Am­bi­tions how­ever go much fur­ther. To fos­ter ex­change of knowl­edge and ex­pe­ri­ence on in­no­va­tion-driven growth, the G20 economies en­dorsed the cre­ation of the G20 Com­mu­nity of Prac­tice within the Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment-World Bank In­no­va­tion Pol­icy Plat­form. They also adopted the G20 2016 In­no­va­tion Ac­tion Plan that out­lines guid­ing prin­ci­ples and ac­tions, such as adop­tion of pro-in­no­va­tion poli­cies and mea­sures.

A se­ries of ac­tion plans was adopted in re­lated ar­eas, too, such as the dig­i­tal econ­omy and the NewIn­dus­trial Rev­o­lu­tion.

In­no­va­tion also fea­tures in the struc­tural re­form agenda to achieve strong, sus­tain­able and bal­anced growth. The G20 economies have adopted theHangzhou G20 Guid­ing Prin­ci­ples for Struc­tural Re­form that sets the pri­or­ity ar­eas for such re­form.

The im­por­tance of in­no­va­tion for China and other G20 economies can be best cap­tured by the fact that China has cho­sen in­no­va­tive de­vel­op­ment as one of the five key prin­ci­ples for the 13th Five-Year Plan (2016-20), which sets the tar­get of be­com­ing an in­no­va­tive econ­omy by 2020. Such a trans­for­ma­tion pre­sup­poses the ac­cu­mu­la­tion of size­able stocks of var­i­ous types of cap­i­tal: phys­i­cal, hu­man, in­sti­tu­tional and so­cial.

Phys­i­cal cap­i­tal is the most abun­dant among all types of cap­i­tal. While the mis­al­lo­ca­tion of cap­i­tal over the past decades is man­i­fest in ex­cess ca­pac­ity in a num­ber of man­u­fac­tur­ing sec­tors, the chan­nelling of in­vest­ment to­ward high-tech and newin­dus­tries has been ap­par­ent in re­cent years.

Hu­man cap­i­tal, ei­ther mea­sured by the ex­pected life­time in­come of in­di­vid­u­als or sim­ple in­di­ca­tors such as ed­u­ca­tion at­tain­ment or en­rol­ment, has ac­cu­mu­lated rapidly, es­pe­cially in the past two or so decades. As the share of the work­ing-age pop­u­la­tion falls, wages rise and the rel­a­tive prices of cap­i­tal and la­bor change, lead­ing to sub­sti­tu­tion from la­bor to cap­i­tal. Ac­cord­ing to OECD re­search us­ing theMyCOS sur­vey data of 800, 000 ter­tiary grad­u­ates, the skills with the most acute short­age in­clude com­puter pro­gram­ming and soft skills. Mak­ing up for the pro­gram­ming skills deficit is a pre­req­ui­site of wide­spread de­vel­op­ment of in­ter­net-based in­dus­tries and the whole “In­ter­net Plus” ini­tia­tive.

Not­with­stand­ing rapid pro­duc­tiv­ity con­ver­gence and im­pres­sive build-up of in­fra­struc­ture and knowl­edge over the past cou­ple of decades, it has not been un­til very re­cently that the in­sti­tu­tional en­vi­ron­ment is tar­geted to bet­ter suit the tran­si­tion to­ward an en­tre­pre­neur­ial and in­no­va­tive econ­omy. Ben­e­fit­ing from re­duced bar­ri­ers to set up busi­nesses, the past year or so sawan un­prece­dented surge in new­com­pany reg­is­tra­tion, par­tic­u­larly in ser­vices.

Once a fa­vor­able en­vi­ron­ment is es­tab­lished for en­ter­prise cre­ation, it is also cru­cial to en­sure that zom­bie com­pa­nies do not take up re­sources and through ef­fi­cient mech­a­nisms exit the mar­ket. Such “cre­ative destruc­tion” is the driver of pro­duc­tiv­ity growth by giv­ing space to new ideas, new­prod­ucts and new pro­cesses.

Over­seas ex­pe­ri­ence shows, that most in­no­va­tion is a re­sult of col­lab­o­ra­tive ef­forts, which pre­sup­pose well-es­tab­lished net­works. While in China ver­ti­cal link­ages with cus­tomers and sup­pli­ers are strong and con­trib­ute to in­no­va­tive ac­tiv­i­ties, most achieve­ments stem from com­pa­nies’ own re­search and de­vel­op­ment, and only a few­per­cent­ages from col­lab­o­ra­tive projects. In par­tic­u­lar, in­ter-com­pany col­lab­o­ra­tion, which could po­ten­tially be an im­por­tant source of spillovers, is rel­a­tively low. The first na­tional-level man­u­fac­tur­ing in­no­va­tion plat­form, es­tab­lished in June 2016 aims at ex­ploit­ing po­ten­tial syn­er­gies and com­ple­men­tar­i­ties across ac­tiv­i­ties and strengthen the link be­tween de­vel­op­ment and com­mer­cial­iza­tion. The au­thor is head of China Desk, Eco­nomics De­part­ment of OECD.

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