Can China beat the West at the innovation game?
Chinese firms are now coming up with new business ideas, rather than copying what’s already out there
From the early nineteenth century to the early 20th century, Western countries attributed their economic growth to the discoveries of “scientists and navigators.” Now, Chinese businesspeople are increasingly showing not only the entrepreneurial drive to adapt to new opportunities, but also the desire and capacity to innovate for themselves, rather than simply copying what’s already out there.
Indeed, more and more Chinese companies are realising that they must innovate in order to get — and stay — ahead in the global economy. Several companies — notably Alibaba, Baidu, and Tencent — have made significant business breakthroughs by offering digital-age infrastructure that facilitates innovative activity.
For its part, China’s government is evidently supportive of Chinese businesses developing a capacity to produce indigenous innovations. It no doubt recognises that such innovations are all the more valuable when innovation remains weak in the West, where growth in total factor productivity (TFP) has continued its long slowdown. At the World Economic Forum’s annual meeting in Davos, Chinese officials discussed basic reforms that the government introduced two years ago to increase competition. The key insight is that when existing enterprises are protected from new market entrants bearing new ideas, the result will be less innovation and less “adaptation” to a changing world, to use Friedrich Hayek’s term.
Another argument can be made. In any modern economy, virtually every industry operates in the face of a largely unknowable future. All of this was known to the great theorists of the 1920s and 1930s: Hayek, Frank Knight, and John Maynard Keynes. And now it is known to the Chinese, who understand that a country benefits when companies – each with its own thinking and knowledge – are free to compete. The West seems to have forgotten this. Since the 1930s, most Western governments have seen it as their duty to protect established enterprises from competition, even when it comes from new firms offering new adaptations or innovations.
In post-war Britain, into the 70s, industries were controlled by exclusive clubs within the Confederation of British Industry. By the time Margaret Thatcher became prime minister, the TFP had stagnated. But she put a stop to the anti-competitive practices, and Britain’s TFP was growing again.
We are now seeing something similar in China. Indulgence in gossip is our national pastime and many a time, this only results in wasting our energy. God has given us an abundance of gifts and our obligation lies in making the world more beautiful. We tend to think that the world will change on its own but that doesn’t happen. In the process, we act disinterested and search for an escape route by gossiping. Endless gossips drain out whatever best we have inculcated in ourselves.
But, a few wise among us, instead of taking