Home > Uncategorized > China needs to move to an economic model in which innovations, technology, productivity improvements become more important and that will require reforms. | MIT Technology Review

China needs to move to an economic model in which innovations, technology, productivity improvements become more important and that will require reforms. | MIT Technology Review

November 17, 2012 Leave a comment Go to comments

As a country gets richer, its growth formula changes. Innovations, technology, and productivity improvements become more important, as do domestic entrepreneurs and innovators. The problem is not that China doesn’t value science and technology. Many Chinese leaders are trained engineers, and there is no shortage of technocratic ideas and expertise in China. In the past 20 years, China has invested heavily in R&D. This year, China will likely invest 2 percent of its huge economy in R&D, a level attained by only a few fairly rich countries. But the payoff for this massive investment is not clear. Ongoing research, done together with my MIT colleague, Fiona Murray, shows that these massive technological investments have far less impact than one would expect.

One reason is that these investments are made in an environment of “republic of government” rather than “republic of science.” Universities in China are tightly controlled by the Ministry of Education. Compared with their U.S. counterparts, presidents and deans of Chinese universities are extremely powerful. Professors in China are like company employees, in contrast to their fiercely independent counterparts in the West. Research projects are often directed from the top down rather than being initiated by professors and researchers. Data sharing is difficult across bureaucracies, and the dissemination of research findings—especially in areas that have implications for policy, such as epidemiology—often has to take a back seat to the political needs of maintaining “stability.”

Chinese leaders want the country’s economy to grow on the back of technology and science-based innovations. This is not only a laudable goal but also an imperative need. China’s growth today is dangerously unbalanced. The environmental costs are astronomical. Government spending is extremely high. Labor exploitation is politically costly, as Chinese workers are increasingly conscious of their rights and demanding a bigger share of the economic pie. A ready outlet for the Chinese economy—the huge export markets in Europe and the United States—is shrinking on the demand side.

But a technology-driven growth model is not a simple extension of China’s current growth model, plus a massive dose of R&D. China has invested heavily in R&D, but that investment has not fundamentally altered the nature of Chinese growth. That’s because technology-based growth drivers require more than simply copying other countries’ technology and business models. They require a rule-based system, IP protection, freedom to think and challenge authority, and a government with limited reach and power. In other words, they require Western institutions.

Now at roughly $5,000 in per capita GDP, and as the second-largest economy in the world, China needs to prepare for this institutional transition. It will require vision and political courage to acknowledge the shortcomings of China’s current growth model and lay the groundwork for a new approach. This will require political reforms, and not simply a tweaking of the existing system. Does the new leadership have what it takes to move the country in that direction?

via China needs to move to an economic model in which innovations, technology, productivity improvements become more important and that will require reforms. | MIT Technology Review.

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