Devotees and Detractors: What’s Wrong With the China Innovation Debate

With its latest five year plan, China has made the promotion of innovation and high tech industry growth a central part of its economic strategy. As a result, there has been increasing attention within the U.S. to the issue of Chinese innovation and innovation policy. As part of the strategic and economic dialogue the Obama administration and the Chinese government are engaged in discussions about Chinese (and U.S.) innovation policy. A broadening number of books, articles, op-eds, speeches and forums are focused on Chinese innovation policy, particularly on whether it poses a threat to the United States economy.

Understanding what the Chinese are doing and what the U.S. response should be (if any) is a critically important question whose answer will shape U.S. economic prospects for decades. Unfortunately however, the debate and dialogue about Chinese innovation policy is about as informed as the Miller Beer Less Filling-Tastes Great debate.

On one side are the detractors. These are the folks who look at China’s heavy-handed statist practices, its lack of respect for intellectual property, its massive subsidies of technology and argue that there is simply no way for this model to be successful. In his book Advantage: How American Innovation Can Overcome the Asian Challenge, Council on Foreign Relations Scholar Adam Segal argues that “Policy makers have overblown the threat of Asia.” He goes on to argue with respect to Chinese innovation policies, that “without respect for rule of law and IP rights, as well as a culture of individual initiative and openness, these steps will not produce the intended results.”

Segal is not alone. Chrystia Freeland, an editor for Thomson Reuters, writes in an Washington Post editorial that “China is an object lesson in the threat that centralized, authoritarian states pose to revolutionary technological development." She goes on to laud the American model: “The American political economy has many flaws — collapsing infrastructure, a hollowed-out middle class. But America has one great virtue that no other country has yet to replicate: When it comes to innovation and its translation into things people want, America is unbeatable. If Freeland defines “unbeatable” as having been beaten by 39 other nations, which as ITIF has shown we have been (America ranks 40^th in the rate of progress on innovation-based competitiveness in the last decade), then yes we are unbeatable.

If we comfort ourselves with the belief that only the American model can effectively produce innovation, then it’s easy to justify complacency. Don’t worry be happy, the Chinese aren’t Americans. No need to boost R&D investment; no need to increase tax incentives for innovation; no need to improve science and engineering talent. Of course these views (some more than others) are informed by an ideology that holds that the only way to grow and innovate is through laissez faire capitalism and anything contrary to that belief system is decidedly second class. But the Chinese model has shown success — growing at more than 10 percent per year is not failure.

The other prevailing view is the polar opposite of the detractors’. Rather than see China being a pitiful model of failed innovation, devotees see an industrial and technology leviathan, eating America’s technology lunch through superior implementation of world class technology policies. The work of George Washington University School of Business, Dean Doug Guthrie epitomizes this view. The author of numerous volumes on China, Guthrie sees China as the new Jerusalem. They are the country that has gotten it largely right, and as a result is in the process of becoming a world leading economy. For Guthrie, China can do little or no wrong . As one reviewer of his book China and Globalization: The Social, Economic and Political Transformation of Chinese Society (Global Realities) stated, “The excessive optimism of the book make it like an English version of a Chinese official textbook."

So committed are the devotees to defending China from “victimisation” by the West that they go to extreme and often nonsensical lengths. Case in point is a recent Washington Post editorial by Zachary Karabell who argues that since China steals so much U.S. intellectual property and engages in so much forced technology transfer, it’s a waste of time to try to fight it. Kind of like saying don’t bother putting on new door locks or calling the police after the thieves steal my stereo and TV every morning, I'll just go to Best Buy and get more.

Indeed, when pressed about whether China is using mercantilist means to win, China devotees like Guthrie protest vigorously. No they say, our economic problems are all our own making, stop all this “China bashing.” For them, anyone who argues that Chinese intellectual property theft, forced technology transfer as a condition of market access, currency manipulation, government procurement bias in favor of Chinese firms, standards manipulation, and a host of other mercantilist practices are rampant and hurting the U.S. economy, is a China basher or worse. A report published by ITIF, The Good, the Bad, and the Ugly of Innovation Policy reiterates the fact that countries can readily implement a range of “Good” innovation policies while there remains far too many “Bad” or “Self-destructive” mercantilists strategies that are neither sustainable nor productive. I recently spoke at a meeting in London at 10 Downing Street on the issue of innovation and China, I was publically accused by one of the top advisors to the European Commission on innovation of being a “racist” because I argued that the dominant logic of Chinese economic policy was mercantilist. The fact that my wife and I have adopted our daughter from China is obvious proof of this. My European detractor even went so far as to state “we (meaning the Europeans) oppressed China for 100 years as colonialists and now we have to sit there and take it for a hundred years.” Let’s hope the European Commission doesn’t listen too closely to him.

When you are so enamored with China, or suffer so much from politically correct imperialism guilt that you can’t even acknowledge that China is deeply engaged in unfair mercantilist practices, there is no way you will support America or Europe getting tough on Chinese mercantilism.

So even though I shouldn’t have to say it, I guess I have too: Notwithstanding the protests of some environmentalists who want to protect the planet by keeping people poor, (Ten Myths of Addressing Global Warming and the Green Economy) we want, or should want, China to get rich. But they should get rich not by taking our wealth (e.g., mercantilism) but as John Houseman used to say in the Smith Barney commercial, "They should get rich in the old fashioned way, by earning it."

So if detractors and devotees are wrong, what’s the right way to view China? We can start by acknowledging that while the Chinese economic system is not perfect (nor is America’s) they are doing many things right. But while some of the steps are legitimate from a global trading system perspective (such as expanding funding for R&D, or boosting university education), many are not. And it is in relation to these that they need to be pressed strongly by other governments, especially the United States and Europe, to renounce mercantilist practices.

Image credit: futureatlas.com