By Mark Halper
Posting in Energy
Now that China is innovating, its economy is showing signs of strain. Is there a connection? Is it time to reverse the old maxim - 'innovate or die'?
Two weeks ago, SmartPlanet noted that China is moving away from simply being a great copier and manufacturer, as it emerges as a powerhouse of innovation. My colleague Andrew Nusca cited a Harvard Business Review story noting that, "The Chinese government's latest five-year plan emphasizes the need for long-term investment in research and development, to shift China from being 'factory to the world' to being an innovation-driven, knowledge and service economy."
I don't doubt this trend for a second. For just one example, I'll point to something I wrote about last week: The Chinese are plowing resources into developing unconventional nuclear reactors that will eventually power their economic engine. Many other countries are merely equivocating at best in this same innovative area.
But over the last month or so, China's economic performance figures have stumbled. Manufacturing is contracting, according to the recent Purchasing Manager's Index, which fell to 49. The PMI is a key indicator of manufacturing activity, and a number below 50 indicates shrinkage.
Just as worryingly for Beijing, exports are in decline. Of course, that has a lot to do with the stagnant economies of China's major export markets like Europe and the United States.
But still, it's worth wondering whether China might somehow have more ability to keep its factories humming if it wasn't now spending considerable resources on research and development. Without R&D expenditures, it might even have the stomach to contribute to a European bail out - it recently turned down European leaders who came begging for hundreds of billions of euros.
Amid all of this, Chinese wages are rising and the country's emboldened people are increasingly striking and protesting for better pay, improved working conditions, and a cleaner environment. These hints of free speech slow down economic machines in the infamous autocracy, in a manner more familiar to the democracies of the West.
Maybe they are part of an incipient free thinking zeitgiest that also includes the open mindendness to innovate. That is, in the long run, a good thing. But in the near term, strictly speaking, it seems innovation can get in the way.
Stunning graphic: Mark Halper
More economic rumblings from China:
- Meet the future of nuclear power: 8 guys in China
- Smog grounds Beijing flights
- China: for innovation, too big to fail?
- How China is taking over Italy
- The dirty side of solar
- If China leads the world in clean tech, why are people dying?
Dec 11, 2011
"Free market" advocates, who imagine that business school doctrine can solve technology problems, are uncomfortable with innovation because of the disruptive changes that confound linear projections of cash streams in the future. "Innovate or Live" [tantamount to "Innovate and Die"] is a harsh way to put it, but it captures the reflexive antipathy of Wall Street to new technology and its hope that China will fail because it innovates. Think back to the Mao era and the disaster of the Great Leap Forward, which was only half a century ago. In the time scales relevant to a giant like China, that is not long. Wait and see might be a more prudent reaction than this premature conclusion that China is bound to fail because innovation is fatal to the innovator.
Trying to make a correlation between the concept of increased innovation and China's next economic cycle is, simply, ridiculous. The reference to the nuclear power improvements is not even closely related to what they are attempting to do with their five-year plan. As already mentioned - and I'll put a much finer point on it - a five-year plan is not going to spur innovation in a country that has for a *very* long time prevented people from thinking individually. Theirs is not a culture of thinking outside of known solutions, of thinking on one's own, or even thinking that one person could make a change. While to the outside world their economic "miracle" looks astounding, it was a forced program that drove displaced millions into abject poverty, created more environmental problems, caused deaths from substandard work and, no doubt, will come back to haunt them over and again in the near future. It did not spur thoughts of entrepreneurship, to be sure. Five years to undo generations of group-think? Not going to happen. This spurious connection between what they are calling - and what is optimistically assessed by the HBR as - innovation is a badly conceived idea to fill up a page in hopes that it might strike a cord and get some eyeballs. No, it wasn't worth thinking about whether there was a connection.
Interesting post. China is a laboratory for the power of innovation as it has been transitioning from a monolithic state-controlled economy to a more capitalistic one for about three decades now. The changes over this 30-year period -- all due to unleashing more forces of individual initiative and innovation -- have been astounding. But the economy is still highly centralized and controlled, and innovation does not come out of five-year plans. The country still has a way to go until the forces of innovation are truly to be unleashed.
Is this good analytical reporting or just dumb re-gurgitation of other people's facts in the wrong order? Yes it is attempting to add value to its manufacturing sector be encouragement of innovation. Yes, China's manufacturing growth has slumped. Yes its exports have slumped too. But in that order? If exports slump, then a manufacturing slump follows. That's how things happen. When realisation dawns, that a country's competitiveness is based on a reliance on cheap exports and that this cannot continue with wages and expectations rising, while it also has generated an increasingly well educated workforce, it has to find a way to employ them productively. Innovation is a means of doing so and moves them to create an economy where value is found in IP rather than just price. it needs to start producing things that people want and need, no matter the price. Western countries who, in the past, did not do this when faced with overseas competition, have now lost the majority of their manufacturing as it could no longer provide the innovative products and goods that its people increasingly sought. The suggestion that Innovation itself has brought the economy down, seems woefully off-track.