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The Chinese Griffin (2)
China's success in moving from accumulative to transformative innovation has global implications

Bright B. Simons (baronsimon) Email Article Print Article

Published 2006-09-28 06:32 (KST)



Chinese efforts to create an innovation society are based on one of two possible approaches. There is accumulative innovation, which China currently practices, and there is transformative innovation, which the country today shuns.

Related Articles The Chinese Griffin (1)

To explain the above terms, a simple illustration will suffice. China invented the printing press centuries before the device ever made its way to Europe. Yet it was in Europe that the printing press led to wholesale transformation of society, prompted revolutions and unseated the old order. Why? Because the printing press in Europe led to a newspaper culture. This culture, exported to America, led to what the thinker Benedict Anderson calls "print-capitalism," an industrial culture in which information is the chief driving force, packaging culture and lifestyle on the large-scale and generating the idea of a community founded on "shared imagination."

In China, the printing press was a tool of bureaucratic planning, an extension of the central state, and never an exemplar of transformative innovation.

Accumulative innovation is favored in countries where a streak of authoritarianism is needed to get economic development up and running. One can think of Singapore. Transformative innovation can, on the other hand, be rather "disruptive," meaning that it often suits more democratic countries. Israel comes to mind.

The comparison drawn between the two countries above -- Singapore and Israel -- is very interesting. Singapore is by far the richer. For over three decades, it has maintained consistent growth and accumulated massive resources, through high investments in both human development and in infrastructure. The state acts as an entrepreneur, guaranteeing unbridled capitalism by individuals and firms. while at the same time competing in the market to drive forward efficiency and innovation within the private sector.

Israel has often endured governments that are much more straightforwardly interventionist. A classic welfare state of tax and spend is the more familiar approach to socioeconomic policy. Its agricultural system was for many years almost "collectivistic' (socially integrated), a throwback to the socialist thinking of Israel's founders.

And yet, did I say the Israelis do transformative innovation better? Well, they do -- and the facts speak for themselves. Relative to its size, Israel hosts the world's most active technology sector. Private money from all over the world flows into Israeli technology production in a way few other national economies can even dream about. Its defense industry is surpassed only by the United States and, perhaps, France. China often tries to circumvent U.S. prohibitions to stock up on gadgets made in Israel.

In comparison, Singapore is leagues behind in terms of homegrown technology. Despite huge amounts expended in research and development, it is unlikely to be able to match Israel's prowess in this area any time soon.

It will appear therefore that, as explained earlier, transformative innovation differs significantly from accumulative innovation. Furthermore, social forces appear to play a greater role than economic factors in creating that distinction. But to explore the logic further, we can look at hybrid models such as Japan, India, and South Korea.

Japan demonstrates that a society can simulate transformative innovation by carrying accumulative innovation over the curve. But it will usually require a very favorable geo-economic environment to mitigate all the risks of massive overproduction, with its attendant shielding of the domestic market from efficient overseas competition. Though of course the just-ending recession in Japan also illustrates that the system will correct itself eventually, using some of the resources hoarded earlier on.

India offers us the possibility that individual sectors in an economy can experience one type of mass innovation while the rest of the economy is trapped in the other or lacks innovation altogether. The IT industry in India has obviously ventured into the early stages of transformative innovation.

South Korea is at the interface of the two models of mass innovation and may well surmount the hurdle. However it, like Japan, benefits from favorable geo-economic circumstances, in that it is on the side of the dominant power structure on the planet. Therefore the urgency to shift from accumulative types of innovation to the transformative is less pronounced.

To connect the dots of the logic, we can argue that countries that are small, relatively homogenous, and politically stable may prosper using either forms of innovation. The evidence from Israel, Singapore, the Gulf States, and Scandinavia all support this. Bigger countries, provided they can mitigate the external costs, also have the opportunity to convert the inefficient accumulative model to the more sustainable transformative one.

The problem with China, based on the foregoing analysis, is that her huge size and geopolitical posturing mean she has only a short timescale to convert accumulation into transformation.

Indeed, I would argue that this crisis point has already arrived, and her leaders know this; hence their rush to expand innovation. What they seem not to appreciate is that large-scale innovation comes, as explained above, in divergent forms.

Below I have described two dynamics by which we can track the innovation burden on China, and how the strategic error by her leaders to tackle the burden is leading to lasting damage.

Trust/assurance

In a previous article, I asserted the importance of a consumer society in mass innovation. As will by now be obvious, I was referring to "transformative innovation" when I made that claim.

Consumer societies are exemplified by the growth of the information communities spawned by the Internet in the West. The Internet, devised as a defense tool, and the World Wide Web, initially destined for the use of the scientific classes, were appropriated by the non-elite, non-specialist, non-inventing masses of the West and transformed into one of the biggest sources of innovation ever.

Mass innovation is indeed led by experts, specialists, technocrats, and great entrepreneurs. But these alone can neither drive it nor sustain it. Consumer participation in an open society is required to allow a realization of the full potential of each new "accumulated" invention. Simply piling inventions on top of one another may, in an ideal world where you can invent a solution for all foreseeable and unforeseeable problems, allow a profusion of creativity. In the practical world, however, the consumer matrix utilizes one invention in a myriad of ways and yield the most effective outcome.

But the consumer matrix, when fully activated, also police the plane of invention. It breeds or withdraws trust from the truly innovative or merely inventive, as it deems fit.

One of the major reasons why fraud in China continues to multiply unchecked is the shallowness of its consumer matrix. In its place, what exists is a bureaucratic reality-conjuring matrix that overrides any mass supervision.

Bloomberg reported on Aug. 16 that investment in China's real estate, factories and utilities has slowed, well the funny thing is they slowed precisely according to the prescriptions of the government just two months later. Just check the back copies. One will think, even a software-programmed economy can't be steered with such miraculous exactitude, but there you have it. By the way, how come China's public sector deficit keeps growing at a time when government savings are growing too? Simply miraculous.

In 2001 alone, according to the Chinese government's own State Statistical Bureau, there were over 60,000 reported falsifications of provincial data. The Daily Telegraph in June 2001 reported extensive fraud by Chinese students eager to enter foreign universities. Indeed, since then the problem has so gone out of hand, that virtually all foreign examination and admission procedures have adopted special provisions for China. No sooner had Chinese companies begun raking in billions from the Emissions Trading System set up to control climate change, then unconfirmed allegations of companies pocketing the cash and tossing their obligations under the scheme into the air begun to surface.

Such lack of "trust" can not be said to engendered merely by hyper-competition. It emanates from a system where extraordinary accumulation has stretched the social fabric into breaking point, yet no transformation of the basic structures of society to allow for mass empowerment is in sight. Norms get turned on their head and novel value systems are created in which only further accumulation is deemed important

Quality and excellence

Directly linked to "trust" and "assurance" in a social economy are the twin issues of "quality" and "excellence." Without the former two the latter two are unobtainable. Where everybody feels inclined only to proliferate, quality immediately falls victim to expediency.

China's institutions, such as the Commodity Inspection Bureau, have turned "standards" into political benchmarks and created a perverse incentive system whereby quality is merely what the state says it is.

The result is a state system that degenerates even as more resources are poured into it. Take the military for instance. In an interesting report prepared by Patrick Draude of the U.S. Naval College for the Defense Technical Information Center in February 2003, the author writes,
"Years of economic surplus have provided China with the means to significantly improve and modernize its armed forces through procurement of foreign weapons systems, primarily from Russia. The purchasing of these systems demonstrates a profound operational weakness within the PLA (People's Liberation Army) -- the inability of its military industrial complex to design, develop and produce indigenous state-of-the-art military equipment."
What is not immediately clear is how this situation persists despite China's boastful graduation numbers from engineering departments and its huge expansion of the defense budget.

Nor is the canker of "quality degeneration" despite resource accumulation limited to the state sector.

In 2001 the business writer Shirley Georgi reported that "China will [soon] have the largest Lithium-ion production base in the world." She was right. Even prior to this upsurge in relocation by Japanese companies, Hitachi-Maxell Ltd. in November of that year had transferred "several production lines of Lithium-ion batteries from its Kyoto Works in Japan to its Wuxi Maxell plant in China." Sony was already expanding its Jiangsu plants to move more of its production capacity from Japan to China.

We all know the outcomes, though Sony will never admit they have any link to its ongoing, poorly planned, expansion in China. Not only has the firm recalled thousands of batteries in client companies' computers, it has delayed the release of its market-leading Playstation 3 and pushed back the release of its latest Walkman version.

Japanese electronics giant Matsushita, owner of Panasonic, for the first time since it began to expand its operations in China -- investing millions of dollars to build semiconductor plants in Suzhou to supply components -- has in recent months begun to recall products.

Canon, another electronics giant, also last year shifted most of its production from its Toride and Ami plants west of Tokyo to Jiangsu and ended its contracts with Italy's Oliveti SpA. The result? This year it is recalling 140,000 copiers.

None of the firms above will admit direct links between these outsourcing decisions and the mass, nearly unprecedented, recalls. The Chinese system has stakeholders amongst several big businesses across the globe; it is not exclusively a Chinese affair. But the writings have long been on the wall that the wholesale shift of production to China before innovation has reached a sufficient peak to allow real value-enhancement is ill-advised.

In a survey of business executives reported by Linda Tucci, senior news writer for CIO, 78 percent of respondents reported severe dissatisfaction with the outcomes of their outsourcing decisions.

Innovation is a vital ingredient in creating advanced economies, but it requires a certain approach to society-building that emphasizes empowered consumers who then drive key elements in the economy to produce mass transformation.

If China wants to become an advanced industrialized economy, her leaders are going to have to live with that reality. Otherwise, a crash awaits the Chinese economy. Should that happen, the global production system will not go unscathed.

©2006 OhmyNews

nanheygrouchuan, sometimes I'm just in awe of your use of the English language.

oh yeah, by the way, forgot to ask, nanheyangrouchuan any chance of you asking others for big money favors to help out the chinese gov.? oh, yeah, i forgot, the chinese government obvioulsy is obsolete in your visionary opinion, isn't it?

aren't you just a modern day HERO Mr. Know it all ? com'n we all know they have plenty of money, money is never short in government, but you dont give the chinese gov. nearly enough credits for the things that they have done. cant change a country over night.

plus, who do u think u are to have the authority in saying the chinese government has been obsolete for 500 yrs?

man, shamless