For many Swarthmoreans, seasoned and fresh alike, the pursuit of innovation and entrepreneurship is fresh on the mind. But with the unprecedented economic rises of Brazil, Russia, India, China and South Africa, it’s easy to feel as if the robust innovation of American past — the kind that harnessed the power of lightning with copper coils and captured sound on vinyl — is leaving our borders. China in particular has claimed many headlines to this effect and perhaps duly so. Its economy has grown roughly seven times the rate of America’s in the past decade. Given its current construction capacity, the Chinese are on course to build 50,000 skyscrapers by 2025 — roughly ten times New York’s. And perhaps most impressively for a country with, according to a 2012 Los Angeles Times article, 30 million people still living in caves, its GDP is on course to overtake the United States’ in less than ten years.
Certainly an impressive growth story, but not one that I believe can be attributed to innovative prowess. Despite a rapidly globalizing world economy and constantly shifting political landscapes, there are still reasons why we, as innovators and entrepreneurs, should thank our lucky stars that we live in the United States.
Anne Stevenson-Yang, a cofounder of the equities research company J Capital Research, accurately pinpoints the three primary ingredients for innovation: a high level of education, intense competition among existing businesses and a well-defined development process. With heavily populated cities and municipalities like Guangzhou, Beijing, and Shanghai boasting some of the best universities in the world, China offers strong higher-level education. Roughly 200 of the global Fortune 500 companies are settled in China — competition in the private sector is far from wanting.
The industrializing giant lacks the third ingredient, however. Having a financial and legal incentive to undertake expensive research and development projects is an uncompromisable key to a environment that foster innovation. China, without a system to govern property rights, is unfortunately extremely deficient in this regard. This problem has led to the emergence of a thriving knockoff market, most recently observed when hundreds of eager Chinese customers purchased a defective clone of the Xiaomi Mi4 cellphone before the real product even hit the market.
As Stevenson-Yang again rightly points out, the problem is not with the law per se. It stems from the fact that the Chinese government continues to protect certain corporations that fall within the state sector, where the government manages businesses almost entirely. This severely disincentivizes small up-and-coming businesses from developing new technology, as it is virtually impossible to protect any value-creating advances from state-supported businesses.
The result is the rapid and recent emergence of what I call “flash” companies. These companies, acutely aware of their predestined short commercial lives, focus the majority of their attention and resources on cornering as much market share as possible, as quickly as possible. Consequently, the products that they sell are often either simply copies of existing technology or close seconds made through reverse engineering.
Government supervision has turned out to hinder state-supported businesses. To outperform international competitors, the Chinese government awarded numerous, hefty grants to businesses in the automotive, telecom and consumer goods sectors with the goal cutting costs and providing more affordable products.
While certainly not a bad business objective on its own, this clearly establishes innovation as a tier-two objective of the Chinese. Supply-chain improvements can be greatly advantageous to growing businesses and has in the past generated invaluable global progress. It will not, however, lead to the type of innovation that will hopefully shape the future. By misallocating resources to this goal, the Chinese government has greatly undercapitalized on the vast potential it derives from its enormous population, rich land and well-established education system.
The Chinese situation attests to the monumental value of the United States’ vast legal and economic constructs designed to protect innovation and intellectual property. The education and variety of experiences we receive during our years at Swarthmore are tools that we we can hopefully leverage to manifest meaningful change in our world. Thankfully for us, we are surrounded by a system that continues to support and protect our most valuable asset — creativity.