Innovation Blog

Run of the Red Queen: The Real Truth About China’s Growth Engine

By Shlomo Maital

 Helen Bonham-Carter as The Red Queen 

 

 

In Alice in Wonderland, the Red queen organizes a race.

     “Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else — if you run very fast for a long time, as we’ve been doing. ” 

     “A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!

    This passage inspired the title of Prof. Dan Breznitz’s new book Run of the Red Queen,* about China’s phenomenal growth engine and its innovation strategy.  He debunks numerous myths, based on his (and co-author Michael Murphree’s)  three years of field work, about China’s technology companies.   They run as fast as they can, to remain in the same spot – right at the global technology frontier, without actually advancing it.  The result has been to give China 10 per cent growth for two decades – unprecedented in history.  Cutting-edge innovation of sophisticated products is not, Breznitz shows, either sufficient or necessary for sustained economic growth.  Moreover, according to Breznitz, China’s success may be in spite of central government policy, rather than because of it.  He thinks that the government’s thirst for huge state-directed projects may undermine China’s privately-owned companies, who at times act contrary to government policy, with great success.

     Take, for instance, the iPhone.  Apple, an American firm, invented it in the U.S. But its components are produced mainly in China.  Weeks after the design was completed, Chinese production experts told Apple the antenna for the phone was problematic. Apple didn’t listen. They should have.  Breznitz says that within three weeks of a new product emerging (such as smartphones) in America, China knows how to produce them better and cheaper than anyone.  Is that innovation?  Of course it is.  It is process innovation.  And research shows process and production innovation pays a far higher return than product innovation.  China has legions of pirate firms able to product knockoffs of smartphones that are cheap and effective.   America, in contrast, does not seem to understand that if America invents products that only the Chinese can produce, America is planting fruit trees whose cherries are picked by Chinese workers, and only by them.  How smart is that?  China’s R&D budget is large, but it is doubled by the fact that it also benefits from America’s R&D spending, since China ends up making the things that emerge from it.

    Can China’s growth engine sputter and die?  It can, Breznitz thinks.  China’s government is now funding an enormously ambitious R&D program (R&D spending in ITC is doubling every three years) to foster Chinese product innovation.  This could well fail. It would be ironic if China abandoned a successful, rather diverse and chaotic innovation model based on process excellence,  that works wonderfully, in favor of an American-style model of innovation that shoots blanks. 

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Dan Breznitz and Michael Murphree, Run of the Red Queen: Government, Innovation, Globalization and Economic Growth in China.  Yale Univ. Press: May 31, 2011.

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