Out-inventing China

When manholes started disappearing around the world in 2004, the world discovered China. Re-discovered, we should say, as, in the Chinese eyes, China was merely reasserting its historical manufacturing primacy after centuries of slumber. But, even in 2004, what it did was still just gruntwork at the bottom end of the world's value chain, jostling for space with Vietnam, Bangladesh and assorted sweatshop countries.

Thereafter, came the phase of great copy-and-catch-up, to borrow Tyler Cowan's phrase, and cheap Chinese knock-offs flooded the global markets. The tabloids and governments razed about the poor quality of Chinese-made and pilferage of intellectual property. Yet, this outrage was reassuring, as China seemed far off from gaining any technological edge and forever consigned to fighting it out over the lower cost.

2019 changed all that. The message behind Trump's trade wars established that China, and its companies, may have achieved that technological advantage, or very close to doing so. Its vast domestic markets, the state-supported pool of capital, relative political stability, strong work-ethic and world-class education have equipped and powered a generation of innovators and entrepreneurs. Chinese consumerism may appear crass and its tourists unsophisticated, but the confidence and self-assurance of educated Chinese men and women, comfortable at being Chinese again, have released enough new ideas to shake the world. It's no longer ready to remain the world's factory; it's now one of the world's pre-eminent powers now seeking due recognition. This 21st century face of China, even in the middle of a trade war with the United States, catches the world somewhat unprepared: One may hope that Trump will make it go away, but if history is any guide and the Chinese character is any evidence, it's best to learn to live in a Chinese world.

The American strategy - to build boundaries around Chinese technology - is a double-edged sword. It may slow down China's innovation juggernaut but it will also lock American companies out of some of the world's most dynamic consumer markets. As Americans are learning now, walls have two sides: You keep someone out only by keeping yourself in.  And, that disengagement, if anything, only undermine the 'animal spirits' of the American system as its enterprise becomes 'domesticated'. In the meantime, China, the world's creditor, may just use some of its nest eggs to buy influence and market access in Asia, Latin America and Africa. A trade war is a lazy option laden with risks; the only way to beat the Chinese in their own game is to try to out-invent them.

That should indeed be the common-sense strategy. After all, the Western countries have an enormous advantage at this point in time. China is, despite its enormous efforts, still a newbe: It still lacks the centuries of technical expertise that the Western countries have built. Besides, Western nations are still far ahead in business know-how and experience of commercialisation, skills that the Chinese graduates at Western business schools can't learn fast enough. Instead of bringing up walls and self-excluding oneself from China, the opposite strategy - full engagement and greater globalisation - may have served the West better.

But that needs focusing on issues that the policy-makers don't want to deal with. Public health and education are obvious areas to start. The innovation game is a broad one - a country can't condemn two-thirds of its population to drudgery and dead-end work and expect to build a venture-some economy. A narrow elite built around lucky birth collapses inwardly; innovation, unfortunately, is disruptive by nature, as it turns over the status quo. It's a hard game to play when private enterprise is tasked to run a country's education and health because it conflates economic worth with human possibilities and works to perpetuate privilege. Yet, this is exactly what politics of consumer democracies are made of: An unbroken chain of privilege! A good school and a good school in every district would obliterate this convenient world of 'dream-hoarding' in the name of meritocracy, and therefore, can not be done.

Outinventing China would mean settling the wars at home that the rich and the powerful in these countries are waging on its poor. But that would reduce the gross domestic happiness, because today, the rich also want to feel they are smart; strengthening public education and public health would puncture this balloon of illusion. That's way too painful; one would rather let the distant Chinese take over the world than admit that the boy from the slum across the street is at least as smart as one's own son. Eradicating their poverty would just make us feel poorer - and unhappy, as our happiness is defined by the things we have which many other people can't. Let it be the Chinese - let them take over the world!



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