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China is not about to eat America's lunch

Commentator Vijay Vaitheeswaran says America's culture of creativity and innovation beats out China's state-run capitalism.

Listen to some of the heated rhetoric from politicians today and you might think that China is about to eat America's lunch because of its superior economic model and cultural values.

I say nonsense!

Sure the Chinese government has launched a big new push for what it's calling "indigenous innovation." It's identified a range of industries, including clean energy and next-generation Internet, and is spending tens of billions of dollars trying to create dozens of new Silicon Valleys across China.

But here's the dirty little secret: the best industrial policy is no industrial policy. China's state capitalism, which directs subsidized capital through state-run banks to dinosauric state-run enterprises, actually sucks oxygen away from the country's genuinely entrepreneurial "bamboo capitalists." The system starves the nimbler firms of financing, and government-anointed companies crowd the upstarts out of the marketplace.

That is why American innovators should be wary of calls for a new "moonshot" for, say, clean energy. Innovation is in its essence a bottom-up process of destructive creation, a dynamic dance connecting mind and money to markets. The right role for our government is to stick to the enablers of innovation like research funding, education, and infrastructure -- not picking industrial winners and losers.

In a world in which brain is prized more than brawn, the lion's share of future economic rewards will go to those able to come up with fresh thinking that actually creates value. That's why America needs to shore up its historical strengths in creativity and individual expression.

In the edeas economy: standardization, harmonization and memorization will surely be trumped by creative destruction and disruptive innovation.

About the author

Vijay Vaitheeswaran is a correspondent for "The Economist" and the author of the new book "Need, Speed, and Greed."
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"Dinosauric," really? The commentator's ostentatious style is so loud it prevented me from hearing his content.

Mr. Vaitheeswaran's commentary sounded like written by an author for State of the Union address. I can not agree more on his statement "The right role for our government is to stick to the enablers of innovation like research funding, education, and infrastructure -- " BUT the real problem is with Globalization. Think of any clean energy or technological innovation that US has introduced to the world, be it in industrial or consumer arena like Apple i-products. The beneficiary has been China largely due to lower standard of living of vast majority of people. If the Chinese government continued to do just that i.e. stick to research funding, education and infrastructure they have a real chance to bring huge tide against USA. This is unfortunately true because of two reasons; democracy brings drag while authoritarian ruling can make decision faster and secondly the state of the economy itself. The USA has been slow to put money in infrastructure, again for political and economical reasons. It is a catch-22 if one has more money to spend and vision to spend for the right purpose then more money will flow back over the period of time. The money-cycle seems to be generating more deficit and so everybody is cautious of spending too much. China poses real threat to dominate the world in 20 years or so for the same reason British, French and American flags hoisted far across in the world in the last many decades. To understand that economic and military leadership comes from wealth one does not need Princeton degree. Political might shift according to money which is human nature so there is no bias for morality. The social disorder and discontent of Chinese society will fade away with increasing economic clout. All countries including USA stopped raising Tibet, Taiwan and human rights issues with China over the period of time because they can not offend the rising power.
China's state capitalism can help flourish Lenovo, Alibaba, CNOOC, Cherry Auto and so on which will provide capital to US corporations. How we can ignore this trend when the likes of Yahoo and GM need capital support from Chinese corporations. USA has defined the capitalism since World War II and it will remain as one of the players in the game of capitalism this century but certainly not on her own rules for long. The adjustment in standard of living is painful but are now set for real in the USA while emerging economies will see steady rise in wealth. There can not be any denial that innovative and entrepreneurial spirit may provide lifeline to USA but change in world order is certain.

Vijay is correct about the open market being the most efficient engine for developing INNOVATIVE APPLICATIONS. These applications must be built on an infrastructure that is so expensive and risky that only government is foolish enough to invest. China is beating the USA for infrastructure investment. Innovation? I don't think so.

This commentary is long on tautology and short on evidence. In fact, the actual evidence presented contradicts the conclusions. Simply repeating that state-led growth is bad is not enough to refute the differential results cited in the story. I was listening for something more sophisticated, but all I heard was assertions.

I completely agree. I've been concerned that NPR's coverage of the clean tech industry has missed a lot of opportunity to go a little more in depth and make a real point.

I think the real story here is how do government's support innovation, the big problem being the valley of death... Kaufmann recently published a short paper that sounds quite promising and would avoid the Solyndra debacle.
http://www.kauffman.org/uploadedFiles/crossing-valley-of-death-report.pdf

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