How to Become an Innovative Nation?
Nankai Institute of Economics,Binhai Development Institute of Nankai University,Collaborative Innovation Center for China Economy
Since 2006, the construction of innovative country has become the core of national strategy. China intensively has introduced a series of national strategies, including the implementation of Innovation-driven Development Strategy, ‘Internet Plus’, ‘Made in China 2025’, and ‘Mass Entrepreneurship and Innovation’ since 2012. It can be said, China how to grow from a “World Factory” to be a global science and technology innovation center, is one basic issues in current China's economic development. Global Entrepreneurship and Innovation Conference (GEIC), contributing to the formulation and implementation of national strategies, has held for three sessions since 2013 in Jilin University and Ben-Gurion University of the Negev of Israel. GEIC has been the international academic exchange and Industry-University-Research cooperation platform for leading innovative economic theories and practices.
For China, to become an innovative nation not only means "China Miracle" can be continued, but also means China can make greater contribution for the prosperity, peace and development of humanity. As a very important developing country with long history and culture tradition, the system and culture created by China will be more inclusive, distinctive and demonstrative on the journey to grow as an innovative country. Therefore, how to become an innovative nation is the issue that the academia should answer and also the source of theory innovation.
China has started to explore the new path of independent innovation from 1979 and continued through the entire process of China’s economic reform and opening-up. Rural Contract Responsibility System, market-oriented progressive reform and continuous market creation during the industrialization are all innovative masterpieces in the history of world economic development.
The rising of "China Miracle" is because China mastered the key to the success of industrialization in a developing country characterized by developed peasant economy. That is , rural reform and rural industrialization as the first step of national industrialization. Rural reform and industrialization were good solutions to food problem. In addition to that, to meet huge market demand on light industrial products under shortage economic conditions, rural reform and industrialization were enable to create energy, power and raw materials to start urban industrialization and initiate market demand on intermediate products including equipment.
During the second industrialization stage dominated by cities, state-owned economic reform and the large-scale introduction of foreign capital, while satisfying the demand for intermediate products generated by rural industrialization, created new demand for international market and modern service industry. In 2001, Japanese scholars initially put forward that China started to grow as a "World Factory". Since 2005, China entered the third stage of industrialization, shifting from a manufacturing economy to innovative economy.
China's innovative economy generates from the transformation and upgrading of manufacturing industry. After become the “World Factory”, how to solve the “Low-end Locking” problem brought about by exogenous technical advancement has become the direct impetus for the government and the industrial community to formulate and implement innovation-driven development strategy.
There are four elements hindering the upgrading of China’s Manufacturing Industry: The first element is exogenous technical advancement, which means Chinese manufacturing technology mainly come from the introduction, digestion and absorption of developed countries’ mature production and standardized manufacturing technology; The second issue is lagged development of service industry， including specialized wholesale market, small wholesale market, logistics and supply-chain system, and R&D industry seriously lagging behind the needs of manufacturing upgrades. The third is mismatch between science & technology development and the economic development. Innovative system malfunction exists between innovative infrastructure and industrial development. Fourth, policy orientation of government is to optimize the investment environment to attract investment, rather than building innovative entrepreneurial environment.
After a decade’s endeavor, afore mentioned four constraints for China's manufacturing upgrade are almost simultaneously broken. Firstly, innovation-oriented entrepreneurial activities and development of small and medium-sized science & technology enterprises have developed endogenous technology. As a result, endogenous technology has gradually become a source of economic growth. The innovative development of Shenzhen's mobile phone industry is a model. By grasping the window-phase opportunities brought about by the technology advancements of Android and 3G and relying on innovative entrepreneurial activities and the development of science & technology small and medium-sized enterprises, the mobile phone industry of Shenzhen has smashed the dual technological and industrial monopoly leaded by multinational corporations, and finally formed opening-up innovation ecosystem and production organization model instead of imitative innovation.
Secondly, in order to break the restriction of traditional retail & wholesale and supply-chain system on the manufacturing upgrades, emerging Internet enterprises represented by Alibaba, have applied Internet technologies to retail and supply-chain service and promoted explosive boost of China's E-commerce. New business ecosystem dominated by Internet-platform not only triggers retail industry revolution and supply-chain system transformation, but also unceasingly penetrates into manufacturing and modern services.
Thirdly, diversification of innovative subjects and the development of new hybrid organizations gradually removed the malfunction phenomenon of the innovative system between innovative infrastructure and industrial development. Diversification of innovative subjects not only shows the development of science & technology small and medium-sized enterprises, but also presents the emergence of entrepreneurial scientific research institutes and "Creator" groups. Diversification of innovative subjects and the new rules formed during interaction are changing the mechanism and system structure of resource allocation.
Fourthly, the “530" Plan formulated and implemented by Wuxi city in 2005 marked the start of government to build innovative entrepreneurial environment as the new orientation of policy. Innovative ecosystem, especially industry innovative ecosystem is the core of building innovative entrepreneurial environment. In order to stimulate entrepreneurship and facilitate the creation and commercialization of new knowledge, the key effects of the government to play in cultivating innovative ecosystem are to gather innovative resource and effectively facilitate the interaction and knowledge restructuring among the innovative subjects.
With the deepening implementation of innovation-driven development strategy and ten years’ exploration, the innovative economy with Chinese characteristics has begun to take shape. The understanding of basic forms and characteristics of the new economy is the precondition and foundation to formulate new innovative national construction thinking and strategy.
The economic formation we are endeavored to build up is the new economy with"Mass Entrepreneurship and Innovation" as orientation. The new economy, which is characterized by data as the key production factor, is based on the second information technology industry revolution. The new economy not only includes emerging industries represented by Internet, Internet of Things, Cloud Computing and Big Data, but also covers new industries, new forms and conditions, new organizations and new models arising from the integration and penetration of new generation of information technology into other industries.
The new economy emerging from China is different from that of the 1990s United States of America. The new economy of the 1990s United States of America was the result of the first information technology and industrial revolution led by IT industry. And the current new economy is triggered and promoted by the second information technology and industrial revolution represented by Internet, Internet of Things, Cloud Computing and Big Data industry. Meanwhile, the continuous integration of the Internet and the real economy constitutes the dominant logic of development and evolution of the new economy. To some extent, online or not has become the primary criteria for distinguishing traditional economies and new economy.
The new economy is a series of new economic phenomena appeared when the Second-Information-Technology dominated new science & technology and industrial revolution adapts the supply side to the consumption structure transition. Mass Entrepreneurship and Innovation dominate supply-side structural reform and are the basic driving force for the development of the new economy.
The new economy belong to the real economy, namely, the new real economy. Some entrepreneurs and scholars argue that Internet economy is a virtual economy. But overall, the Internet economy is not a virtual economy, but a new real economy forming in the process of promoting the development of the real economy. In particular, with continuous penetration of the Internet into the real economy and the transformation of the real economy, the development of the new economy will keep bringing about a series of new transformations including the modes of production, production organizational formation, circulation mode, manufacturing pattern and life-style.
For quite a long time, we relied more on the understanding of the traditional economy, especially the theoretical understanding of the logic of industrial and economic development during the formulation and implementation of developmental strategies. It can be said that industrialization mindset is still constraining the current economic work ideas and methods. The scientific understanding of the new economy will lead us to break the inherent thinking, re-consider the driving force and mechanism of economic development at the new stage, and then formulate effective strategies.
Innovation-driven development strategy and innovative national construction strategy are long-term and complex systematic projects. Just like the zigzagging path we had embarked on during the past 30-year reform and opening-up, the road ahead will not be smooth. Thus we need a new round of reform and innovation in terms of systems and mechanisms. At the initial stage of transformation and development, in particular, we need to free our mind and reach consensus in the society.
Firstly, comparative advantage will no longer be the main driving force of China's economic growth. Competitive advantage, based on many "Pain Spot" of the economic and social development and the Mass Entrepreneurship and Innovation activities at the "bottleneck area", is the new driving force of economic growth. During the driving force mechanism transition period, it is an extravagant hope to rely on comparative advantage to attract investments and realize the rebound of the economy. Entrepreneurial activities, as the driving force of the new economy growth, need an incubation and acceleration process. The creation and commercialization of new knowledge are not only difficult for corner overtaking, but also full of uncertainties.
Many of the economic and social problems that we call "Pain Spot" and bottleneck then become the incentive for innovation and entrepreneurship. For example, food security problem, education equality, medical treatment and health, aging of population, weak industry competitiveness, "Big City Malaise", environmental pollution, even South China Sea Issue are key fields causing innovation and entrepreneurship. Solving the "Pain spot" and bottleneck problems and thus promoting economic development and social progress by stimulating entrepreneurship are the impetuses of innovation-driven development.
Secondly, the generally stimulation of entrepreneurship and the well-functioning risk sharing mechanism of innovation and entrepreneurship are the micro foundation of a transition from manufacturing economy to innovative economy. For an innovative economy and an entrepreneurial society, entrepreneurship includes generalized and narrowed senses. In a narrowed sense, entrepreneurship means entrepreneurial activities with creation of new knowledge and its commercialization as orientation. In a generalized sense, entrepreneurship means any innovative activities daring to bear risks, for example, reform and innovation conducted by the government.
As the micro basis of innovative economy, entrepreneurship is in a narrow sense. In a knowledge economy, entrepreneurship shows new features, such as the diversified innovative and entrepreneurial subjects with entrepreneurship, and the phenomenon of cooperative innovation and mass entrepreneurship and innovation resulted from interactive integration of different fields of entrepreneurship spirits.
Young people including college student is worthy of attention among the diversified subjects of innovation and entrepreneurship, because their rich imaginations and ambitious dreams are important starting points for innovation. Einstein once said that imagination was more significant than knowledge. From the perspective of scientific development, so-called experts are the accumulation of knowledge in the past. For new knowledge related with future development, there are no experts but new knowledge creators and learners. Young people have a natural advantage in receiving and creating new areas of knowledge, especially in technology and economic development area.
Of course, there are various viewpoints on university students' entrepreneurship. Some people hold the views that college students are considered to be lack of life experiences, social resources and management capacity. Entrepreneurship failure may be normal, even give them a life-long negative effects. However, this viewpoint is passive for innovation and entrepreneurship with the orientation of new knowledge creation and its commercialization. For the new technology and knowledge relating to the economic and social "Pain Spot" problems, experts are also lack of knowledge and experience. A positive exploration spirit, fault-tolerant mechanism and relaxed atmosphere are essential.
The establishment of risk-sharing mechanism for innovation and entrepreneurship is the basic institutional arrangement to stimulate entrepreneurship in the entire society. Innovation and entrepreneurship are highly uncertain activities, but successful entrepreneurship can bring about the increase of social welfare. Therefore, it does not meet the basic principles of innovative economy if entrepreneurs personally bear all the entrepreneurial risks. Only the formation of effective innovation and entrepreneurship risk of social sharing mechanism, the more innovative and entrepreneurial activities will emerge.
Thirdly, the major responsibility of the government in an innovative economy is to help and promote the formation and development of innovative and entrepreneurial ecosystem. The role of government is to improve infrastructure, to develop human capital, to optimize R&D, taxation law and supervision environment and to share risks. Private sector should be emphasized as the main force to promote innovation and entrepreneurship. In order to facilitate cooperative innovation, mass innovation and entrepreneurship, what the government should do is to provide infrastructure including physical spaces, but not to substitute the decisive role of market in resource allocation.
In the transition from manufacturing economy to innovation economy, allocation mode of market resource presents a new way of organization. Among them, the model of "platform+ small and medium-sized enterprise+ service" plays an even more important role in resource allocation. The platform gathers service resources and technological resources, and serves to small and medium-sized enterprises, especially innovative entrepreneurs. In an innovative economy, platform not only includes university science and technology parks, incubators, and a new hybrid organization combined production and research, such as mass entrepreneurship space, but also means internet-based platform enterprises. For example, with the maturity and spread of Alibaba Cloud Computing Technology, Alibaba has become a key platform of innovative and entrepreneurial activities and the core node of Hangzhou's innovative and entrepreneurial ecosystem. Cultivating and introducing innovative platform, especially internet-based platform, to accelerate the formation of innovative and entrepreneurial ecosystems are important ways of the development of innovative economy.
The last one is to speed up the reform of the current educational system. A country’s future lies with young people, and the future of young people lies in education. In a knowledge economy, education not only provides new knowledge to the students, but also the capability to create knowledge and future. Universities should not only focus on teaching, but also cultivate entrepreneurship and become the origin of entrepreneurial activities.
The international partners of Global Entrepreneurship and Innovation Conference (GEIC) are Ben-Gurion University of Israel and Duisburg-Essen University in Germany. Founded in 1969 and located in Beersheba, Ben-Gurion University is one of the major research universities in Israel. In May 2016, when I attended the third Innovation and Entrepreneurship Conference at Ben-Gurion University, I listened to the presentation of former Prime Minister Shimon Peres. In his speech, Perez pointed out that China and Israel have in common. “Poor and blank” is the basis of construction and development and innovation is the fundamental way to change poverty and backwardness.
In the past ten years, the practice of building an innovative country in China confirms Perez’s view. To set the development of innovative economy as core orientation of national strategies contains far-reaching connotations. The reason is that innovation is not just the fundamental driving force for a nation to promote economic development and international competitiveness. More importantly, the innovative capability, institutional structure and cultural norms accumulated during the development of innovative economy are the cornerstones of a nation's soft and hard strengths and influences. In an era of knowledge economy, innovative economy is highly open as a new economic formation. The systems and culture created by an innovative economy are also vigorous, open and inclusive. To become an innovative nation is China's contribution and promise to the world, and also the brilliant chapter of the Story of China.
May 5, 2017 Nankai Institute of Economics