Editor's Note: John Kao, dubbed "Mr. Creativity" by The Economist, is the chairman for the institute of large-scale innovation and author of Innovation Nation. You can follow John on Twitter, Facebook and at www.johnkao.com. This post is the fifth of six pieces by John about his recent trip to China. The first post was China as an innovation nation. Check back tomorrow morning at 8am for the last installment.
By John Kao – Special to CNN
The classical definition of a trade war applies to the behavior of two states that raise trade barriers against each other in a tit-for-tat cycle of protectionism and retaliation. The ultimate result is what economists call an 'autarchic equilibrium' - the state of self-sufficiency the countries arrive at once a trade war has burned itself out. Trade wars have traditionally occurred over physical goods such as commodities - finished products such as textiles and the like. But in the 21st century, trading in intellectual property, business models and other intangibles has risen in prominence. It is therefore worth asking whether the stage is being set for a new kind of innovation trade war, particularly between what some have called the G2 – i.e. China and the United States.
Some have argued that China, given its resources and scale, is now seeking eminence across a complete range of innovation agendas. The 12th 5 year plan certainly supports that thesis. Its ten pillars are: first, a portfolio of special technology projects aimed at breakthroughs in clean energy and deep-sea exploration. Second, expediting emerging industries such as new energy sources, next generation IT, biotech, new materials and new energy vehicles. Third, upgrading traditional industries through innovative new technologies. Fourth, innovation to improve quality of life by focusing on food production, agricultural efficiency and protection of the environment. Fifth, enhancing studies in basic science. Six, fostering young talent. Seven, upgrading the investment infrastructure for technology and innovation. Eight, reforming the technology management system. Nine, accelerating commercial development of technology. And, ten, expanding technology and innovation collaboration internationally.
Whew. Not much seems to be missing here, though Chinese leadership acknowledges they are in catch-up mode. Thus, the question that one member of our delegation repeatedly asked of the Chinese is: “If you develop all of your innovation agendas, what will you want to import from other countries that will enable any kind of two-way innovation-based trade?” The answer back usually amounted to homilies of the “we are a developing country trying to make its way in the world and are not out to eat anyone’s lunch” variety.
A world shaped by innovation rewards those who obtain leverage from smart uses of global resources. China has such some of the key resources, e.g. talent in abundance and its advantages are magnified by the fundamental differences between innovation and industrial business processes. A few key scientists, a few billion dollars, some incentives and subsidies, and you’re off to the innovation races as Singapore’s experience with its life sciences and digital media megaprojects – the BioPolis and Fusionopolis – so clearly demonstrate. Science fiction author William Gibson foresaw almost two decades ago a world in which wars would be fought not over territory or natural resources, but over the services of a talented person crucial to developing a new technology. Leverage from innovation assets, once established, does not depend on size, natural resource base, population or other traditional aspects of industrial scale.
As if this were not enough, to increase its trove of innovation assets, China has shifted its innovation policies over the last five years or so, beginning in 2006 to favor its base of innovation assets. These include so-called “indigenous innovation” policies to foster domestic innovation through financial support, exclusionary practices for foreign technology, and linking access to Chinese markets to access to foreign technology on terms that are perceived generally as being unfavorable to Western or non-Chinese companies.
One particularly sensitive area involves a Chinese policy to establish catalogues of technologies appropriate for domestic procurement. These technologies were required to be indigenous – either developed by a Chinese company or a Chinese joint venture with a foreign company. Onerous requirements for disclosure of technology produced an outcry among international companies despite the allure of doing business in China. This summer those procurement policies were rescinded under pressure from the United States and other countries.
However, China’s ratcheting up of the innovation agenda sets the stage for further conflict at a time when America’s innovation engine shows signs of flagging. It is a sensitive time and therefore common sense is needed
Are the Chinese out to get us? No.
Do they want to achieve everything that is possible? Yes. They are simply pursuing what they believe to be in their self interest and with what one US official described as “ruthless pragmatism.”
Would we do the same thing if we were in their shoes? Undoubtedly. Wasn’t the approach of Britain in the 19th century or the US in the 20th a similar application of pragmatism?
Do we have an opportunity to reinvent the game? Yes. There is nothing that says that the US has to be an innovation cow to be milked by the fast follower strategies of China and other countries. But new forms of “innovation protectionism” and saber rattling are not the answer either.
Rather I believe there are ways to build engagement between the United States and China for mutual benefit as well as that of global civil society. In my view, the U.S. and China have an opportunity to take a fresh look at innovation together: assess best practices, establish common metrics and frameworks that will allow for better collaboration given the disparity of economic models and the assumptions that underlie them, as well as the importance of innovation as a global agenda.
In the world of 21st century innovation, collaboration is the name of the game. Accordingly, it would be interesting to find or two global grand challenges that one could imagine constructing a kind of blended value chain – China and the United States – to cooperate and focus on that particular grand challenge. Through such a process, I think we would both learn a great deal about what innovation is “for” and harness our two countries innovation engines for benefit rather than narrow competitive advantage. Innovation peace is preferable to innovation war.
The views expressed in this article are solely those of John Kao. Visit CNN.com/Innovation for more.