Narratives about China and Assumptions About the Nature of Innovation

It’s commonly accepted that China’s startling economic growth over the last few decades has been built on copying the technology of the West. As a developing country it only makes sense that China would pick the lowest hanging fruit of imitating developed countries technologies first, but nonetheless the consensus is that China is inherently incapable of innovating itself. There are two common narratives as to why this is the case:

  1. Culture
  2. Education system

China’s culture is too respectful of elders, too caught up in looking to its glorious past for inspiration, too tied down by its Confucian values. This is in contrast to America where the contrarians are the most celebrated and where questioning the status quo has itself become the norm. China’s education system is criticized as too focused on rote learning and not enough on deep understanding. In fact China’s falling behind the West with the dawn of the Industrial Revolution is often blamed on the demanding civil service examinations which wasted China’s best talent, preventing a similar scientific revolution as the one that occurred in Europe, taking place in China.

The problem with these narratives, though there may be truth in them, is they are difficult to verify or refute. Thus the culture or education system could change but the narrative doesn’t reflect that. In short, what would convince us that these narratives are wrong? This problem is especially dangerous because as place-holders they are intellectually very satisfying, they feel like they make sense and they may match with our day to day, anecdotal experiences. There is little argument that China lacks the innovative companies that America has but why that is not obvious at all. The why matters of course because it affects how China and all developing countries can best hope to develop its innovative capabilities. In fact I believe hidden in our commonly accepted narratives about Chinese culture and its education system are entirely unobvious assumptions about the nature of innovation itself.

HIDDEN ASSUMPTIONS ABOUT THE NATURE OF INNOVATION

ONE. INNOVATION IS A PRODUCT OF INDIVIDUAL GENIUS, MANY RESEARCHERS OR A POPULATION OF SKILLED WORKERS?

Is Apple’s great products because of Steve Jobs, the talented researchers at Apple or because the American education system is churning out lots of talented programmers. If attention was a guide then you would say that individual genius matters a lot. But it is possible of course that Steve Jobs’ contribution is much less than is commonly accepted, but because he was the leader of the organisation we’ve attributed all the success to him. Another example of this phenomena is in football management where I suspect the manager matters much less than the players but who gets all the blame if things go wrong? The manager. Why? I think part of the answer might be because our cave-man brains have a bias towards overvaluing the contribution of the leader. In particular, our societies are built around competitions that allow marginal skill or ability differences to amplify into huge status differences. A great example of this is good looks. To an alien unaccustomed to human culture, the huge status differences between those considered good looking and not good looking would be completely arbitrary and probably imperceptible. In my own life, growing up in the west the first time I saw Korea’s famous 9 member girl band Girls Generation I could literally see no differences between their faces. But now after a few years I have trained my eyes to see differences that literally where not evident to me before and now I feel that some of the girls in that group are unbelievably beautiful and others not. So therefore my hunch is that our brains have a similar bias towards leaders where we massively overvalue their contribution.

This of course needs to be verified in data, although anecdotally there was an article which tried to rate the 100 most important inventions in human history in the magazine ‘the Atlantic’ and the interesting conclusion was how few were the results of individual acts of genius but rather tended to be works of (often indirect) collaboration.

Why this is important of course is the type of society that produces a lot of geniuses probably isn’t the type of society that produces a population of skilled workers. Consider the government targets for numbers of students who are educated to at least a university level. If we really believe that innovation is the product of individual geniuses rather than a generally well educated population wouldn’t it make sense to take the billions of dollars that go into educating those masses and allocating that money to selected geniuses as venture capital. Sure many would fail and our society might be a bit less meritocratic but we might go so much more innovation that its a worthwhile trade-off. Arguably if we are just waiting for geniuses to come along then maybe there is nothing we can do to speed that process along. We can’t turn an average guy into the next Mozart.

Alternatively maybe what matter is the pool of talent available to companies to hire. Peter Thiel who is skeptical about the level of innovation in America outside computers challenged Google’s Eric Schmidt saying Google isn’t innovative because it has 50 billion dollars that it doesn’t know what to do with. Schmidt’s response was that the other limitations to innovation besides money namely engineering talent. In fact a common narrative in America is we need to increase the number of science and maths graduates but if we find that actually what matters is how many Steve Jobs we have maybe we don’t need any more engineers.

An example of how these assumptions can be hidden is in Justin Yifu Lin’s book Demystifying the Chinese Economy where he argues that’s China best talent was wasted taking the gruelling and in terms of innovation pointless civil service examination. It is not obvious though that those people would otherwise have been the great innovators.

TWO. INNOVATION IS A PRODUCT OF CUMULATIVE UNDERSTANDING, BREAKS WITH THE STATUS QUO OR ‘EVERYTHING IS A MASHUP’

The general narrative of breakthroughs tends to be by definition a break from the past. I think if you look at the number of movies and books that are about the underdog triumphing I think there is reason to believe that as human we are drawn to breaks from the current hierachy, they are narratives that are inherently appealing to I guess everyone who isn’t King. But of course, the reality of what’s important to innovation might be different.

A common narrative about Steve Jobs is that he wasn’t limited to just one discipline and that being able to draw from different areas, broadly both art and science, he was able to create better products. If this really is the key to innovation then shouldn’t we look to evolve our curriculums to encorporate Kirby Ferguson’s idea that creativity is not a case of eureka! but rather just combining two old ideas into a new one – a mashup? Shouldn’t we teach the skill of combining ideas from different disciplines?

If rather innovation is deeply about breaking from the status quo then shouldn’t we look to intentionally create societies that have individuals and companies that routinely break with the status quo? Perhaps rather than having standardized education testing we should sacrifice some signalling and sorting of talent for a more diverse and non-uniform society?

THREE. INNOVATION IS DRIVEN AT A STATE, BIG COMPANY, UNIVERSITY, STARTUP OR INDIVIDUAL LEVEL?

Which structure of human organisation best fosters innovation is extremely important because obviously we want more of the ones that work and less of the ones that don’t work. I was listening to a lecture by the Physics Nobel Laureate by Steven Weinberg at a SXSW conference where basically he was hoping to drum up public support for a bigger, better and crucially more expensive version of the Large Hadron Collider. My hunch is that as humanity progresses more and more progress will depend upon riskier and very expensive projects that can not be organised and funded at a individual, startup or university level.

I’m currently reading Neal Stephenson’s Quicksilver which is a fictional account of the Royal Society with guys like Isaac Newton and Robert Hooke. What is particularly striking is how the only real barrier to entry for these guys is not having to have a normal job and most experiments can be done on the cheap. Now though that is not the case I think (with except perhaps the recent history of internet companies and the early innovations in computers). The proverbial lowest hanging fruit has already been picked.

It is crazy that as a society electric cars (with Tesla) and space travel (with SpaceX) have relied upon a someone (Elon Musk) not only making hundreds of millions of dollars in internet businesses but then willing to invest all of that money in entirely unrelated and highly risky businesses that he himself admitted ‘most likely outcome was failure’. If the progress of human civilization depends upon that sort of event occurring over and over again progress is going to be very slow if not non-existent.

Therefore I would argue we need to re-organise our big companies and governments to take large risks. For a long time capitalism has been sufficient but I suspect many projects because of their high likelihood of failure and limited short term prospects of a profit are not possible to achieve in the business sphere and need to be government funded.

With regards to big companies lack of innovation, if you read much of the creativity literature particularly that which fills your local bookstore you would come to the opinion that the most important factor for innovation is releasing the talents of your workforce. That everyone is capable of innovating and the big problem with big companies is the lack of democratization of creativity. My hunch is that although this narrative feels good it is probably completely wrong and that actually one of the main reasons that big companies don’t innovate is the over democratization of power so that no one person can steer the company into trying one, risky, course of action. Instead companies are built to avoid taking risks by allowing no one person to have so much power they can do anything stupid. However, in doing so it might also mean that they can’t do anything great either. The obvious piece of evidence for this is the success of companies that keep their founders. Perhaps it is because the founders are inherently geniuses or perhaps a factor is that their founding status allows them to hold unnatural monopolies of power over their company, they can get more things done than a typical CEO.

FOUR. INNOVATION IS A PRODUCT OF INVENTION OR DISTRIBUTION? IMPROVEMENTS IN PRODUCT OR PROCESS?

One of the narratives that is presented by Beida Professor Justin Yifu Lin in his book ‘Demystifying the Chinese Economy’ is the idea that China was initially ahead because before the scientific revolution technology progress relied upon farmers trial and error, experience based experimentation. Therefore because China had a bigger population than Europe it had more technological progress. However, with the scientific revolution suddenly technological progress dependent upon scientific experimentation and so the population advantage became irrelevant. This narrative however is unsatisfying because many of the so called scientific inventions that Europe used to overtake China China had already invented, things like gunpowder, the mechanical clock, the compass and movable type print. My point therefore is to ask maybe the distribution of a technology is more important than its invention? And tied into the distribution is the mass production and lowering of costs in producing the product. Which is more important effects the type of institutions we try to build to create more innovation.

CONCLUSION

The main thrust of my essay is that as Economists maybe we are too eager to use Economic tools to solve Economic problems. There is the old joke that to a man with a hammer everything looks like a nail. I think the same is true with Economics. When it comes to innovation, why so much attention is put on the level of tax rates or level of regulation is not obvious to me at all. What evidence is there that the things that economists can easily control are the things that matter most in determining the level of innovation in a society? What I hope my essay does is start to get me thinking about the specifics of how innovation works, rather than thinking about it in generality. Generality is obviously attractive because it means your model is more powerful, more scalable, but maybe it’s not possible to say anything interesting at a general level and that policy should be done on a case by case basis.

One paradox that I keep butting my head up against is why so many smart people have worked away at Economics all these years and yet we are still unable to manage our economies very well. Maybe the answer lies in the fact that the tools Economics seeks to exploit, primarily that of government policy, is inherently second order and that to some degree economists and governments are simply along for the ride. The principle conclusion of the Solow Model of Growth is that although things like savings and changes in capital can in the short-run increase growth in the long run the only option is technological growth. Given that this conclusion, which was made in the sixties, makes me wonder why Economics is not a study, primarily, of innovation and how to create it? Or alternatively, as a thought experiment, imagine a government that employed all the worst economics policies possible it chose the wrong tax rates, the worst interest rates etc. but despite all that it had year on year massive breakthroughs in technology and innovation. Would that be a successful or a failure of an economy? Or an analogy might be we are currently trying to win football matches by tweaking the rules. Offside rule or no offside rule? Bigger goals or smaller goals? Diving is tolerated or not tolerated? Asking ourselves what conditions allow our football players to succeed. Maybe we should instead spend our time focusing on making sure that our football players are really good and the specific rules under which they play the football games don’t actually matter that much. In short, whether it’s on a small pitch or a big pitch, with a heavy ball or a light ball Barcelona players are always going to beat a pub team.

My hunch is that societies need to organise themselves to take big and expensive risks. And that the best vehicle for this is for big companies to compete for government contracts. What if rather than our current approach to technology innovation which is very non-specific, i.e. let’s create conditions that entrepreneurs like to innovate in but rather much more hands on. What if the government wrote a list of ten big human problems, or more positively areas for human progress. Maybe solar energy, using computers to personalize education, space travel, curing cancer etc. and then funded multiple research groups in pursuit of those goals. This structure by the way was stolen from exactly how NASA commissioned private companies to service the International Space Station (a contract which was partly rewarded to Elon Musk’s company SpaceX). Maybe that would be much more effective at fostering innovation then fiddling around with interest rates or what regulations we need to manage our economies?