Searching for China's Soul of innovation

In the Hutong

Peace through superior keyboards

1702 hrs.

In the wake of the global financial crisis, thoughtful people are starting to think about what the U.S. is going to use as a growth engine, now that housing, stock markets, and arcane financial instruments are out as alternatives. It did not take long in these discussions for some bright people to suggest that America needs to innovate its way back to greatness.

Yankee Ingenuity, Jia You!

Leaving aside for a moment that innovation and creativity in finance got the United States - and the world - into this problem in the first place, betting the future of any nation on its collective ability to come up with a whole lot of "new and useful" things in the space of an economic cycle seems to be a bit of a Hail Mary play. Industrial policy, regardless of how light or heavy the hand that applies it, has never been all that useful as a driver of innovation. Even corporations that spend billions on research and development wind up with very few useful innovations (look at the pharmaceutical industry), and many companies fail to capitalize on those they get as a result, for a myriad of reasons. (The case of Xerox Palo Alto Research Center and the graphical computer user interface is one notable example.)

There is simply too much serendipity in the innovative process to foment it efficiently. Even when you put really smart and creative people together with the facilities they need to innovate, the entire effort devolves into a numbers game. Throw enough brains together for long enough, the thinking goes, and something good is bound to come out of it all.

What America has going for it, of course, is momentum. Coming off of a national tradition for invention that began with Benjamin Franklin and Eli Whitney, somewhere just before World War II American inventiveness reached critical mass - literally and figuratively. Simultaneous discoveries and inventions across fields like physics, chemistry, aerospace, and electronics met mass production, marketing, mass prosperity and Keynesian economics. The resulting boom has carried the U.S. for seven decades - why should it not continue?

Sure, the government may be dysfunctional, Wall Street shell-shocked, and consumers in hock to their hairlines, but by gum, Americans still know how to come up with new stuff, make it cheap, and market the heck out of it. There's hope for the Yanks yet.

Waiting for China to Start Innovating Again

The unspoken assumption here is that nobody else is anywhere near as good at that stuff than the Americans. Which is part of the reason the words "Chinese innovation" scares Americans.

It would be unfair to forget that a lot of companies hear those very words and think "in China, innovation is really imitation." There is plenty of truth in that, and that thinking keeps a lot of intellectual property attorneys and trade negotiators well fed, clothed, and housed.

But the real pachyderm on the porch, the question that so many in the innovative industries will not allow themselves to ask, is "what if Chinese companies got it together and started to innovate? Then what?"

Questions like this are part of what is driving a wider audience to learn more about the life and work of Dr. Joseph Needham. A Cambridge master and biochemist, Needham spent much of his life and career compiling a history of Chinese science. He was an avowed sinophile, and as such much of his effort centered around an effort to prove that China before the Qing dynasty was the cradle of many of the world's major innovations up to that time.

The underlying theme of his work was to disprove the chauvinistic hypothesis that Chinese as a race were capable of imitation but not innovation. In the main, he documented and catalogued Chinese innovations in an effort to demonstrate that the West - and the Industrial Revolution it birthed in the 19th Century - owed a massive debt to Chinese innovations.

(The Chinese innovation I heard about all the time when growing up was a metallurgical technique called the Lost Wax process of investment casting. My father's foundry in California used that process in the 1960s and 1970s to make parts for turbochargers, airliners, golf clubs and medical implants. He was as proud of the heritage of the system as he was of its results. "Gee, Dave how do you make such amazing products?" "Ancient Chinese secret," he said with an enigmatic smile. But we digress.)

The real pity about Needham's work is that he spent so much time focused on what the Chinese invented and when they invented it that he had no time to figure out why the Chinese were such prolific innovators when they were, and how things changed to make that stop. This may have been because Needham was a monomaniac, or simply because he wasn't a trained historian. Either way, it leaves us with proof that the Chinese can be great inventors, but without the historic perspective on what it will take to revive that latent spirit.

Innovation with Chinese Characteristics

Yet he points us in a compelling direction. So much of what is written about China and innovation today, whether by foreign or Chinese observers, is patronizingly prescriptive. If China wants to innovate, it must imitate - it must recreate the conditions that exist in high-tech hothouses of Silicon Valley, Boston's Route 128 corridor, Austin, and Seattle. There is some truth in that, but there seems something unnatural about trying to graft San Jose onto Shanghai, or Federal Way onto Tianjin.

Needham's work, on the other hand, hints at another road to an innovative future, one that is Chinese in origin, not Western. Perhaps the answer for China is to search for an answer to the independent innovation challenge in its own history, applying foreign lessons where appropriate.

What was it about those times that fostered innovation? Was it cultural? Was it economic? Was it political? Was it invasion or civil war that fed China's inventiveness, or was it the luxury of peace and prosperity? Was the assimilation of some foreign culture the spark that set off periods of creative flowering, or did cultural homogeneity drive it?

These questions, and others like them, are the markers that will take us the next mile down the road that Joseph Needham walked, and will likely give us a better idea of when and how China will challenge America for innovation leadership.

In the meantime, I'm betting on Silicon Valley for green technology innovations, not China. But that's another post.

Comments

[Felipe Albertao]

Excellent post! However, I have to say that after living in Silicon Valley for the past 7 years and actively participating in the start-up community over here, I honestly do not feel the momentum here. Yes, Silicon Valley has a huge innovation legacy, but for how long ago? Go back just 30 years ago, and Sunnyvale's biggest industry was orange. Looking 30 years forward, I really don't see the trend going up. Most of what I see here is legacy work -- Companies that were hugely successful in the 80s and 90s and are still around. Which is fine, but I just don't see much innovation happening.

Even if we talk green tech... What exactly is Silicon Valley doing that is innovative or showing leadership? When I ask this question to friends, the first think I hear is "Tesla!". Well, they are not really targeting the masses, are they?

Yes, there are a lot of incremental "tentatives" and niche plays going on, but I don't really see true breakthrough stuff being developed (unlike the 80s and 90s).

Now, at a national level, I do agree with you USA has a long tradition and legacy, and not only in technological innovation, but also in environmental and societal advancements.

[Chris Carr]

Great post, David. Well done.

[Dan]

Federal Way? Federal Way?

[Allroads]

Dave.

Excellent post, and a topic that I have myself have tried to address on a few occasions (I am hampered by the fact that I am a geek without a EE degree).

Where I think western firms are missing the point is that many of their most innovative people are Chinese, it is really the system of innovation in China that has been stymied. So, once a system that incubates and supports innovation is present in academia and industry here, they may find that this talent stops working for them.

I would encourage you to check out the interview I conducted of my good friend Jon Li on the subject. I have watched his team for 3 years design mobile phone, and he makes some great points about innovation in China...particularly on the economics behind imitation.

http://www.youtube.com/watch?v=v36ZeGKKpKY

Hope all is well in the Jing
R

[Benjamin]

Dave,

Excellent post. The subject of innovation in China deserves its own blog. I've recently posted on Seven possible surprises from China in 2009 (http://beijingtaotie.blogspot.com/2008/10/seven-possible-surprises-from-china-in.html). Many of the surprises deal with possible technological breakthroughs, and my commentary points back to the idea illustrated here that the Chinese were/can be/are innovative.

I think that many people get blinded by some of the blatant imitation here and are then unable to see the nascent mini-systems of innovation which are growing.

To illustrate that imitation and innovation are not mutually exclusive history offers the following:

-Indian invention: cultivation of cotton; British innovation: the modern textile industry
-British invention pirated by the US: power loom; American innovation: Francis Cabot Lowell, the man who stole the design for the power loom, not only made significant improvements to the design, but also pioneered the first sale of company shares to the public in the US to finance his textile business, and was a pioneer in the employment of women.
-The system of modern finance pioneered by Lowell made possible the Monsanto Corporation, which leads us to an American invention: commercial GM crops; Chinese innovation: planting cotton that has been genetically altered to express insecticide; this reduces insect populations not only for the cotton but for neighboring fields as well; it also improves the health of farmers who no longer have to use large amounts of insecticide.

[Yu Zhou]

Thank you for setting this debate. I have something to say after finishing my book: Inside Story of China's high-tech industry: making Silicon Valley in Beijing (Rowman&Littlefield, 2008). The book is based on hundreds of companies over 6 year period. Here are my conclusions. For detail, you may have to read the book.
1. The development of indigenous enterprises is indispensible for China’s technological growth.
Amar Bhidé in his 2008 book, the Ventursome economy, argues that the real economic payoff of innovation lie not so much in the value of new products created, but in how technologies are used. Although he is arguing for the continued American technological advantages, this argument applies equally well to China. It was Lenovo that first brought the mainstream PC technology to the largest number of Chinese consumers. It was Chinese Internet companies that created the world’s second-largest Internet market. In mobile phone and DVD technology, again Chinese companies were instrumental to make the technology appealing to mass consumers at a price they could afford. China’s indigenous companies, even if have yet played leading role in creating cut-edge products, have been extraordinarily effective in bringing western technology to Chinese enterprises and consumers, They have helped to unleash the tremendous gains in productivities as well as generate new ideas and business opportunities.

2. Indigenous companies can be competitive if they can take advantage of the synergy between China’s exporting industry and domestic market growth.
The most successful Chinese technical companies are built upon the China’s domestic market, not in export. These companies take advantage of their easy access to competitive, reliable, and high-quality component suppliers—the same suppliers for MNCs in the global industry and target the Chinese market with special designs and pricing, due to their superior understanding of and access to this market. If the market for their products also grows at this time, they have a good chance to best the foreign competition. This is the story of Lenovo, Huawei and many other successful Chinese high-tech companies.

3. Collaboration and competition with MNCs is critical for Chinese innovation. The competition between MNCs and Chinese indigenous firms are not zero-sum game.
While the indigenous companies can become a leading force for innovation, they cannot do so without working with MNCs. The competition between MNCs and indigenous companies are not a zero sum game as many tend to believe. The increasing involvement of MNCs in China in the past 20 years has been accompanied by, and in fact, dependent upon the growing competence of Chinese local companies.

4. The lack of cutting-edge innovation among Chinese firms is a reflection of the Chinese current market condition, and it will change as the market changes.
The Chinese market has advantages in its size, but not in its sophistication. Chinese consumer value low-price and they lack experiences with particular products. This means that most of them have yet to attach the same importance to the quality, design, and newness of products that consumers in advanced countries do. This provides little incentive and reward for autonomous technology innovation by indigenous companies. Therefore, it is not surprising, indeed it should be expected, that most Chinese companies concentrate on following the MNCs’ lead in making products cheaper and better suited to Chinese customers rather than blazing their own paths. One cannot judge the innovative potential of Chinese companies on what they are doing now. They are market oriented and they will evolve as the market evolves. Zhongguancun shows that innovation is a long term process, and can only be approached step by step, and not just by a few strong companies but by succeeding generations of them, as they each get closer to developing the innovative core.

5. The role of the government is essential, not as a leader, but as a flexible collaborator with MNCs, indigenous companies and research institute in dealing with technological change.
Some Chinese leaders want to revive the model of state-led science and technology development as in early defense inspired system. Unfortunately, this shows little understanding of the difference between military and civilian technology, or of the reality of the global marketplace in which Chinese companies must operate. Given the intensity of globalization today, a state-centered approach to R & D would be counterproductive, if not simply unfeasible. The state’s crucial roles are not just providing specific policies or R & D capital but collaborating effectively with other technological agents and learning to reform regional institutions under changed circumstances. Chinese government has to continue to collaborate with—rather than supervise or direct—other parties. Then a fairer and more open institutional structure for fostering innovation can be built.
In the end, China can surely innovate and Chinese indigenous companies can learn and thrive in a globalizing and fast moving world. After all, it is the development of the indigenous companies, not MNCs or the Chinese government that will determine the extent to which China controls its technological destiny. This is no different than in other countries. Just as we could not imagine the United States as the leading technological society today without the leading U.S. companies, or Japan and Korea without Japanese and Korean companies, we should not imagine China’s technological transformation without its indigenous companies eventually taking leading roles.

[Benjamin]

I recommend the following OECD report for anyone interested in this topic:

OECD Reviews of Innovation Policy -- CHINA

http://www.oecd.org/dataoecd/54/20/39177453.pdf