Between the Eagle and the Dragon

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Thomas Barlow. Between the Eagle and the Dragon. Barlow Advisory Pty Limited, 2013.

Thomas Barlow of the US Studies Centre at the Univerity of Sydney has been called “Australia’s leading research strategist.” In this book he addresses the question of whether the twenty-first century will turn out to be the “Chinese century,” or whether it will be “another American century.”

China’s economy is already the world’s second largest, and it is growing at a faster rate than the US economy. China’s international trade has been growing at the phenomenal rate of 15% per year over the last two decades. The country is already very competitive with the US in high-tech manufacturing, a big reason for American pessimism about the future. On the other hand, China’s gross domestic product per capita is less than a fifth of ours (as of 2010). Also, its manufacturing operations often involve the assembly of components that have been designed elsewhere. So Apple may have its products assembled in China, but the innovation and a big part of the profits remain in the United States.

Because of its sheer size and rapid economic development, China is likely to overtake the US as the world’s largest economy. Whether it will also be the world’s dominant nation is another question. Barlow’s premise is that “China’s ability to challenge the US economically, militarily and politically will ultimately depend upon its capacity to replicate the levels of invention and innovation that exist across American society.”

A country’s large size does contribute to innovation. Bigger populations have a larger number of potential inventors, innovators, and entrepreneurs. They also have a greater capacity to pool capital, and a larger number of domestic consumers to reward successful innovators. But size isn’t all that matters. Innovative societies need investments in education, science, and research & development. They also need values that encourage and reward individuals for trying new things. Barlow does not believe that Chinese advances so far make its domination in the world at all inevitable. The United States still has many advantages in global competition.

On many measures of innovation, the US share of world innovation is declining as other countries develop. On the other hand, it hasn’t given up its position as the leading innovator. It has by far the most industrial research & development, not only in absolute terms but relative to the size of its economy. It is also the leader in global patent filing, especially in the biotechnology field. The US dominates in scientific Nobel Laureates and in international rankings of universities. It leads in the publication of articles in major scientific journals, although China is expected to catch up in many fields before long. Overall, Barlow’s conclusion about technological innovation is this:

China is emerging as an important competitor, but it still has a considerable way to go before it can match the US in the size or quality of its innovative activities. In the intervening years, it is conceivable that Americans will respond to the emerging competitive threat posed by China with a future rush of technological ingenuity.

In Ch. 3, “The Value of Liberty,” Barlow takes the discussion beyond technical innovation to consider some more subtle features of the innovative society. He finds the United States far more innovative than China in business organization. One reason for this is the US lead in knowledge-intensive services (business, financial and communication services), where the US accounts for over one-third of global activity. The US is also a “culturally vibrant” society, leading in the production and dissemination of cultural products like feature films and popular music. Barlow also sees a connection between innovation and certain American values: “the can-do spirit, a belief in individualism, the idea of the self-made man, the cultural acceptance of mobility within the population, and the celebration of entrepreneurship.”

Finally, Barlow expresses his strong preference for the American market system, as opposed to China’s more centrally planned economy:

A key determinant of American innovation has been the liberty in which American citizens are able to conduct their lives….Innovation in the US has traditionally been an emergent phenomenon rather than a directed phenomenon; it has been the result of a myriad of individual choices made within competitive markets rather than of nationalistic planning and enlightened government.

I would add that progressives are often rightly critical of America’s laissez-faire tradition–for example, the reluctance to regulate financial markets that played such a large role in the recent financial crisis. Some things may be done better by a strong (but democratic) central government than by for-profit companies, such as providing basic education to all citizens or financing health insurance. But I for one do not advocate replacing free markets by central planning. I agree with Barlow that an innovative society has to allow for “a myriad of individual choices.”

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