John Ross — Studying the real forces driving innovation is vital for China

Important as the other side of the coin. MMT reveals how to do the funding, but the funding has to be directed in real terms. The contributions of the state in promoting education and R&D are fundamental to fostering innovation. Moreover, investment is the driver.

Ross also provides a useful economic summary of the economic factors involved in innovation.

Economic fundamentals illustrate clearly why innovation is so critical for China. Analyzing in terms of classical "growth accounting," an economy's supply side inputs are capital, labour and "total factor productivity" (TFP) – the latter being all growth that can't be explained by increases in capital and labor. More precise versions add "intermediate products" – the inputs of one economic sector into another produced by increasing division of labour and specialization. Innovation's effects are measured as part of the TFP.

In most economies the most powerful forces of economic development are, in descending order of importance, intermediate products, fixed investment, labour inputs and TFP. This applies during periods of high innovation.

Garage startups as the source of innovation is a myth, along with individuals' creativity and ingenuity being all there is to it. In fact, the "garage" is the state, as Mariana Mazzucato showed in The Entrepreneurial State, and the state provides incubation for creativity and ingenuity, which don't come out of nowhere. People have to be trained and basic research and development funded. China is well-poised to take advantage of this. The leadership understands the opportunities and challenges and has the tools to deal with them.

China.org.cn
Studying the real forces driving innovation is vital for China
John Ross, columnist with China.org.cn

See also

Examining Xi Jinping's speech on the method of Karl Marx

Heiko Khoo, columnist with China.org.cn