Responding to China

John Deutch’s “Is Innovation China’s New Great Leap Forward” (Issues, Summer 2018) does an excellent job of describing the current status of US-China relationships in the context of innovation-based economic competition and, to a certain extent, national security issues facing both countries. He makes the traditional arguments that the United States needs to tighten (not close) its science and technology (S&T) infrastructure, maintain its tech-based entrepreneurial and new venture edge, and continue investing in university-based science, engineering, and advanced education. Basically, run faster. A perfectly reasonable conclusion to reach, but for a material error of omission in his assessment of the current relative strengths of the innovation paths of the two countries.

As he concludes his problem assessment, he writes: “The record clearly establishes extensive illicit technology transfer behavior…. What is striking is the implied judgment that this illicit behavior has been and will continue to be decisive to the advance of Chinese innovative capability. There are few, if any, voices raised to say that significant improvement in Chinese innovation should be expected with the growth of China’s economy and the increased maturity of its indigenous science and technology infrastructure without any illicit behavior.” This strikes me as important and well-articulated, but incomplete.

When considering US innovation-based economic performance, the relevant reference point is not just Chinese performance but also the performance in the rest of world (ROW) beyond the United States. Significant improvement in ROW innovation should be expected with the growth of the ROW economy and the increased maturity of ROW indigenous S&T infrastructure without any illicit behavior.

Since the end of World War II, the United States has led the world in R&D investment and in university-based S&T education. That means, with some inevitable waste and slippage, that it has led the world in innovation. However, the pack of other nations in this race—the United Kingdom, Germany, South Korea, Japan, France, and now China, among others—has substantially closed the gap. The United States is still in the lead but, more than ever, running as part of the pack rather than far out ahead. It is important to recognize that the United States has benefited directly from the gap being closed. It now shares the burden of scientific advance for global civic missions—public health, education, environmental quality—and it benefits directly and economically from scientific and technological advances pioneered elsewhere. In other words, in the twenty-first century, national innovation systems have bled together into a single global innovation system.

In this global system of innovation China stands out for three reasons: the size of its economy; the pace of its economic and innovative growth; and the fact that it is not playing by the rules—explicit and implicit—that govern the other leading countries in the race. So, Deutch’s “tighten but don’t close” and “run faster” conclusions are good as far they go, but they need to be recast for a multilateral S&T world where neither bilateral trade agreements nor World Trade Organization provisions provide adequate rules (or enforcement) to ensure R&D reciprocity and fair technology transfer, or to govern tech-related foreign direct investment.

This leads down a less traditional path that includes a number of policy innovations:

• Technology-driven industrial policy that allows the United States to lead the pack where it is important for the US economy or national security.
• Revisions to economic and technology policies to increase focus on the US capture of economic benefit from increasing investments in innovation infrastructure around the world (which may require revisions to antitrust policy, patterns of domestic S&T investment, or incentives for US foreign direct investment.
• Substantial revision to, and better US systems to manage and enforce, multilateral agreements and norms (i.e., tighten but not close the US innovation system) in the context of the global innovation system.

There is a great deal of policy work to be done on each of these fronts.

Bruce Guile