China’s Run of the Red Queen – Government, Innovation, Globalization and Economic Growth1 Dan Breznitz and Michael Murphree Abstract: China’s emergence as an economic and technological power cannot be denied. However, the story is too often conflated as one in which China’s rise is unstoppable or even a fait accomplis, or else China’s rise is overhyped and its lack of true innovation capability means its economic miracle will soon grind to a halt. Both perspectives misinterpret China’s growth experience. China has developed a wide array of innovative capabilities through leveraging opportunities presented by the global fragmentation of production and overcoming institutional obstacles from its political economic climate of “structured uncertainty.” Reactions by Chinese firms and regions to the opportunities presented by the global fragmentation of production and the constraining influence of structured uncertainty have created a high-technology economy that is highly competitive in second generation, process and incremental innovation as opposed to the supposedly ideal, and more widely appreciated, novel-product innovation. If there is one economic “miracle” which is significantly transforming the global economy, it is China’s. As Napoleon famously predicted, an awakened China is indeed shaking the world. The country, the most populous in the world, has enjoyed the longest period of sustained rapid economic growth in history with over two decades of more than ten percent annual GDP growth (NSBPRC, 2001-2010; OECD, 2006). It continues to grow, by 10.3% in 2010 and above or near 8% in 2011 and 2012, even as the advanced industrial economies of Europe and the USA continue to contend with their worst economic crisis since World War II. Since the 1970s, this growth has lifted hundreds of millions out of poverty and fundamentally changed the face of China, from an agrarian society to an increasingly urbanized one. China has rapidly climbed the ranks as a producer, and consumer, of high technology goods and services. By some measures – based on very specific interpretations of economic data – China already has the world’s largest technology based economy (Porter, Newman, Roessner, Johnson, & Jin, Forthcoming as Chapter 1 in The Third Globalization: Can Wealthy Nations Stay Rich in the Twenty-First Century? (D. Breznitz and J. Zysman Eds) from Oxford University Press. The authors wish to thank the Alfred P. Sloan Foundation, Ford Foundation, and Bill Lazonick for financial support and the Berkeley Roundtable on the International Economy (BRIE) for research and administrative support. Breznitz and Murphree would also like to acknowledge and thank the generous support of the Kauffman Foundation and National Science Foundation under Grant SES-0964907. 1
2009). The rhetoric of the current US presidential election underscores supposed challenge China presents as a technology thief and unfair competitor. Best-selling publications over the past decade have argued that China’s rise represents a tectonic shift of global economic, technological, and political power towards Asia (Fishman, 2005; Jacques, 2009; Kynge, 2006). While the implications, and underlying research, of these trends are subject to debate, understanding exactly how China has accomplished this rise, and what are the actual capabilities fostered, is critical. We argue that China’s economic growth trajectory stems from two intersecting forces: the global fragmentation of production and China’s domestic environment of structured uncertainty (Breznitz & Murphree, 2011). The fragmentation of production is the culmination of trends, still ongoing, over the past three decades in which the production of products, components, and services increasingly occurs in discrete stages around the world. Information and Communication Technologies (ICT) have enabled the codification and specific tasks which enables them...
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