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Need for sci-tech advantages

By FANG JIN | China Daily Global | Updated: 2020-11-27 08:18
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China needs to increase its support for technological innovation in fields other than information technology

The United States has been experiencing worsening social conflicts and crises recently, which appear to be accidental but are actually the escalation of long-standing economic and social problems in the country. Slower economic growth caused mainly by the slowdown of technological progress has been a key factor behind these problems.

Technological innovation has declined significantly since the 1970s. Although the third industrial revolution has driven rapid progress in information technology, technological progress in the fields of energy, transportation and construction, which were developed during the second industrial revolution, has been slow.

Information technology has driven the development of almost all industries while contributing slightly to total factor productivity.

According to US scholar Robert Gordon, the average annual growth rate of total factor productivity in the US from 1970 to 2014 was only 0.6 percent, which is only one-third of that from 1920 to 1970.

Data from the US-based National Science Foundation show that the proportion of research and development expenditure by US enterprises on basic and applied research declined from 30 percent in 1985 to less than 20 percent in 2015. For many corporate research institutions such as Bell Laboratories and DuPont Central Research, which were once making significant contributions to technological progress, the scale of their research has greatly contracted or even stopped.

In contrast, US universities have increased their R&D inputs greatly, playing an increasingly important role in the country's scientific research and innovation systems. However, the research goals of universities and enterprises can be different, as the application rate of the former's research is significantly lower than that of the latter.

For a fixed period, economic growth can be achieved by steadily increasing the input of production factors. However, the growth mode is unsustainable because of diminishing returns. In the long run, the pace of economic growth depends only on technological progress. Therefore, slowing technological progress weighs on economic growth.

The 1950s-60s were a golden period for US economic growth, with the average annual GDP growth rate being close to 4 percent; thereafter it began to slow down.

In the 1970s, the US economy fell into stagnation, with an average annual GDP growth rate of 3.2 percent. It rebounded to 3.3 percent thanks to the "Reagan Revolution" in the 1980s and to 3.5 percent thanks to the emerging internet-based economy in the 1990s, before dropping to 1.7 percent in the first decade of the 21st century because of the international financial crises after the internet bubble burst.

In the second decade of the 21st century, the average GDP growth rate of the US may be 2.2 percent, with the impact of the novel coronavirus it might even be 1.5 percent.

The downward trend of the US total factor productivity is almost in line with that of its GDP, which declined from a peak in the 1960s, rebounded in the 1990s and then continued to decline for more than a decade. Although the US has maintained its economic growth through economic liberalization and globalization, the measures have caused investment to flow to virtual industries and it has suffered frequent financial crises.

Through reform and opening-up, China has given full play to its advantages as a late starter and made full use of imported technologies driven by globalization to boost its economic growth and technological progress.

However, once technological progress in the US slows down, coupled with its technological decoupling from China, the latter may find it more difficult to introduce advanced technologies and make further innovations.

Besides implementing innovation-driven development strategies and reforming the scientific and technological system to boost innovation, China needs to launch new measures to cope with the significantly changing external environment and make further breakthroughs in its sci-tech innovation.

First, it needs to encourage enterprises to engage in more basic researches. The government can play a major role in advancing basic research, as it has strong capacity to carry out long-term efforts and also generate great social benefits. But the role of large-scale enterprises in basic research should not be underestimated. Working as a useful supplement to the government, enterprises can be conducive to transfer scientific research products from laboratory to market.

Second, the government needs to enhance support for technological innovation in fields beyond information technology. Information technology industries have gained great support from the market and investors. Most of China's top 100 unicorn companies are in the information technology industry while the core technologies and business modes of many unicorn companies in other industries are mainly driven by information technology. Other fields including new materials, energy, transportation and aerospace have gained less support and have registered slow technological progress.

Third, efforts are needed to attract international companies and research institutions to carry out innovation in China. Although the business environment for innovation in some developed countries might be more favorable, China enjoys two advantages: a large market and institutional support. Since technological innovation often calls for great market demand to make a profit, the large Chinese market can help significantly increase returns from technological innovations. Governments and institutions must be supportive to promote the application of innovative technologies beyond short-term and partial interests.

The author is secretary-general at the China Development Research Foundation. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

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