Is Justin Lin Worried About Indigenous Innovation?

Chief World Bank Economist Justin Lin (Lin Yifu) — who was mentored in his early years by current Chinese Vice-Premier Wang Qishan and later founded the China Center for Economic Research and the Beijing International MBA program at Beijing University — has penned an editorial that could be viewed as a veiled criticism of China’s “Indigenous Innovation” industrial policies.

Justin doesn’t directly criticize China’s “Indigenous Innovation” industrial policies. But he talks about what works and what doesn’t when it comes to industrial policy.  And in that context, what China is doing isn’t in the “what works” category.

Justin says that all countries engage in industrial policies if you define such policies as “any government decision, regulation, or law that encourages ongoing activity or investment in an industry.”

He argues that these policies should lead to public/private collaboration in which the government helps create the infrastructure and ecosystem for private industry to flourish in sectors that are appropriate to the country’s overall strengths and level of economic development. He emphasizes that assisting private enterprise is the key. Without mentioning the web of industrial policies that emphasize bolstering state-owned “national champions” and the government-managed “megaprojects” that China is pursuing under the banner of Indigenous Innovation, Justin warns that governments which “pick winners” and employ “inefficient public investment and misguided government interventions” are not following a model of proven success.

Given his deep network of relationships throughout the Chinese economic and finance bureaucracy, and his very prominent perch at the World Bank, Justin has a big voice. It may not be a coincidence that his editorial has been published as Vice-Premier Wang and some 100 other Chinese officials arrive in  Washington for the annual Joint Commission on Commerce and Trade confab with the US government. China’s Indigenous Innovation industrial policies are at the top of the agenda for those talks.

I have known Justin for more than 15 years. He is a very cautious and honorable person who wouldn’t offer his opinions in public without careful calculation and preparation.

Excerpts:

…Economic development and sustained growth are the result of continual industrial and technological change, a process that requires collaboration between the public and private sectors…

…But history also tells us that while governments in almost all developing countries have attempted to play that facilitating role at some point, most have failed. The economic history of the former Soviet Union, Latin America, Africa, and Asia has been marked by inefficient public investment and misguided government interventions that have resulted in many “white elephants.”…

…Indeed, governments’ propensity to target overly ambitious industries that were misaligned with available resources and skills helps to explain why their attempts to “pick winners” often resulted in “picking losers.” By contrast, governments in many successful developing countries have focused on strengthening industries that have done well in countries with comparable factor endowments…

…Thus, the lesson from economic history and development is straightforward: government support aimed at upgrading and diversifying industry must be anchored in the requisite endowments. That way, once constraints on new industries are removed, private firms in those industries quickly become competitive domestically and internationally…

Link: http://www.project-syndicate.org/commentary/lin2/English

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About James McGregor
James McGregor is an American author, journalist and businessman who has lived in China for more than 25 years. Currently, he is chairman of APCO Worldwide, Greater China. A professional speaker and commentator who specializes in China’s business, politics and society, he regularly appears in the media to discuss China-related topics. McGregor is the author of the books "No Ancient Wisdom, No Followers: The Challenges of Chinese Authoritarian Capitalism" (2012) and "One Billion Customers: Lessons from the Front Lines of Doing Business in China" (2005). He also wrote the 2010 report "China’s Drive for ‘Indigenous Innovation’ – A Web of Industrial Policies." From 1987 to 1990 McGregor served as The Wall Street Journal’s bureau chief in Taiwan, and from 1990 to 1994 as the paper’s bureau chief in Mainland China. From 1994 to 2000, he was chief executive of Dow Jones & Company in China. After leaving Dow Jones, he was China managing partner for GIV Venture Partners, a $140 million venture capital fund specializing in the Chinese Internet and technology outsourcing. In 1996, McGregor was elected as chairman of the American Chamber of Commerce in China. He also served for a decade as a governor of that organization. He is a member of the Atlantic Council, Council on Foreign Relations, National Committee on US-China Relations and International Council of the Asia Society. He serves on a variety of China-related advisory boards.

One Response to Is Justin Lin Worried About Indigenous Innovation?

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