It has been said that economic growth in China was driven by cheap labor from the mid ‘80s to the mid ‘90s, by cheap capital for the next decade, and by indigenous innovation from 2005 on. This shift mirrors the increasing unease in the relationship between China and the U.S., as China moved in two decades from a manufacturing hub for U.S. companies, to a cash-rich innovation-driven economy.
This economic transition appears to have caught us off guard. This, even as China’s leadership outlined its future growth strategy and emphasis on innovation to the U.S. National Academy of Engineering now half a decade ago. The country invested in institutions of higher education, advanced technology parks, and in rapidly scalable entrepreneurial ventures. At the same time, it controlled its currency to fuel domestic economic growth, and developed an emerging middle class. A remarkable feat indeed.
Clearly, its rapid emergence as a global economic power presents challenges and opportunities for the U.S-.China relationship. Stirring words were uttered by President Barack Obama in his recent State of the Union Address in which he called for America to “out-innovate, out-educate, and out-build the rest of the world.” The president made quite clear who he sees as our competition in this endeavor -- the country presenting “our generation’s Sputnik moment” -- and that country is China.
A key part of the president’s vision to win the future revolves around encouraging American innovation. As far as competitive advantages go, leadership in innovation is America’s to lose. The president said it best, “We're the nation that put cars in driveways and computers in offices; the nation of Edison and the Wright brothers; of Google and Facebook. In America, innovation doesn't just change our lives. It is how we make our living.”
But there is a difference between the dot-com era and today: Whereas the U.S. was perhaps the best market in the 1990s for the launch of the Internet, China is arguably the best market today for deployment of clean technology. Not only does the country have the financial and political power necessary to overhaul cheaper, legacy technologies, but China is acting faster than anyone else adding energy production capacity, cars on the road and new cities.
The U.S. needs to green its economy, but it may not happen fast enough. Updating infrastructure (another element of the president’s strategy) requires massive government spending, and it is a slow process. Reforming our energy policy could help immediately, but a divided voter base is ensuring that new energy policy is even further away than new infrastructure. Yet, the U.S. can still retain its premier status as the home of cleantech innovation, fueled by its experienced venture capital industry, corporate strategic investments in early stage startup companies and entrepreneurial inventor base.
The next step is for U.S. researchers, inventors and entrepreneurs to reflect on how we can profit from the market in China while preserving the country’s innovation lead.