China beats Japan in global innovation, but will it ever catch up with the US?

China has quickly climbed the global innovation ranks, beating Japan but still lagging far behind the US

This is according to the recently published ranking of the Global Innovation Index (GII) 2022. China ranks 11th out of 132 countries ranked, ahead of Japan, which ranks 13th. Still, China’s place is well below the US, which ranks 2nd, behind Switzerland, which ranks 1st.

Published by the World Intellectual Property Organization (WIPO), the GII measures how much different countries spend on research and development (R&D), intellectual property (IP) and venture capital – activities that eventually lead to new products and processes that increase productivity .

China’s most recent innovation ranking has changed significantly from a decade ago when the world’s second largest economy was ranked 35th, well behind Japan, which ranked 22nd.

Global innovation is essential for any country to compete efficiently and effectively in international markets. This is especially true for emerging markets like China, which are attempting to shift from imitation-driven growth to innovation-driven growth. Only then can these economies emerge from what development economists call the middle-income trap and become developed economies.

Most emerging markets have never made this transition. As a result, they continue to “emerge” or revert to marginal and underdevelopment status. Most Latin American and some African and Southeast Asian countries fall into this category.

Nevertheless, global innovation rankings based on investments in research and development, patent applications and venture capital must be interpreted with caution. They do not always lead to the development of new products and processes that increase a nation’s productivity and competitiveness in world markets.

Economists distinguish between two types of innovation, marginal innovation and radical innovation. Edge innovations enhance existing technologies and have a small lasting impact on a nation’s competitiveness in global markets. For example, Japan’s office technologies in the 1980s, which improved America’s office technologies, had little lasting impact on the country’s global competitiveness.

Radical or breakthrough innovations fuel a new wave of disruptive technologies. They create entirely new industries, markets, and business models that profoundly impact the country’s economy to compete in global markets. For example, radical innovations such as Microsoft’s Windows operating system, Intel and Qualcomm chips, and Apple’s smartphone have had a lasting impact on America’s competitiveness in global markets. They can explain the country’s continued top ranking in almost every innovation index.

Nevertheless, the development of radical innovations requires Schumpeter’s entrepreneurial spirit – the discovery and exploitation of new market opportunities and the introduction of products and processes.

Schumpeterian entrepreneurship fits well into the American system, which values ​​the economic freedom that allowed legendary entrepreneurs like Steve Jobs, Bill Gates, and Jeff Bezos to change the world.

But it doesn’t sit well with China’s culture of Confucian conformity to existing norms. Throughout China’s history, the established order has spared little respect for inventors, entrepreneurs, and business pioneers, a tradition that continues to this day.

China’s conformist and often hostile attitude toward the entrepreneurial class differs greatly from that of mercantile Europe, where entrepreneurship was steeped in the revolutionary ideas of the Renaissance and Reformation and immersed in the thoughts of Francis Bacon.

These ideas were eventually adopted and spread during the American Revolution, ultimately fostering a business-friendly environment.

China has yet to go through this revolutionary process. Therefore, it will be a long time before China catches up with the US, if ever. China beats Japan in global innovation, but will it ever catch up with the US?

Fry Electronics Team

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