China, America, and a Global Surge of Innovation Part I
Amidst the global economic cacophony of off-key men and nations, and despite the global COVID-19 overreaction, China’s economic trumpet still resonates. Across its economy, from coal and nuclear innovation to venture capital and artificial intelligence chips, China defies the Western themes of monetary obesity, “climate change” energy sabotage, “diversity” merit suppression, stultified political schooling, nationalist mandates, edicts, and tariffs.
Economists and pundits may be baffled by it all. But China is actually leading the world economy in a more sane and salubrious direction away from money printing tides, environmentalist lunacy, diversity mandates, and tumorous bureaucracy. Counting state and local spending and U.S. regulatory overreach, China may even lag the United States in per capita government expenditures and in bureaucratic mandates.
We assume that the United States has a freer economy than China’s. That assumption ignores the massive U.S. web of controls across labor, information, and energy markets that have effectively nationalized the U.S. financial, media, and energy industries. China is even better at handling domestic terrorist threats than is the United States, which uses bombs abroad and subsidies at home to deal with people explicitly committed to killing its countrymen.
In a world of slowing economies, China’s official gross domestic product (GDP) growth rate remains exceptional, approaching an official 5%, remarkable on its own. Merely half China’s annual growth rate during the heady days of 1980-2010, China’s estimates are as credible as other governments’ claims. But peel back the layers, and a different narrative emerges.
Let’s debunk the GDP delusions of Western economists. The GDP, that venerable but vain metric computed in scores of Washington bureaucracies, counts bureaucratic spending itself as worth its cost but misses everything important in the economy. It’s akin to gauging a symphony’s value by counting the notes and even amplifying the noise.
Enter William Nordhaus, the Nobel laureate and Yale professor. His brainchild—time prices—launched a more accurate and revealing metric back in 1991. In an essay entitled “Do Real-Output and Real-Wage Measures Capture Reality? The History of Lighting Suggests Not,” he showed that Western economic data completely fails to measure innovation.
The ultimate test of innovation is productivity: workers and entrepreneurs achieve more output in less time. Fiat money is irrelevant as a measure of real growth. What matters is that workers can buy more goods and services with less minutes and hours of labor.
Imagine a marketplace ruled by time, not currency. A loaf of bread? Ten minutes of labor. A smartphone? A week’s worth of life. Registering a silent universal negotiation between minutes and material, time prices capture the essence of economic transactions in any place or era.
By the time-price measure, China’s economy continues to outperform. My new book, “Life after Capitalism,” soon to be published in China, reveals the basics of this unnoticed theme: “Wealth is knowledge, growth is learning, money is time.”
The neanderthal in his cave, as the great Thomas Sowell observed in 1971, commanded all the physical resources we have today. The difference between our age and the stone age is entirely the growth of knowledge, which we call learning.
If growth is learning, the real economic growth of China expresses the learning process of its workers. By manufacturing goods for other countries, the Chinese necessarily undergo the most effective of learning regimes—actually building, part by part, process by process, the technologies of the world. As the United States has allowed its schools and universities to sink into a morass of political bureaucracy and ideology, the Chinese also teach a large share of all the world’s engineers and laboratory workers.
The West cannot outsource manufacturing and engineering education to China without the Chinese learning our techniques and technologies and then improving on them day by day. In our amazingly self-defeating “China Initiative,” we have even taken to forcing Chinese students in the United States to return home to China. Summing up all these effects, the West exploits Chinese manufacturing skill and technological innovation more than the Chinese exploit our intellectual property and technological standards. In our perverse “climate change socialism,” we suppress innovation in the United States and push it to China.
Per hour of work, Chinese workers wield purchasing power like never before. Providing manufacturing and technological innovation for the world, their toil yields exponential returns. Contrary to GDP’s staid metrics, China’s growth has outpaced even South Korea’s formidable economy by some 50%. It’s not a statistical quirk; it’s a testament to the emancipation of the Chinese spirit in a four-decade eruption of creativity, curiosity, discipline, and resilience. While Americans prattle about stolen intellectual property, as if you can steal economic growth, China forges ahead in its laboratories and factories, learning new things for the world.
To monetary economists, inebriated by currency trading at a rate of some $10 trillion a year, economic data is summed up as “inflation” or “deflation.” But deflation, born of innovation as in China, can disclose cost reductions and productivity leaps. The Chinese worker, increasingly unshackled from rote peasant labor of little yield, now produces a constant growth of knowledge and learning.
Perhaps the most important learning in more than 50 years, however, has just come from a Chinese-American partnership that would shock and outrage the angry nationalists and nationalizers of both countries. But that story is for part II, next week.
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