Innovation and inequality: China’s choice for a harmonious society

Xielin LIUGraduate University of Chinese Academy of Science liuxielin@gucas.ac.cnShuchen HanWuhan University of Technology

Contents

1. Introduction 2. The state of inequality in China 3. Rural innovations for reduction of inequality 4. Equality-oriented innovation systems in rural innovation 5. Conclusion

1. History of inequality in China

Equality was the goal of socialism for China. But equality+plan economy did not bring China the

welfare and competitiveness. Instead, China had been in the road to the collaps

e politically as well as economically before 1978. The innovation that Mr.Dong made is to tell China

and the world: market economy can be integrated with socialist ideology. This changed China as well the world.

Thirty years later China is a third country in terms of size of

GDP in 2008. The GDP per capita has increased from

100 USD in 1978 to 3000 USD in 2008. The economy is industrialized in thirty

years.

GDP per capita

0

500

1000

1500

2000

2500

3000

3500

Changes in structure (%) of China’s economy, 1970-2008 1970 1980 1985 1990 1995 2000 2005 2008

Share in GDP

Primary Industry 40.2 30.2 28.4 27.1 19.9 15.1 12.2 11.3

Secondary Industry 56.7 48.2 42.9 41.3 47.2 45.9 47.7 58.6

Tertiary Industry 13.1 21.6 28.7 31.6 32.9 39.0 40.1 40.1

Share in employment

Primary Industry 80.8 68.7 62.4 60.1 52.2 50.0 44.8

Secondary Industry 10.2 18.2 20.8 21.4 23.0 22.5 23.8

Tertiary Industry 9.0 13.1 16.8 18.5 24.8 27.5 31.4

Share of rural population 83.0 80..6 76.3 73.6 71..0 64..8 57.0

but

China’s economic transition and development have brought unprecedented sustained growth, but not without social inequities attending the process.

The process of industrialization is also process of marginalization of rural area for a long time.

Gap of urban and rural households

0

4000

8000

12000

160001990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Per Capita Annual Disposable Income of Urban Households

Per Capita Annual Net Income of Rural Households

Real GDP per capita between the east, central and west region

Table 5 Income and expenditure per capita for highest income group and lowest income group in urban（ Yuan）

Item 1995 1998 2001 2003 2005

Income per capita for highest income group

7537.98 10962.16 15114.85 21837.32 28773.11

Expenditure per capita for highest income group

6033.10 7593.95 9834.20 14515.68 19153.73

Income per capita for lowest income group

1923.80 2476.75 2802.83 2590.17 3134.88

Expenditure per capita for lowest income group

2060.96 2397.60 2690.98 2562.36 3111.47

Questions Market competition is the mother of innovation But competition can wide the gap as there are u

nequal resources, capability and opportunity. So, the socialist market economy doest not esca

pe the trap of inequality though there are different political as well as social systems to deal with that in the world.

Mr.Dong Xiaoping: let someone rich first, the rest of other rich later. But how soon, in what way to balance competition, innovation with equality.

questions Cozzens(2006), innovation sometimes

reinforces inequalities and sometimes undermines them.

Castells (1996) argues that the increased use of digital communications technologies to tailor goods and services to smaller markets supports a trend toward more flexible workplaces, more skilled work, and more autonomous workers.

why equality not going parallel with innovation

2. Some explanations of widening of inequality

The byproduct of market economy and government intervention

Some regions open and reform earlier than other regions, so, get riched earlier,

Some sectors open and refom earlier, so, people in that sector get riched earlier.

State-owned from good to bad, to back monopoly position, the employees in those compnaies are much rich than other companies.

industry monopoled by SOE such energy, financing,telecommunications, get high salery than private sectors.

Millionares in result of privatelization of economy, entrepreunship, rent seeking.

Inequality of Resources and opportunity

Eastern regions have more resource than western regions.

Better education in eastern regions give them more opportunity to get FDI and well paid jobs.

Skill person in knowledge intensive industry such as university, hospitals, financing, etc.

Unequal S&T and education investment

Expenditure for R&D, billion

RMB

Patents Application

for invention, piece

Invention Patents

Granted, piece

Revenues from the Sale of New

Products, billion RMB

Eastern Region 218.63 86040 15882 23810.1

Middle Region 45.93 15117 3643 4352.37

Western Region 35.75 10189 2711 3070.34

150.5128.9

103.883.079.475.268.054.840.438.137.534.232.732.430.127.817.417.015.812.811.211.07.96.43.82.42.41.2

179.8

0.3

256.3

050100150200250

BeijingGuangdongJiangsuShanghaiShandongLiaoningSichuanZhejiangShaanxiHubeiT ianjinHebeiFujianHenanHeilongjiangAnhuiHunanJilinChongqiJiangxiShanxiGansuGuangxiYunnanGuizhouInnerXinjiangNingxiaQinghaiHainanTibet

R&D Expenditure (100 million yuan)

1.321.21

2.060.84

1.381.46

0.802.83

1.011.65

0.540.72

0.490.740.82

0.651.10

0.770.600.64

0.980.410.450.58

0.300.20

0.620.62

0.18

7.00

0.17

0 1 2 3 4 5 6 7

R&D/GDP(%）

If ordinary innovation comes out from competition, leading to in inequality, in what institutes with what other kinds of innovation can enhance both welfare and equality in a society?

What S&T can do to mitigate the process?

3. The measure against inequality in China

S&T for reducing urban-rural income inequality

There is a well-established system to diffuse agricultural technology in the rural areas. There is variety of extension model, from demonstration, expert-led collectives, to agricultural ambassador of S&T. For example, up to 2007, about 45,000 agricultural ambassadors have been send out and delivered special service to 9 million farmers (Liu, Wang and Lian, 2009).

Subsidy to agriculture sector

Government spends huge money on R&D in agricultural industry. For example, using technology of hybrid rice, a famous scientist named Longpin Yun, invented Super-Hybrid Rice. The technology increased the rice productivity greatly, from 0.45 kilogram per square meter in 1970s to a level of 1.35 kilogram per square meter in 2008.

There is a system to let scientists and engineers to be vice director for local region specialized on technology transfer.

Urbanization

Fast urbanization drives billions of farmers to live and stay in cities, but urbanization doest mean innovation. it means that people will move from a low productivity sector to high productivity sector.

Grass-root innovation for low income people

Many outstanding local businesses rely on the vast rural market to develop niche markets, which are usually characterized by the following—potential growth room, special groups of customers, no competitors or being ignored by the competitors.

Huawei, Lenovo, Haier, etc .

Company’s effort, innovation for low end market, Huawei, PC for farmer, Lonovo

Corporate +farmers: a large corporate to link lot of famers to diffusing new knowledge: Yili, dairy company.

Subsidy to buy equipment for farmers Immigration and returnee’s start up in rural areas

MarketStrategies

Ablity U

prising

Rural NicheMarkets

Capturing the National Main Stream Market

International markets

Repaying the Rural Niche Markets

System design and structural technology

Partical breakthrough

Mastering of core technology

Global leader

Figure 6 Huawei’s catching up by using grass-root innovation strategy

Friendly to SME

Spark program for TVE Entrepreneurship, But it seems that

entrepreneurship relates with culture rather than by train.

Low cost to set up new company Self-financing system in Zhejiang. Subsidy policy

Regional strategy Great Western Development. Designed to increase

the economic situation of the western provinces through capital investment and development of natural resources.

Revitalize Northeast China. This plan is to rejuvenate the industrial bases in the northeastern China. The core of the program is to revitalize the regions' traditional industry,

Rise of Central China Plan .This policy is adopted by the People's Republic of China to accelerate the development of its central regions.

Each has specific S&T and innovation programs.

Homonymous society

Needs driven S&T strategy S&T and innovation for the people, service

the people. Diffusion of technology to basic need

products More S&T on health care, pollution control,

water supply, save food, etc,

4. conclusion The model of “Innovation first, inequality gap

wider” and “diffusion second to narrow the gap” has not been changed.

New technology can reduce the absolute poverty, but cannot reduce the inequality.

A better welfare system or a better innovation system, it matters.

IPR is good for innovation but not good for reducing the inequality, can we throw it away?

Thanks