China can lead world in innovation system

Widely acknowledged as the world's leading economic think tank, the Organisation for Economic Cooperation and Development (OECD)'s Paris-based experts can read a country's vital signs in an instant, and prescribe whatever remedies are required to nurse it to growth-busting health.

So the publication two weeks ago of the OECD's review of innovation policy in China is a landmark moment. The dramatic increases in the country's spending on research in the past five years have attracted a great deal of international attention.

But now the OECD has provided independent confirmation of the progress that is being made. Reviewing the speed and scale with which resources have been mobilized, the OECD says there can be no doubt that China "is now a major R&D player".

At the same time, a number of challenges remain, and the report highlights several areas where further reform is required.

In education, there is still too much emphasis placed on passive learning and exam-based performance. In the market, there are still too many barriers to competition, which prevent innovative activity from being adequately rewarded.

In the business sector, and especially in State-owned enterprises, reforms to corporate governance are needed to create greater incentives for managers to invest in risky R&D.

In the financial sector, there is still a severe lack of capital for new ventures. In the legal system, despite progress in recent years, more needs to be done to enforce the protection of intellectual property rights.

And in government, there needs to be more use of public procurement to accelerate the uptake of innovative products and services in the economy.

And the OECD report also emphasizes the need to strike the right balance between domestic reform and global integration.

However impressive China's progress might be, it has to be understood in the context of wider changes in science and innovation worldwide. Across Asia, in the Middle East, even in Africa, we see levels of investment in R&D rising. The global center of gravity for innovation is starting to shift.

This creates huge opportunities - both for China, and the wider world. More brains, working on more ideas, in more places has to be good news for innovation. It is likely to contribute to poverty reduction and improvements in quality of life, and it increases the likelihood that we can meet the big challenges we face: from tackling climate change to developing vaccines for pandemics.

But there are also some new tensions that will flow from these developments. Let me point to three of the fault lines that could hold back progress.

The first is between visible and hidden forms of innovation. Faced with this surge of innovation around the world, in all of its glorious diversity, policymakers paradoxically tend to focus on ever more narrow and technical definitions of what innovation is, where it comes from, and where it goes.

Many of the definitions and metrics we use to understand innovation remain dominated by a "pipeline" model of basic science flowing into industrial applications. But this model is in many respects irrelevant to how innovation occurs within advanced economies. It emphasizes new products, but tells us very little about innovation in services and processes.

And it prioritizes manufacturing over other significant areas of innovation in the economy: in financial services, the creative industries, retailing, consultancy, health and education.

A lot of the innovation in our societies is actually taking place beneath the surface of the metrics and indicators we use to measure it.

And this broader understanding of hidden innovation has huge relevance to a country like China, where there is a vast amount of energy, creativity and entrepreneurialism outside conventional R&D-intensive sectors.

As a recent cover story in Fast Company argued, China has a burgeoning creative class. Anyone who doubts that should spend an afternoon strolling around Dashanzi, the artistic district of Beijing, that is such a hothouse of experimentalism in film, art, music and animation.

Measuring these types of innovation is tricky - and making sense of how they relate to science and technology is even harder. But if we are to give a more accurate account of innovation in our economies, we need to get better at measuring and valuing these activities.

A second fault line is between national and cosmopolitan strategies for innovation.

It is an inescapable fact that the rise of innovation from China can at times fuel a climate of anxiety in Europe and the United States. Even well-meaning talk of "indigenous innovation" can easily give rise to negative or defensive reactions.

And let us not be naive: there clearly is a competitive dimension to all of this. The growing innovation capabilities of China will inevitably challenge the established position of Europe and the US in some knowledge- based sectors.

But it is also extremely short -sighted to view these developments primarily as a threat.

As China's innovation capabilities grow, a central question is whether these defensive, national responses gather momentum, or whether the opposite impulse toward global collaboration and exchange of new ideas - what we might call "cosmopolitan innovation" - will prove stronger.

Rather than shoring up national scientific defenses, the priority should be developing better mechanisms for orchestrating research across international networks, and supporting the best researchers worldwide to collaborate in pursuit of global research goals.

A final fault line is between a focus on scale at the expense of a debate about directions.

The frameworks that we use to analyze innovation are good at asking "how much?" and "how fast?", but less sophisticated at thinking about the many different outcomes to which all of this investment and activity could be directed.

If we concentrate purely on R&D ratios, graduate numbers and patent filings - the nuts and bolts of a typical innovation systems analysis - we are in danger of losing sight of a more fundamental but open-ended set of questions.

In China, science and innovation are part of a bigger unfolding debate on the pace and direction of reform. Given its levels of investment and ambition, there can be no doubt that China will be a growing force in global innovation over the next decade.

But a lot still depends on the playing out of a complicated set of tensions: between the planned economy and the market; between national and global priorities; between the hardware of research infrastructure and the software of culture and ethics; between the skills and creativity of the scientific workforce, and the entrepreneurialism and networks of returnees.

So in predicting possible futures for Chinese science, we must resist the temptation to ask only "how fast?" Will China move, and also consider "which direction?", "says who?" and "why?"

One crucial question is whether China will choose to direct its growing capabilities for innovation towards more environmentally sustainable pathways of development. There are exciting opportunities here for China to incubate the low-cost innovations that will be essential if it is to move its and other economies onto a low-carbon path.

Above all, China should be a powerful advocate on the world stage for an open, cosmopolitan approach to global innovation: not following the principles of collaboration we have inherited from the 20th Century, but changing the nature of the game and becoming the most networked, collaborative innovation system the world has ever seen.

The author is head of science and innovation at the UK think tank Demos.