Common way to avoid West's ills

Updated: 2015-08-28 08:29

By Peter Swann(China Daily Europe)

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Common way to avoid West's ills

China could show benefits of harmonious society by not staking everything on business innovation

The Confucian idea of the harmonious society is one of the great principles of economic thought. Yet whether the concept is consistent with innovation, that essential engine of growth, is an increasingly significant question for any modern economy.

As home both to the philosophy itself and to the defining growth story of our times, China should have a particular interest in the answer.

We first need to decide what sort of innovation we are considering. Business innovation would seem to be the obvious starting point, not least because it tends to dominate most economists' thoughts and discussions.

Commentators and policymakers around the world often define business innovation as the successful application of new ideas. It appears reasonably safe to say this chimes with the harmonious society. There is, though, a second definition, one almost as widely used: Joseph Schumpeter's celebrated "perennial gale of creative destruction".

What Schumpeter was referring to, in the main, was the way in which an innovator undermines other companies and

Common way to avoid West's ills

destroys some of their market share and profitability - or, in extremis, the way in which the companies themselves are destroyed. The economy and society alike can benefit, he reasoned, if old and inefficient firms are blown aside and their workers and assets are redeployed at new and more effective successors.

Sure enough, this makes perfect sense - but only if those assets and employees are re-deployed in such a way. If they go to waste, as is regularly the case, then "creative destruction", on balance, can hardly be said to be in keeping with the harmonious society.

Moreover, destruction can take myriad forms, some of them perhaps more brutal than Schumpeter ever envisaged. This much has been illustrated throughout the ages and is still manifest today. Many small-scale knitters were forced out of business and left to fester in crushing poverty, their skills suddenly obsolete and unwanted, when wide looms were introduced to the textile industry in the 19th century; books may nowadays be easily available online, but the function of bookshops as educators and social institutions has been all but lost; old computers that have been rendered redundant by endless software upgrades lead directly to the toxic problem of e-waste; and so on. The harmonious society is in little evidence here.

Thankfully, there are other kinds of innovation. This truth is too easily forgotten when policymakers and captains of industry alike appear determined to perpetuate the myth that business is the only wealth-creating sector of the economy. We would do well to remember that economics is about more than just production: it is also about how wealth is distributed, how it is consumed and how it contributes to well-being.

This brings us to what we might call "common innovation". The word "common" is used advisedly, much as a naturalist might employ it to describe modest, unexceptional flowers that grow everywhere. Common innovations are not comparable to the innovations of businesses and other professional organizations: they are the humble work of individuals, households, clubs and communities - ordinary people in everyday life.

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