Obviously China has been a place of radical institutional change to effectively transform its economy in a mere 30 years, from a poverty-stricken political backwater to a global economic powerhouse. Certainly China has been a country that used the blunt edges of government – heavy investment, government protections and cheap labor – to attract companies from overseas and to grow its own sectors, yet it has worked, quite effectively.
In the United States, it has been anathema to call for a deeper interplay between government and corporate America. While China sets an industrial goal and provides the appropriate policies and assistance to reach it, the U.S. government invests little energy in industrial policy and frequently must be cajoled into investing in new science and technology research.
Almost all major sectors in the United States that have become powerful industries have had some level of support from the government. This is not unfair treatment to be challenged in the World Trade Organization. It is smart capitalism to be emulated. The reality is that building industries – particularly fledgling industries with uncertain markets – requires early investment, an investment risk that the government alone is capable of bearing.
As a nation, the United States needs to think deeply about how best to develop new industries to rebuild its economy. Information technology, biotechnology and renewable energy are critical areas of opportunity. While China is struggling to catch up with the West on information technology and biotechnology, it has made great leaps in the area of renewable energy. China is rapidly moving ahead of the United States and Europe on the development of renewable energy products, despite the fact the technologies are often created here in the United States. Why? The Chinese government aggressively supports renewable energy compared to the U.S. government. China invested some tens of billions in renewable energy.
China’s investment in new industries explains many of the recent defections of U.S. companies to China. Unlike the United States, China perceives the benefit, and, more importantly, the necessity of public-private partnerships to grow and sustain industries today.