Nov

2

China is building a commercial plane. One might expect nothing less from the world's largest economy. However, that said, China still has not "created" a new industry. Neither has Japan. Given the focus on the group as opposed to the individual, I doubt that either ever will. Innovation is, at its core, an individual activity, a gift for the West deriving out of the Renaissance. (I am sure some of the scholars on the list will contest that interpretation, but I submit that it is one reason why economies in countries lacking freedom of expression have little in the way of innovation—if an individual fears saying something, the chances of creating or developing a new idea are notably reduced (if not practically eliminated).

By new industries, I do not mean a new variant in an existing industry but rather something that is transformative. For instance, the British with steel and coal (maybe railroading—I'm still undecided on that one). Italy with banking and music, possibly wool (again, I'm not sure about this one). The US with oil, aerospace, entertainment (media generally? I'm not sure of that one), computers and the net, electronics, atomic energy (and commercial energy for that matter), automobiles. The British, news. The Dutch corporate finance. (sufficiently different from banking as to qualify as a new industry.) Germany, publishing. (I'm not sure about defense and Germany.) And so on.

Britain's development of radar was an innovation, sure. It didn't create a whole new industry. Ditto for Japanese innovation in the atomic energy industry. (Carder's counter to this idea.) And for all of the economic growth in the Union associated with the American Civil War, US economic leadership would await its industrial revolution which didn't start until well after that in Britain and wouldn't pass the British untill the 1900s when autos, oil, and entertainment began as industries in the US.

Not every industry was created by one country. The pharmaceutical industry for instance was a creation of Germany, Switzerland, and the US. Ditto for chemicals. The British and Germans together developed the chemical industry.

I don't think it's an accident that creating these industries took place during the height of the economic influence of these countries. China and Japan have shown an amazing ability to grow economically by perfecting existing industries, but there is a limit to how much one can grow an economy in taking this approach. This may be contributing to the Japanese malaise. The Soviets did the same thing in its push to industrialize during the 1930s. It caught up. It didn't create. And it was no accident that the Soviet economy topped out in growth in the 1970s.

There are some interesting corollaries from this idea. First, for all of the rancor about the US going in the wrong direction, the US has been creating new industries. The internet was an industry created in the 2000s. (Were there internet companies in the 1990s. Sure, but as an industry? I think one can reasonably challenge that idea. It wasn't sustainable as an industry until the 2000s.) That said, I'm a bit challenged to name other examples in the US, though I'm equally challenge to do the same for the rest of the world. Maybe that's why global growth is slowing down. Just a thought on that one. I have to wonder though, what new industries will develop in the digital economy. And I'm not sure how to categorize the "sharing" industries like Airbnb. Is there even an industry there?

And for all of the problems of a government program (centrally planned) like Apollo or the Manhattan project, there were whole new industries created in their wake—developments that in diverse ways paid for the costs of those programs. (I'll note as well that for both Apollo and Manhattan, the science was pretty much established by the time the projects were launched.)

Another corollary is that for all of the interest in the economic growth of Europe, the Europeans haven't produced a new industry in at least a century. European economic growth will likely be stymied until one again sees new industries emerging in it.

Is this thesis flawed? Maybe in some aspect, but I think the observation stands. Is such innovation the cause of economic growth? I won't go that far. But it is at least an indicator not only of economic growth but of economic leadership. I don't see such leadership coming from China or Japan anytime soon. Will China remain the largest economy? Perhaps. But as the Soviets demonstrated, there are real limits to how far an economy under a totalitarian government can take an economy (and that's beyond just being centrally planned, which has its own set of problems).


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