Education Law and Economic Growth in China--an Introduction

The global economic crisis exposed several vulnerabilities in China’s economy, unskilled labor chief among them. For almost 30 years, the PRC has relied upon low-cost manufacturing and exports to support economic growth and political stability. (See Richard Florida's piece on this.)   Government policies encouraged peasants to leave rural collectives and compete for factory jobs, keeping salaries and domestic spending low. But when exports declined in the fourth quarter of 2008, factories froze production and migrant workers returned to rural areas for the Lunar New Year. 20 million migrants lost their jobs and stayed home, others returned to coastal regions after the New Year to search for nonexistent employment, while some found lower-paying work closer to home. “Blue skies in Hong Kong [were] testimony to the closure of polluting plants across the border in the Pearl River delta.”

Well before the downturn, China tried to move up the economic value chain through “independent innovation.” After Mao died, Deng Xiaoping and his supporters reformed research funding, increased collaborations between enterprises and public research institutes (PRIs), and refined allocations of human capital. (Baark 2001)  In 2002, China developed a Five-Year Science and Technology Plan designed to foster a national innovation system (NIS). The central government ordered state-run media, PRIs, and institutions of higher education (IHEs) to promote science and technology through propaganda. Most recently, in 2007, policymakers allowed PRIs and IHEs to patent innovations derived from government-funded research and enhanced industry-academy collaborations. And in 2009, the PRC patent regime will shift from a domestic or “relative novelty” standard to an absolute, international novelty standard.

Despite 30 years of change, however, innovation in China continues to lag. Enterprises do not absorb new technologies easily, domestic R&D investments remain low, and companies lack the incentive to innovate.(PPT)   Acknowledging systemic weaknesses, China’s central government recently released the Outline of the National Plan for Medium and Long-Term Scientific and Technological Development, which tries to “[e]nhance research in basic sciences and cutting-edge technologies to enable China to take a leading position in future technological and industrial competition.” (PDF)  In order to enhance innovation, however, a country needs to produce and attract talented people.  (RAND, PDF)

Over the following few weeks, I will try to convince you that China’s education laws must change if the PRC hopes to produce "independent innovation."  In the next installment, I will set the stage for the argument by showing how education quality influences economic growth.