Former Reserve Bank of India governor Raghuram Rajan recently made a claim about China which can be challenged on facts. He says China has leadership in manufacturing but not in the realm of ideas and innovation where the US dominates, essentially because of its open and democratic character. His assertion is that non-democratic systems do not lead in innovation/ideas. Overall, it may be true that the US has dominated the innovation landscape for much of the past half a century. But it is equally true that China has hugely caught up in cutting edge innovation over the last two decades.
Even if we are fundamentally opposed to the Chinese political system, which many of us are, one can still objectively see China’s big strides in the innovation/ideas space which has led to it closing the gap with the US and even forge ahead in some areas.
Sometime ago, Reuters reported the findings of an independent think tank, Australian Strategic Policy Institute (ASPI), which said China leads the world in 37 out of 44 critical technologies in the field of defence, space, robotics, energy, environment, advanced materials, quantum technology and artificial intelligence. The West is lagging behind in many of these sectors.
So Rajan’s sweeping assertion that China cannot be a leader in the realm of ideas and innovation is not borne out by facts on the ground.
Why such massive leaps of progress in innovation is happening in a non-democratic society is a subject for a separate study. There is enough academic literature to suggest that much of incremental growth and prosperity in the 21st century are being produced by societies which are governed by either authoritarian or partially democratic regimes. These regimes have evolved their own hybrid versions of State-cum-market-led capitalism models. The whole notion of the 21st century belonging to Asia seems to be based on such a hybrid framework of State-cum-market model of capitalism. This is also described as State Capitalism by many political scientists.
If anything, the US seems to be aping this framework with its hugely State-led model of a new industrial policy to counter China in the field of semiconductor chips and green energy transition.
The US’s Chips Act, 2023 and Inflation Reduction Act, 2022, which together aimed at delivering nearly $1 trillion of subsidies for semiconductor chips and green transition, are a tribute to China’s growing influence in these sectors.
China also stunned the world recently with a new, highly sophisticated semiconductor chip technology for electronics, which may obviate its need to depend on inputs from the West incrementally. This was widely reported in the global media.
“Yangtze Memory Technologies Corp, which was added to the US trade blacklist last December, made a “surprise technology leap” through a solid-state drive (ZhiTai Ti600 1TB) launched in July without much fanfare. What turns that from surprising to significant is the fact that 3D NAND memory is an essential component for high-performance computing (HPC), such as AI and machine learning, ” says Techwire Asia, a tech news website.
Against this backdrop, it may not be easy to write off China as merely a leader of the old economy and a laggard in innovation and new ideas.
One person who read the writing on the wall very early was Henry Kissinger, former US secretary of State, who passed away recently. In one of his visits to Delhi 15 years ago, Kissinger told a group of Times of India and Economic Times journalists in an off the record chat (I was present) that China was forging ahead of the US in many critical areas of technology.
Raghuram Rajan further makes the argument that the US keeps reinventing itself via innovation, starting from the Sputnik moment when the Soviets launched the first artificial satellite, Sputnik I. The successful launch came as a shock to the US as it had hoped to be the first to accomplish this scientific feat. However, the US came from behind to more than match the Soviets in this field. Later, in the 1980s and 1990s, the US overcame the Japanese threat of taking leadership in the export of manufacturing sophisticated electronics, automobiles, etc.
Now, the US is dealing with the Chinese threat via innovation in green transition and semiconductor chips technology.
A closer scrutiny suggests that in the past, the US overcame these threats partly through coercion and deploying its geopolitical muscle. Remember Plaza Accord of 1985, which forced Japan to make its own currency more expensive, thereby hitting Japan’s exports in the late 1980s. It led to what many perceived as Japan’s lost decade in economic growth.
The key question is whether the US has the same geo-political dominance and hegemony today to do to China what it did to Japan in the 1980s, or even more importantly, what it did to the Soviets in the second half of the 20th century? What is clear is that the game of thrones in critical, cutting edge technologies have acquired totally new dynamics in the 21st century, in which the growing middle powers are asserting themselves like never before.
In this context, India has to be very careful about how it aligns itself in the collaborative technology framework globally. It may be a mistake for India to become part of the proposed US-India critical tech corridor to the exclusion of possible collaborations elsewhere. It will go against its overall “multi-alignment” foreign policy approach.
For instance, in the green transition for transportation, China is way ahead of the US as it controls 80% of the global supply chain. India’s auto sector which has developed a solid manufacturing supply chain ecosystem over the last three decades can easily collaborate with China for the transformation of its electric vehicle industry. It can collaborate with the US on other cutting edge technologies. Putting all eggs in the US basket may not be wise given the way multiple technology regimes are shaping up globally.
For this century may not produce the same patterns as the previous one in terms of US’s dominance, whatever the political system various powers are operating in. The reality is critical technology development is becoming more delinked from the nature of political systems, unlike what Raghuram Rajan argues.
For that matter even the famed democratic political systems of the West, which were held up as exemplars of the 20th century, seem to be in somewhat uncharted territory today as they erode pluralist ethos via bottom up democratic processes. Of course, the larger battle for the values of freedom and openness will continue both within nations and transnationally. But such battles may be shaped somewhat differently with some key influences deriving from the new 21st century alignments of geopolitics and geoeconomics.
