Let’s research our own R&D record

The Organisation for Economic Cooperation and Development may be right that the Chinese are sluggish on research and development. But the same is true of America and Europe.

On Monday, the Organisation for Economic Cooperation and Development (OECD) in Paris published a review of China’s performance in innovation (1).

The review sniped at China’s ‘supply driven’ approach, and insisted instead that Chinese government officials go about ‘encouraging actors throughout the national innovation system to adopt a more market-/demand-oriented attitude and behaviour’. The report also highlighted China’s weak efforts in basic, scientific research. Chinese innovation, we’re told, is too ‘top-down’ in approach: too many are convinced that the state can and should ‘pick winners’ among different technologies, rather than allow the market to decide which is best.

How fair are these accusations? As usual with OECD reports on China, this latest is a joint effort carried out with the Chinese authorities themselves. China’s Ministry of Science and Technology (MOST) requested the study and organised fact-finding missions to China to support it. Yet insofar as China’s rulers share the same opinions as the OECD, this only shows how both miss the point about what’s going on in innovation worldwide.

The fundamental point the report seeks to make about China is worth quoting in full: ‘A high-technology myopia pervades current policy objectives and policy thinking on innovation. In designing policy objectives, priority has mostly been given to high-technology based innovation. As a result, innovations of other types and in other sectors of the economy are neglected. One of these areas is innovation in services, which is gaining in importance on government agendas in OECD countries. The policy attention recently given to research on public goods and S&T subjects related to social welfare may help correct this myopia, but it cannot substitute for a conscious effort to move to an agenda for a more broadly conceived innovation policy.’

At one level this is all fair enough. As the report makes clear (p31), the vast majority of Chinese enterprises, even those active in research and development (R&D), have both limited capabilities and a low propensity to innovate. No doubt innovation in Chinese services is poor.

But at another level, the OECD’s charges are a bit rich. In Britain and elsewhere in the West, a lot of people would be very pleased if, in designing policy objectives, governments followed China and gave priority to ‘high-technology-based innovation’. If the OECD and the Chinese Communist Party think that such an emphasis on the high, the big, the difficult and the ambitious amounts to ‘myopia’, that’s their problem. For throughout the West, today’s general culture of fear cramps funds for and goals in R&D. What the OECD thinks is a defect of the Chinese – namely ‘a mode of governance that does not encourage managers to take the risk of innovating’ – exists in a much more degenerate form in the West, as well.

Most obviously, the West has lost faith in high-technology projects, apart from those in defence. As a result, properly comparing the record of the West in innovation with that of China leads to conclusions rather different from those reached by the OECD.

Take nuclear power. The West is now so afeard of nuclear power that it is barely committed to nuclear fusion – even though successful fusion promises to generate no radioactive waste. Indeed, to scrape together just $10 billion for ITER, an experimental (500MW for 500 seconds) fusion reactor to be built and run over the next 30 years, the EU, Japan and the US have had to go cap in hand to China, as well as Russia, India and South Korea.

In the re-exploration of the moon, too, it is China and India that today show fewer inhibitions than the US. In a similarly adventurous style, China plans to compete with Boeing and Airbus in the production of airliners, and has sped ahead of Germany in the development of magnetic levitation trains. Meanwhile, the West has abandoned supersonic transport, taking fright after Concorde’s single crash in 2000.

Statistics on R&D provide further proof of the West’s frigid attitude toward innovation. True, OECD figures for national expenditures on R&D reveal only inputs, not outcomes. They are also muddied by calculations of Purchasing Power Parities. Nevertheless, they show a West only feebly committed to innovation.

On 4 December 2006, the OECD reported that China spent, in 2006, $136 billion on R&D, beating Japan into third place ($130 billion) against the US ($330 billion) (2). However, further OECD charts on R&D over the period up to 2005 confirm that the West has little to boast about (3). First, OECD governments’ expenditure on R&D fell from 0.9 to little more than 0.65 per cent of GDP between 1986 and 2004. This reflects the West’s fatalistic and unbalanced view that governments can never be relied upon to do something sensible in technology; the market always knows best. Yes, unconscious forces on the demand side are the best way to drive society’s innovations forward!

Second, until a year or two before 11 September 2001, gross OECD expenditure on ‘civil’ R&D – on projects outside the realm of defence – took up more and more of general expenditure on R&D. But more recently spending on defence-related R&D has revived, especially in the US. This is little to celebrate – especially as, from 1987 to 2003, gross expenditure on R&D as a percentage of GDP stagnated in the US, at below 2.75 per cent, and in the OECD area as a whole, at 2.25 per cent. Only in Japan, which is currently staging a modest economic rival, did the ratio of R&D to GDP rise over the same period, from 2.6 to 3.4 per cent. EU gross expenditure on R&D as a percentage of GDP showed a familiar parsimony: between 1995 and 2005 it rose from 1.7 to just 1.8 per cent.

At about 1.3 per cent of GDP, the economic intensity of China’s R&D effort still remains behind that of the EU. But in absolute terms Chinese R&D is set to surpass that undertaken by the EU as a whole – indeed, it should do so by 2009.

A third way in which the new OECD report distorts the truth about China concerns innovation in services. When the OECD says that this is ‘gaining in importance on government agendas in OECD countries’, what it means is: Western governments have only just woken up to how far distant their service sectors are from the much-noised ‘knowledge economy’.

Take Britain, a service economy if nothing else. The fact is that there is next to no R&D going on in British services, let alone Chinese. The National Grid spends just £7million on R&D, equivalent to 0.1 per cent of its sales. BAA spends £27million, or 1.2 per cent of sales; Royal Mail spends £1million, equivalent to less than 0.1 per cent of its sales (4). Given this kind of performance, China does not need a lecture on the need to pull its socks up in services R&D.

Finally, what about China’s allegedly poor record in basic research? It’s the same story: an affluent West has, if anything, a much more complacent record. Just recently, for example, Sir John Chisholm, once CEO of defence R&D specialists QinetiQ, has chaired the Medical Research Council in such a way as to try to downplay basic biology, and instead orientate the MRC agenda toward ‘translational’ research – taking ideas to market in the shape of new pharmaceutical products (5). In Britain, some medical scientists call this phenomenon ‘dumbing down’. But that does not prevent the OECD from upbraiding China for doing something similar.

For all its scholarly drive, the new OECD report stands wide open to the charge of hypocrisy. The fact is that innovation in the West is, far too often, little to write home about. By contrast, and no matter how ham-fistedly its rulers deal with it, innovation in China is on the rise. Western innovation is enveloped by doubt; Chinese innovation still has a world to win.

Footnotes and references

(1) OECD Reviews of Innovation Policy: China – Synthesis Report

(2) OECD Science, Technology and Industry Outlook

(3) Main Science and Technology Indicators 2006-2, sample table and charts

(4) See DTI Scoreboard 2006, 30 October 2006, pp118-121

(5) Science world riven by man on a mission to make research pay, Mark Henderson, The Times (London), 21 August 2007