"While many economists and pundits from the West remain skeptical about the efficiency and innovative capacity of state-owned organizations, China is exploding that myth. Some of China’s most powerful companies are state-owned companies."
In a recent interview with BusinessBecause, Guthrie said that he wants his business students to study "political, social and cultural systems" as much as finance and economics. As a China expert and trained sociologist he's a disctinctive new voice in business education.
Here's Guthrie's story in full:
This week, I had the opportunity to have dinner with former GWSB professor Chei Paik and his wife, Inja. (The dinner was to honor the student winners of the Chei Paik Student Paper Award, generously provided for by Chei and Inja; the winners were Paul Kalinow and Daniele Mazzon.)
Inja Paik is an economist working at the Department of Energy, and the conversation eventually turned to the question of why China is moving ahead of the United States so rapidly in the production and manufacturing of green technology. There is no doubt that China’s leadership in this area is occurring.
I have seen it myself in many parts of China, but it is also something that many experts have noticed. As John Doerr of Kleiner Perkins said recently, “China’s growth in renewables is astounding… My conclusion is that we are barely in the race today… China is winning.”
You can see the investment everywhere throughout China: as you travel the country, houses everywhere have solar panels on their roofs; several second tier cities are building their economies around “clean energy” technologies (e.g., Xi’an); social awareness of the issue is extremely high among the general population.
This is not a mystery. The reason China is winning this game is fairly simple: In the United States, since the 1970s, we have been stuck in the mindset that government involvement in the economy is bad (except for when bailouts are necessary, in which case, corporations across the spectrum come out of the woodwork, cap in hand, seeking help from the government). We continue to believe that innovation and growth come only from the private sector; that it is only entrepreneurs that think of exciting new ideas, venture capitalists then invest in these ideas, and then we are off and running. But this is an idealized myth of the laissez-fair market economy. The reality is that economies need cross-industry strategic coordinators who think about the opportunities for and barriers to success.
What we should be learning from China is that government involvement in the economy is a good thing. The reason China is leading in green technology is that the government can decide to make something a priority and then simply push the economy in that direction. As David Barboza reported in The New York Times Thursday (8/26/10), China is set to invest $15 billion in the development of electric and hybrid cars over the next several years. The announcement came from the State-Owned Asset Supervision and Administration Commission (SASAC), the most powerful organization in control of much of the nation’s blue chip corporate assets.
In the United States, we shiver at the idea of such a powerful overlord of the economy, but China is not doing badly under Li Rongrong’s (SASAC’s Director) tutelage. There are several issues to note here:
• While many economists and pundits from the West remain skeptical about the efficiency and innovative capacity of state-owned organizations, China is exploding that myth. Some of China’s most powerful companies are state-owned companies (in reality if not recognized as such). For example, PetroChina, the most *efficient* oil company in the world by almost any metric, is largely controlled by SASAC. (Most people confuse the ownership of PetroChina here, because the company is listed not as “state-owned” but as a “joint stock” company, having gone through two successful IPOs.
Make no mistake, however: the SASAC is by far the largest shareholder. This is a state-owned company for sure, but it’s a new generation of SOE. Shanghai SASAC owns a majority stake in the Shanghai Automotive Industrial Group (SAIC), which is leading the way in the coalition for developing the electric and hybrid market. ChinaCoal, also controlled by SASAC, is becoming a pioneer in clean coal technology. Examples such as this abound.
• SASAC is actually a very powerful principal, with economic values that we would wish on any powerful shareholder. My collaborative research with Professor Zhixing Xiao of CEIBS in Shanghai has shown in a number of papers just how well SASAC firms do.
• China is not the first country to show us the value of state-led development: Singapore, Taiwan, and South Korea have told us this story before.
• It is not even the case that innovation has come solely from the private sector in the United States; more often it is the government and private industry working in tandem. People often forget that the Internet itself was a product of Department of Defense investment and innovation (originally as DARPANET) laying the groundwork for further innovation in the private sector.
In the most recent issue of Time Magazine, Michael Grunwald writes insightfully about “How the Stimulus is Changing America.” He looks at the ways in which the American Recovery and Reinvestment Act of 2009 is stealthily nudging along the investment in green/clean technology. The initiative (and, by extension, Obama) gets hit from all sides politically for not delivering enough jobs. However, Grunwald argues, the 2009 Act is as much about pushing business into a new area and era as anything else. According to Grunwald, the 2009 Recovery Act “is the most ambitious energy legislation in history, converting the Energy Department into the world’s largest venture capital fund.”
Yet, U.S. pollsters and voters lambast the President for “meddling” in the economy and for not creating enough jobs. This is the way of things in the global economy today: America subtly nudges (because we don’t want the population to think, God forbid, that we would have a hand in the direction of industry and innovation); China simply pushes an agenda and makes things happen. In both cases, China comes out ahead, taking a lead in green technology and unabashedly creating new jobs while doing so.
Let’s not be saddled with the tired political debate that government involvement in the economy is bad. We would do well to learn the lesson of public-private partnership from China. Otherwise, we will continue to fall behind.
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