Dan Breznitz and Michael Murphree, Run of the Red Queen

A Review

Government, Innovation, Globalization and Economic Growth in China. New Haven: Yale University Press, 2011

Review By Jeffrey Barlow

At the Berglund Center we have long been interested in the relationship between the impact of the Internet and economic development [1]. While there is no doubt that there is a relationship between these two factors, its precise nature is difficult to quantify. Some argue, for example, that economic development is largely a unified process regardless of time or location, and that positive changes in productivity, investment, and other econometric factors will inevitably facilitate development [2]. Others believe, however, that local culture remains the critical factor in development and that if there is a mismatch between culture and informational technology (IT), development will not necessarily occur regardless of econometric improvements [3].

One of the important questions in understanding contemporary political and economic development is the extent to which the Chinese model provides a useful example for other emerging economies, or perhaps even for highly developed ones. The question of particularistic cultural issues vs. a universal process is especially salient as cultural differences are inherent to such comparisons.

Some argue that China’s development is inherently limited because it does not follow the Western model. China can take advantage of low cost labor, manipulate its currency and otherwise scramble up the ladder of development. But the ultimate success of any model depends in this formulation on its ability to innovate [4]. Lacking the ability to lead in innovative technology, Chinese success will remain simply duplicative; it copies others and fundamentally relies upon temporary advantages presented by its particular mix of labor and other resources. These facts being, true, then, China will never reach the top rung. In short, because of its failure to foster innovation, other economies have little to learn from it.

Breznitz and Murphree take quite a different perspective. Both are academics at the Sam Nunn School of International Affairs at the Georgia Institute of Technology. Breznitz is the author of a significant previous work, Innovation and the State [5]. The two argue that the global reorganization of production and services consequent to the development of the Internet and digital communications has given rise to new means of creating value, and that China excels in these.

The two believe that in the post-Internet era, innovation per se is much less important than it once was, and chain production processes make the Chinese economy fully sustainable in both the immediate and long run. China in essence quickly capitalizes upon the technological advances of others and maintains its productive forces just behind the cutting edge of technology. Hence the metaphor, the “Run of the Red Queen,” a term for an economy which must, like the Queen in Alice in Wonderland, run as fast as she can just to keep up.

One of China’s strengths in this particular process is the presence of a number of distinctive economic regions, each with varying economic policies and resources which are deployed in an unending quest for local advantages. Some particular industries or production processes will fail to develop in some localities, but profiting from a different mix of policies and resources will succeed in others.

Neither is this model dependent upon the development of entire industries as such, but often succeeds by occupying a niche in a widely distributed production chain. China does not need to produce automobiles, for example, but simply to become the most efficient producer in supplying particular parts and processes contributing to the final product.

Moreover, from a theoretical perspective, this approach is quite different from previous models such as that of Taiwan, Korea or Singapore, often termed the “fast follower model.” China brings to bear additional advantages such as a rapidly developing local consumer market, a very successful export process and quick access to foreign investment capital, as well as access to new technologies.

As the authors point out, there are important elements of paradox in this Chinese success story. The national government, for example, continues to emphasize in its policies the importance of research and innovation. But it is in the local areas that the model has proven successful.

The central approach of the authors is to study three different regions and their IT industries. These are Beijing, Shanghai, and the Pearl River Delta centered upon Shenzhen. The authors argue that “these regional systems combine to form a unique, de facto national innovation system and that without understanding this system and how it interacts with the regional system, we will fail to understand China.” [6]

The authors’ careful analysis of each region, supported by both a sound understanding of previous research and by many interviews with critical actors, is persuasive. In the case of the IT firms of Beijing, for example, the central problem is the lack of capital investment for start-ups. The central government privileges well established and particularly state-owned firms, and hence central banking policies tend to allocate capital to such firms. But the Beijing municipality or local government has created a number of devices for easing the access to developmental capital to local start-ups, many of which have proven successful [7].

Shanghai, unlike Beijing, has a plentiful supply of cheap labor [8]. Its local government accordingly privileges foreign investment (Taiwanese investment would be included here) which takes advantage of that cheap labor for production. The Shanghai government offers a rich mix of financial and organizational incentives to attract both foreign R&D and capital. This gives Shanghai a distinctive profile of being directly influenced and guided by local policy and central planning which tends to favor state-owned and well-established firms, unlike Beijing. These firms are, however, like Shanghai itself, conspicuously successful.

The Shanghai model, while quite different from that of Beijing, is highly complementary. It would not be unusual, for example, for a firm to begin in Beijing with its foundation in the highly developed local educational institutions with their rich intellectual resources, then outsource actual manufacturing to Shanghai with its strong support for such industries.

The Pearl River Delta (Shenzhen principally) is often thought of both in China and abroad, as China’s sweatshop. However, it also hosts several of leading Chinese IT innovators, including Huaiwei, ZTE and Tencent (QQ) [9]. The PRD firms do prize innovation, but in a very incremental and measured fashion which might well be taken to be beneath the threshold of the usual meaning of the term.

Nonetheless, this careful process has developed a number of significant firms which effectively integrate all stages of the production process from R&D through to final export. Because it is the individual firms that undertake these initiatives, the IT industry of the Pearl River Delta is collectively very nimble and market oriented.  It tends to be both isolated from political power and focused equally on domestic and foreign markets.

This Chinese system, as successful as it is—it has, after all, contributed to the longest and most successful run of economic development of any human society—is not without its hazards. The central government can often be a negative factor as it responds to political or economic pressures or attempts to model upon inappropriate foreign models, as in its ongoing attempt to produce a Chinese equivalent of Microsoft or Silicon Valley [10].

The work is primarily intended for an academic audience, but it has found a much wider readership (it has been very well reviewed in the business periodical press) in large part because, although sometimes fairly technical, it is written in a clear prose with a minimum of econometric data. The notes and references are voluminous, permitting the reader to access markedly different perspectives or better understand the literature which has contributed to the authors’ conclusions.

Run of the Red Queen makes, we think, many important contributions to furthering our understanding of IT and the impact of the Internet, our understanding of economic development, and our understanding of China. It should be read by anybody wishing to better understand these topics.

References

[1] Among our reviews and discussions of this issue in Interface see:  Berger, Suzanne and Richard K. Lester (eds.)  Global Taiwan: Building Competitive Strengths in a New International Economy.  New York: M.E. Sharpe, 2005. http://bcis.pacificu.edu/journal/article. php?id=233

2] For this perspective see: Robert D and Andrew S. McKay. Digital Prosperity: Understanding the Economic Benefits of the Information Technology Revolution. The Information Technology & Innovation Foundation. http://bcis.pacificu.edu/journal/article. php?id=201

[3] See: Kenny, Charles. Overselling the Web? Development and the Internet. London: Lynne Rienner Publishers at: http://bcis.pacificu.edu/journal/article. php?id=201 and Payal Arora. Dot Com Mantra. Social Computing in the Central Himalayas. http://bcis.pacificu.edu/journal/article. php?id=739

[4] Breznitz and Murphree, 2.

[5] See citations and references at http://tinyurl.com/GoogleBreznitz

[6] 8.

[7] 119-125.

[8] For Shanghai analysis see Chapter 4.

[9] For the PRD see Chapter 5.

[10] For shortcomings of the model see 197-98.

12 thoughts on “Dan Breznitz and Michael Murphree, Run of the Red Queen

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