Saturday, January 8, 2011

The China Numbers Game

My 8th grade science teacher talked incessantly about the Chinese. It was all a numbers game.  "They have about 4 times our population.  That means that the odds are that they are going to have 4 times our number of geniuses, top scientists, skilled athletes and talented artists.  It is tough to fight the numbers over the long term if you want to stay on top", he explained.

That was almost 50 years ago.  Mr. Russell might have been on to something long before anyone else was thinking about it.  However, numbers never tell the whole story.  Trust me, and that's coming from someone that used to practice as a CPA.   Good old Mr. Russell also failed if his intent was to motivate me to be a scientist.

Taiwan has 23 million people.  China has 1.3 billion.  Taiwan's GDP per capita is about 10 times the size of China.

North Korea has GDP per capita of less than $2,000 per capita.  South Korea's is $30,000.  Same people.  Same cultural background.  Very different results.

One of my favorite pictures of all time is this satellite photo of the Korean peninsula at night.  If ever a picture spoke a thousand words this is it.

Korean Peninsula at Night

Before the Korean War most of the wealth was concentrated in the North.  The South was more agrarian.  Things have changed quite a bit in 60 years.

What made the difference between Taiwan and China, South Korea and North Korea?  Could it be the difference between freedom and oppression? Capitalism and communism?  Could it be that a profit motive does lead to prosperity for all?

Mr. Russell had the numbers right.  However, the numbers don't work unless they are accompanied by the right system.  One that has incentives aligned so that talented people are willing to be inspired and perspire for their own success.

China had a planned socialist economy from its founding in 1949 to 1978.  In that year they first introduced the ability for farmers to grow what they wanted and sell much of it at markets prices.  They opened up most of the rest of the economy to what they refer to as a "socialist market economic system" in 1984.  Since that time China's GDP per capita has increased some 13 fold in dollar terms.

The Chinese are now focusing intently on new innovation and patents.  This from "China Business".
In an extensive campaign significant for the global economy, China is targeting an astounding 2 million domestic patent applications annually by 2015, and wants to be one of the top two patent owning countries by 2020.  
How are they intending to get where they want to go?
To boost domestic patents, China will offer incentives of cash rewards, houses and tax breaks to scientists and innovators. The patent master plan promises infrastructure for quicker filing, examining and granting of patents, funding patent holders, and integrating new patents into the economy.  
When Mr. Russell was talking about China they had about 500 million more people than the United States. Today they outnumber us by over 1 billion.  We better be prepared to hustle.

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