Lv Zheng, male, Han nationality, born in July 1945, is a native of Jinzhai County, Anhui Province and a member of the Communist Party of China. In 1990, he graduated from the department of industrial economics in the Graduate School of the Chinese Academy of Social Sciences and became a PhD in Economics. He serves as director, researcher and PhD student advisor in the Institute of Industrial Economics of the Chinese Academy of Social Sciences, and Standing Vice-President of the Chinese Industrial Economics Association. His academic expertise is in industrial development theory. In 1998, he won the “Young and Mid-aged Expert with Outstanding Contribution” Award.
Major Academic Works
On Residential Commercialization. Research Material of Industrial Economic Management, 1982
The Forth Part of Industrial Economic History of New China: 1976~1984. Economic Management Press, 1986
On adjustment and reform of management system of our military industry, in Journal of China Industrial Economics, 1985.6.
On task and strategy of improvement and rectification, in China Industrial Economics Research, 1990.1.
On sinking market of industrial products and its mitigation strategies, in Modern Economic Science, 1991.1.
Discussion on the combination of planned and market regulations, in China Industrial Economics Research, 1992.2.
On the possibility of accelerating economic development in the 1990s and its potential conflicts, in China Industrial Economics Research, 1992.9.
Mao Zedong’s discussion on Chinese industrial process, in China Industrial Economics Research, 1993.12.
On improving China’s industrial competitiveness, in China Industrial Economics Research, 1995.12.
Discuss on the ownership structure of our country, in Economic Management, 1996
On the realization of public ownership, in Social Sciences in China, 1997.6.
New features of industrial development and structural adjustment of our country since the 1990s, in China Industrial Economics, 1998
Task and pattern of industrial structural adjustment, in People’s Daily, 1999
Correct recognition of the relation between knowledge-based economy and traditional industry, in Guangming Daily, 2000.10.17.
On the possibility of China being the workshop of the world, in China Industrial Economics, 2001.11.
On another invisible hand, in Economic Management, 2002
The difference between Chinese and Russian economic system reforms, in China Industrial Economics, 2003
On comparative advantages of Chinese industry, in China Industrial Economics, 2003
On appropriate growth of industry, in China Industrial Economics, 2004
Prominent contradictions in the way of industrial development of our country, in Contemporary Finance & Economics, 2005.2
Active promotion of the transformation of growth pattern, in People’s Daily, 2006.2
Protection of environment and promotion of development based on conservation of resources, in People’s Daily, 2006.8.
The Ideals of Chinese Economists
Li Xiaohua (Li for short below): Mr. Lv, I know you worked on a military farm after graduating from university, what did you gain from this experience?
Lv Zheng (Lv for short below): I worked on a Nanjing military farm for over a year after I graduated from university. At that time it was a way to reeducate university graduates. But I think, according to my own experience, it was a beneficial practice instead of a waste of youth and time for those young intellectuals majoring in philosophy and social sciences. I really experienced how hard farm work and farmers were after over one-year’s painstaking agricultural labor---plowing, transplanting, reaping, fighting floods and repairing dams.
Besides agricultural labor, we undertook military training under the command of the company commander and platoon leader of the People’s Liberation Army, such as drilling, target-shooting, carrying on duty, standing guard, and marching at night. It helped graduates who were just out of campus life to cultivate martial discipline which featured obeying laws, carrying out administrative decrees promptly and resolutely. And it helped young students to remove some shortcomings as slackness, insolence and recklessness.
Li: After working on the military farm, you took up research work in the technical management of munitions industrial production in the factory management sector, the general logistics department of the People’s Liberation of Army. How did this working experience help your research in economics?
Lv: In February, 1970, I was assigned to do research work on the technical management of munitions industrial production and enterprise technological innovation in the general logistics department. It was a major turning point in my life as well as brand new work. The work was quite different from what I had learned at the university, turning from social sciences to industrial production technology. But I was spurred on by the pressure of work to learn more knowledge about industrial production, engineering technology and enterprise management. More than 8 years’ practice in the field of munitions industry gave me further knowledge about industrial economics and technical management of enterprise production, and built a theoretical and practical foundation for me to register as a postgraduate of industrial economics in 1978.
Li: You have been to lots of places in addition to Tibet over the past 30 years, and done field surveys in several hundreds of large and medium-sized stated-owned industrial enterprises, privately-owned enterprises and local economic and technological development zones. How do you view the relationship between practice and economic research?
Lv: I do research in applied economics and enterprise management, which is featured with strong applicability. This feature requires theory workers in this field to be quite familiar with the real situation, and be good at comprehending and analyzing actual problems. Systematic professional training is an indispensable element, but learning only from books is far from enough. Even if one, with a doctor’s degree, took up research work in economic theories immediately after graduation without enough experience in practical economic work, he would be deficient in knowledge structure and capability of analyzing problems. So it would be impossible for one to become a qualified Chinese economist without taking root in China and engaging in actual economic work in China. Mr. Ma Hong and Mr. Jiang Yiwei, the senior directors of our institute, are famous scholars with rich experience in the revolutionary cause and economic construction, so they can make great theoretical contributions to economic development and reform of our country. Therefore, I have always taken the older generation of scholars as role models, persisting in furthering practice and going to industrial and mining enterprises to survey since I took up research work in the Institute of Industrial Economics. Because I frequently do research by going deep into factual situations, so I can directly get first-hand materials about development, reform and operation of the industrial enterprise. That not only deepens my sensitive recognition of actual situations, but also builds reliable practical foundations for my theoretical and political research. Papers and research reports on the basis of investigation are more target-oriented, without vacuous sermons taken from books, which can uncover the essence of things and objective rules of the economy through appearance. I object to those relying on their reputation and stating their views to the media only by bare thoughts, without investigation. The reason that I can gain some achievements in industrial economic theory lies in my persistence in going deep into actual situations and combining theory and practice since 1970.
Li: Industrialization is a necessary process for a country’s economic development, especially for China, a big country. Industrial development is one of your key research objects, so could you talk about which phase China’s industrialization process is currently in?
Lv: The level of industrialization is measured by four indexes——GDP per capita, output value proportion of non-agricultural industry, employment proportion of non-agricultural industry and industrial structure level. In terms of GDP per capita, it reached RMB 11400 by the end of 2005, that is, 1400 dollars according to the current exchange rate, which means China is in the second phase of industrialization process. In terms of output value proportion of non-agricultural industry, the added value shared 85.1%, while that of agricultural industry shared 14.9% in 2005. Measured by this index, China’s industrialization has passed the medium term. In terms of employment proportion of non-agricultural industry, it accounted for 53.9% in 2005, which didn’t reach the lowest level of the first phase of the medium term of the Chenery model of industrialization—— 56%. Judging from the general standard of employment proportion of non-agricultural industry in the second phase of the medium term of industrialization——71%, ours is still at a very low level. In general, judging from GDP per capita, output value proportion of non-agricultural industry and industrial structure level respectively, the industrialization phases are almost the same, that is, in the second phase of mid-industrialization or at a high machining period of the heavy industrialization phase; however, the industrialization process reflected by employment proportion of non-agricultural industry is in the primary phase. That also explains why our country is of typical dual economic structure, with industrialization left unaccomplished.
Li: Japan and South Korea have realized industrialization after 20 to 30 years’ development, but China still hasn’t realized industrialization after almost 30 years’ high speed development of industry since its reform and opening up. Does it explain why China’s industrialization has its particularities?
Lv: For small or medium-sized developing countries and regions, they will basically realize industrialization and modernization after 20 to 30 years’ rapid growth of the national economy. For example, in 1960, South Korea’s GDP per capita was almost the same as ours, while its industrial scale and level fell behind ours. However, South Korea realized modernization after over 20 years’ of rapid development, from 1961 to 1988. So did Singapore, Hong Kong and Tai Wan. We should draw some lessons from their experience in realizing industrialization and modernization, but their industrialization processes and ours are not comparable from many aspects. So we must know the prolonged and strenuous characteristics of China’s industrialization process study the particularity of its road and tackle its principle contradictions. There are five principle contradictions: firstly, shifting surplus labor forces in rural areas to non-agricultural industries is tough; secondly, insufficient supply of resource products holds back sustainable and rapid development of our economy; thirdly, most technologies of our industrialization are imported from overseas, and our own independent innovation capability of industrial technology is weak; fourthly, regional economic development is uneven, and the gap between eastern and western regional economic development is widening. Fifthly, under the condition of widening opening up, to upgrade the status in the international industrial division of work faces external pressure.
Li: In the report of the 16th national congress of CPC, to basically realize industrialization has been taken as one of the principal tasks of our economic construction in the first 20 years of the 21st century and to take a new road to industrialization has been clearly put forward. Is it put forward to tackle the contradictions and problems in the way of our industrialization process?
Lv: Regarding the definition of the new road to industrialization, four main points have been concluded in the report of the 16th national congress of CPC: firstly, to drive industrialization by informatization and to promote it by industrialization; secondly, to improve the quality of economic growth and promote economic benefits constantly through the development of science and technology; thirdly, to facilitate optimization and upgrading the industrial structure, and handle the balance between high-tech and traditional industries properly; fourthly, to slow down population growth, protect the environment, explore and use natural resources properly in order to realize substantial development. Those require us to build up scientific outlook of development: the speed of GDP growth should be emphasized but not as the only index of economic development; high attention should be paid to the construction of rural areas as well as the construction and development of urban areas, not to sacrifice the interests of farmers. In a broader sense, the new road to industrialization should also highlight how to tackle problems existing in system, mechanism, mode of economic development and so on. The new road to industrialization is a sustainable road based on our national situation, and it will make more than one billion residents of rural and urban areas in our country live a relatively well-off life even if our GDP per capita could not reach that of developed countries.
Li: The article The Chinese Scholars Contradicting Mr. Toffler was published in China Reform News, illustrating that you had different standpoints about the knowledge and information economy. So what were your points?
Lv: In 1998, the State Planning Commission and the World Bank jointly held a symposium about the evolution trend of industrial structure in the 21st century, and Mr. Toffler gave a speech on the knowledge economy and informatization. I attended this symposium and expressed different views to Mr. Toffler’s: I thought the knowledge or information economy was not an independent economic pattern. The relationship between informatization and material production was like fur and skin, and without real economy like material productions of agriculture and industry, there would be no informatization. Therefore, to adjust and optimize industrial structure, the relationship between informatization and traditional industry should be well handled. Since we haven’t finished the task of industrialization, there would still be space for traditional industry to develop. So the relationship between the knowledge economy & information technology and traditional industry was to transform and to be transformed, instead of replacing and being replaced.
Li: You have mentioned that one of the contents of the new road to industrialization is to promote the upgrading of industrial structure. So what’s the purpose of the adjustment of China’s industrial structure?
Lv: There are two main reasons for the adjustment of industrial structure: firstly, eliminating structural deficiency or surplus to balance market supply and demand, ensure coordinated development of industry and the national economy, reduce and avoid sharp fluctuations in the process of economic operation, realize sustainable and steady growth of economic growth, and meet gradually uprising social demands; secondly, facilitating the shifting of production factors to more efficient departments, regions and enterprises so as to improve the efficiency of resource allocation and intensify industry competitiveness.
The adjustment of our country’s industrial structure faces two tasks: to eliminate structural deficiency and surplus, and to improve the efficiency of the allocation of production factors. Eliminating structural deficiency also faces two tasks: to tackle the supply deficiency of energies and original materials, and that of domestic production capability in those fields such as technology-intensive and advanced mechanism, electronic components and software products.
Li: Compared to developed countries, China lacks large enterprises in industry. The degree of industrial concentration is comparatively low, and although some characteristic industrial clusters have been formed, the whole industry is relatively scattered.
Lv: You have pointed out two serious problems with China’s industrial structure. To adjust industrial organization and regional structure should be highly emphasized in the adjustment of industrial structure.
Under the function of a market competition mechanism, production factors shifting to superior enterprises is an inevitable trend, especially to capital and resource intensive industries, such as industries of steel, non-ferrous metal, petrochemicals, thermal electric generation, major construction materials, transportation vehicle manufacture and paper making. And we should promote production factors concentrated on large enterprises. For example, large generator units consume only
Li: To achieve the rationalization of the industrial structure, not only sector structure of production factors and industrial organization should be optimized, but also spatial allocation of production factors should be properly handled. What kind of regional allocation of production factors do you think will be efficient and balanced?
Lv: On the recognition and practice of regional economy layout, we no longer require each region to build complete industrial systems as required in the 1950s to 1970s. Now we emphasize the coordinated development of the regional economy, but we should also notice the trend that production factors are being concentrated on superior regions. For examples, the United States is almost as large as our country in territory, but 65% of its GDP is created from San Francisco Bay area in the southwest and Great Lakes Region in the northeast; and 70% of Japan’s GDP is created from the Tokyo Bay area and Kansai area centered on Osaka. On the one hand, converging industries in smaller areas and bringing about more GDP will greatly improve the efficiency of resource allocation. Micro interests of industry layout should be subordinated to macro benefits of resource use in order to avoid seeking small gains at great cost. Although it may aggravate the imbalance of different regions’ economic development, it improves the efficiency of resource allocation, which builds the foundations for the central government to strengthen its ability of transferring payments. On the other hand, the trend of production concentration enforces each region to develop its local superior industries and products, and avoid structural convergence so as to improve its efficiency of resource allocation.
Li: Through 30 years’ rapid development since reform and opening up, China has gained great achievements in industry. You published the article On the Possibility of China Being the Workshop of the World in 2001, and it brought about wide effects in the field of economic theories and society as a whole, as it were, it gave rise to a big discussion about China and the workshop of the world. Could you talk about what is the workshop of the world?
Lv: In short, workshop of the world is to provide manufacturing bases of industrial products widely for the world’s markets. From the historical progress of the world’s industrial development, Great Britain upgraded its production pattern from manual labor to large machinery after its completion of the industrial revolution in the 18th century, which greatly improved the efficiency of industrial production, opened up a new category of industrial production and exported industrial products to the outside world through the gunboat policy of colonialism. So Great Britain was the workshop of the world at that time. According to a survey, from 1760 to 1860 the share of British manufacturing of the world’s total rose from 1.9% to 19.9%. From the late 19th century to the mid 20th century, the United States replaced Great Britain as the world’s industrial power. It ranked among the world’s highest in production scale and export share of each field in manufacturing such as steel, automobile, chemical industry, machinery, airplane manufacturing, electrical products, medicine and military device, and became an important base for export of the world’s industrial products. In 1894, the gross output of manufacturing in the U.S. was equal to twice that of the UK. In 1913, U.S. industrial production accounted for one third of the world’s total, equal to the sum of that of the UK, Germany, Japan and French. From the 1960s to the 1980s, Japan’s industry shifted its main export products from heavy industrial products to machinery electronic products of high added value, and Japan became a big manufacturer and exporter of technology intensive products such as electromechanical devices, automobile, household appliances and semiconductors. Japan’s industry shared 10% of the world’s total, and many of its products took leads in the world, for instance, its shipbuilding industry produced more than half of the world’s tonnage. Based on the historical facts that the UK, the U.S. and Japan were universally accepted as workshops of the world, I think only if a country boasts production ability in a series of important industrial production sectors and high share in the world’s market, and has a large amount of industrial enterprises leading in the world’s manufacturing and exerting great effects on supply-demand relations and development trend of the world’s market, can it become the workshop of the world. That is to say, the real workshop of the world is the world’s manufacturing base of high quality and technologies, instead of the general one supplying industrial products widely for the world’s market.
Li: According to statistics from the World Bank and industrial development organization, China’s industry and manufacturing have both ranked No
Lv: A country must provide abundant export products for the world’s market if it wants to be the workshop of the world, but the total amount of industrial products is not the only criteria. Firstly, from the production quantity, many of China’s industrial products rank No
Secondly, from the export structure of industrial products, the main export products of China are and will be labor intensive products at present and for a long time, such as garments, shoes, daily light industrial products and so on. Although the export value of machinery electronic products passes that of textiles, the exported electromechanical products mainly consist of labor intensive processing and assembly products. China is obviously behind the U.S., Japan and Germany in the field of technology intensive manufacturing. Instead, China is the important manufacturing base of the world only in the field of labor intensive products.
Li: You mean China’s comparative advantage is still a rich labor force. What level is China’s labor cost at in the international arena?
Lv: In 2005, the annual income of workers in our state-owned manufacturing enterprises was 13,000RMB and that in the urban collective was 9600RMB. Calculated by the current exchange rate, the weekly income of workers in our state-owned manufacturing enterprises is 45% of that in Thailand, 28% in Malaysia,9.2% in South Korea, and 4%—5% in the U.S., Japan and Germany. This explains that our country is comparatively superior in labor intensive industry.
Theoretically, economic globalization and international economic integration include not only the free flow of products, capital and technologies, but also that of labor forces ——important production factors, around the world. But under the current international economic order, the free flow of labor forces cannot come into force, because only part of the highly qualified professional technical personnel with a good education and systematic training in developing countries are allowed to flow into developed countries. So developing countries can only participate in the international division of labor and exchange by developing and exporting labor intensive products for quite a long time. Developing countries indirectly realize the output of labor forces by exporting labor intensive products, and developed countries obtain cheap labor intensive products and improve consumption level of domestic residents from this division of labor and exchange. Therefore, to bring the comparative advantage into play is not only the effective method for developing countries to participate in the international division of labor and exchange, but also a greater helper for developed countries to get abundant actual benefits.
Li: For any country and region, comparative advantage is relative and changes with the development of the economy. For example, Japan and the “Four Asian Tigers” have undergone an increase in labor costs. But how can China keep the comparative advantage of low labor costs after over 20 years of rapid development of the economy?
Lv: Firstly, the Chinese economy is still features a typical dual economic structure, with industrialization and urbanization left unfinished. There are more than 100 million surplus workers in rural areas. Because China’s rural per capita possession of cultivated land resource is limited, plus the difficulties of farmers’ shifting to non-agricultural industry and the increase of the price of agricultural products, so the income of farmers has been slowly increased since the 1990s, and their yearly income is only one third of that of urban residents. In addition, farmers engaging in agriculture earn much less income than those working in factories and cities. This pattern ensures that China’s industry can continue to rely on a cheap labor force.
Secondly, with the transformation of a market-oriented economy and the adjustment of industrial structure, many enterprises cut down on superfluous staff to change the overstaffing situation formed under the traditional planned economy system and improve competitiveness. Many enterprises with heavy losses go bankrupt and close down, so lots of workers are laid off and unemployed in towns and cities. If calculated by the unemployment rate in towns and cities——4.2%, unemployed urban people in the whole country is more than 1.1 million. The existence of a large unemployed and low income population forms the situation where labor forces are more than demanded, which objectively makes it possible that enterprises offer comparatively low incomes.
Thirdly, with the regional imbalance of economic development, there is an obvious economic gap between the Eastern and the Middle Western regions. Per capita GDP in less developed regions in the Middle West is only one fifth to half of that in well developed regions in the East. In recent years, the income of local workers and social security level in the East have been raised and upgraded, but because of the free flow of domestic labor forces, the large amount of rural surplus workers in the Middle West, such as Hebei, Anhui, Henan, Hunan and Sichuan, flow into coastal areas in the East, so manufacturing and service industry’s in the East can still have a cheap labor force.
Viewed from the trend of Chinese economic development, the dual economy structure and regional gap will not change fundamentally in a short time. So the cheap labor force will still be our comparative advantage. Under the system of international division of labor and international trade, China should continue to develop labor intensive industries and those combined with labor intensive and technology intensive industries, so employment will be widened, and technology devices and resources insufficient in our country will be obtained through international exchange.
Li: But it is difficult to facilitate China to be the real workshop of the world only by this comparative advantage. Besides, I think the industrialization process is the one when capital gradually replaces labor. What are your thoughts on the relations between rich labor and technological progress?
Lv: China is the biggest developing country, and its development of productive forces features multi-level and uneven characteristics which provide the possibility for the co-existence of different production patterns with various technical levels. On the one hand, we should take active advantages of a cheap and abundant labor force to attract foreign capital, welcome transnational companies to build production bases in China, participate in the international division of work through frequent import and export, and undertake the massive shift of multinational companies to the field of manufacturing. On the other hand, we should not only rely on this comparative advantage to carry on our reform and opening up and participate in the international division of work, but also work hard to improve competitiveness, facilitate industrial promotion and develop a large amount of big enterprises to be among the top 500 industries in the world so as to narrow the gap with developed countries. China should not only become a big industrial producer, but also gradually grow to be an industrial power.
Li: It is because massive amounts of farmers have entered industrial sectors that our labor intensive industry is comparatively superior. In your research, you are quite concerned with migrant workers, proposing to raise their income and improve their social security level. Will this weaken our industrial competitiveness?
Lv: The main reason for the irrationality of primary distribution of national revenue is that the income of migrant workers and the social security level are too low. They receive 800RMB each month, but have to work more than 50 hours a week. Deduct at least 45% of their monthly income for a very low level of daily consumption as well as transportation fees to get home for the Spring Festival; the cash balance is only 3000 to 4000RMB. Therefore, it is necessary to raise migrant workers’ income and improve social security levels. But some people worry that the raising of migrant workers’ income will lead to an increase in production costs for enterprises and affect export competitiveness of our labor intensive products. We should consider this problem from the following several aspects: firstly, to raise the income of migrant workers will help to adjust the distribution structure between business owners and migrant workers so as to narrow the gap between the rich and poor, realize social justice and make creators of social material property share the benefits taken from economic growth and social development; secondly, it will help to improve the purchasing power of low-income groups, that is, when exports slow down, economic development can be promoted by widening domestic market demands; thirdly, it will help to push the technological and production organizational innovations of enterprises, and improve the efficiency of labor production; fourthly, it will help to change the situation of relying on low prices to participate in international competition which not only sacrifices the interests of domestic workers, but also suffers from anti-dumping from the importing countries.
Li: To develop technology and knowledge intensive industries and to facilitate industrial promotions also refer to the enhancement of independent innovation. Our country has upgraded independent innovation as a national strategy. What do you think is the significance of independent innovation?
Lv: The significance of enhancing independent innovation and building an innovation-oriented country are reflected in the following four aspects:
Firstly, the shortage of per capita resources is one of our basic national conditions, and our average per capita possession of land, forest, water, petroleum and metal minerals are much lower than the world’s average. Under this condition, we should rely on scientific and technological innovation, transform the extensive growth mode which largely consumes natural resource and take a new road to industrialization with less consumption of resources so as to realize industrialization and create a comparatively well-off life for over 1.3 billion people. To enhance independent innovation and improve the efficiency of resource use is the fundamental way to achieve the object of our social economic development.
Secondly, to enhance independent innovation is the key to optimizing industrial structure and pushing industrial promotion. There are two main tasks of structural adjustment: to eliminate structural shortage or surplus; to promote a production shift to more efficient sectors. Now, the main focus of our structural adjustment is to improve the allocation efficiency of production factors, that is, to increase the proportion of technology intensive industries and upgrade traditional industries. As a result, the key to realizing structural optimization is to master high and new technologies with independent intellectual property rights, while those can only be achieved by independent innovation.
Thirdly, to enhance independent innovation is the main method of improving our trade conditions and industrial competitiveness in the world. Although our country is the world’s major trading nation, in export trade, 55% of our export products are from the processing trade and less than 10% are independent brands; as for the export of high-tech products, more than 90% are from the processing trade. Without high-tech industries with independent intellectual property rights, one country can only build processing and assembly industries for transnational companies and get tiny benefits in the international division of work. In terms of the degree of dependence on foreign technology, developed countries averagely share less than 30%, the U.S. and Japan less than 5%, while China more than 50%. Among the high-tech key equipment and components needed in device purchasing for fixed capital investment in our country, more than 60% are imported. The change of this situation requires strengthening independent innovation.
Fourthly, to enhance independent innovation is an urgent demand for promoting the modernization of national defense. With the development and wide use of current science and technology, a series of military revolutions have been triggered. So to build a strong army through science and technology is an important task of our army building in the new era. In order to maintain national security, territory completeness and reunify our country, we must push the modernization of national defense, which must rely on the modernization of defense-related science, technology and industry. But their sources of technology face a strict blockade on new techniques from those countries with developed military industrial complexes, so even if we spend a lot of money, we cannot buy the modernization of our national defense. As a result, we can only rely on strengthening independent innovation to realize the modernization of national defense-related science, technology and industry.
Li: The enhancement of independent innovation is closely related to the building of a national innovation system. How do you think the national innovation system should be built?
Lv: The national innovation system is a complex integration of organizations, institutional arrangements and operation pattern of scientific and technological innovation activities. It includes research institutes, institutions of higher learning, national laboratories, enterprise research and development institutions, organizations for science popularization, technology promotion and technical intermediaries, etc. It covers the study of basic theory and its application, research and development of civil and military technology, state-owned and private enterprises and institutions. So the national innovation system should not be simply taken as national research institutes, instead it is the network organization system covering scientific and technological innovations of all the fields and regions across the whole of society.
Under the condition of large-scale socialized production, scientific and technological innovation is divided into three phrases: discovery, invention and industrializing scientific and technological achievements. Discovery’s in science offers scientific foundations for humans to understand and change the world, but we should not require all the scientists’ research to be immediately and directly applied to economic construction.
The task of invention is to develop new materials, products or manufacturing process on the basis of rules uncovered by scientific discovery and by engineering technology methods. Invention is innovation on the level of engineering technology. The discovery is basic research, and the invention is applied technology research. Although the two cannot be separated, the two are still distinctive in most situations, with different objects of innovation, focus and forms of result.
The engineering, industrialization and marketization of technological innovation achievements are the final objects of the scientific and technological innovation. Technological innovation achievements need entrepreneurs to organize all kinds of production factors, transform innovation results into real productivity and conduct large-scale production. Outstanding scientists and inventors are not always excellent entrepreneurs. In the socialized system of division of work, research institutes, institutions of higher learning and enterprises all play different roles and functions, so do scientists, professors, engineers and entrepreneurs. As a result, in the national innovation system, the division of their work is different.
Li: In the process of enhancing our independent innovation, what role should enterprises and government play?
Lv: Enterprises should play their role as the main technological innovator. From the general experience of technological innovation and its industrialization in industrially developed countries, the enterprise is the main body of technological innovation where most technology research centers are built and where the main bodies of scientific research teams gather. That is because the enterprise, as the economic organization with the purpose of profits, has the internal driving force of getting the biggest profits through scientific and technological innovation. Under the conditions of a market-oriented economy and the big environment of an international economy, the enterprise always faces competition pressure and it could not survive without innovation, let alone develop, so it has external pressure to attach importance to technological innovation. In the practice of production and operation, the enterprise can make the choice of direction and object of technological innovation be more in accordance with market demands. The enterprise is capable of transforming scientific achievements into production facilities and engineering technology of products, as well as supporting facilities of socialization. And it can put technology, engineering, funding and market factors directly together.
Meanwhile, it is necessary for the government to play the leading role in scientific and technological innovation. In the future market-oriented economy, the scientific and technological innovation activity should be mainly decided by the market, its main body will be the enterprise and its motivation will be driven by the interests of economic subjects and market competition pressure. The government will no longer be the initiator, organizer and participate in scientific and technological innovation; instead its main responsibility will be to provide it with favorable system guarantees and policy environment. However, in the process of entering a market-oriented economy, our country cannot reach that far: firstly, scientific and technological innovation features externality and public welfare, but not all of its activities can bring direct economic benefits and they are of high risk. So when social economic development requires scientific and technological innovation, but economic subjects are not willing to invest in it, the government has to be the starter, investor and organizer; secondly, due to historical reasons, the transition of our state-owned enterprise system has not been accomplished, and most state-owned or state-controlled enterprises are relatively weak in accumulation ability, deficient in the motivation of technological innovation and the capability of capital input; thirdly, investigated from theories, private enterprise has inner motivation and capital accumulation ability of scientific and technological innovation, so it should gradually become its subject. But actually the majority of private enterprises are difficult to be its subjects now, because, firstly, most private enterprises are dedicated in labor intensive consumer goods industries and service sectors, with low rates of capital organic structure, less content of technology and deficient demands for new technology; secondly, owning less capital and weak technological force, the private enterprise lacks economic and technical strength in technological innovation; thirdly, both the domestic private enterprises and the overseas Chinese enterprises lack value orientation and cultural tradition of pursuing technological innovation. Even the large-scale private enterprises with abundant capital power is keener on investing surplus capital in real estate which is speculative and able to bring about excessive profits in a short term; fourthly, the current international competition is actually one of scientific and technological strength, and our competitors are other countries, groups of countries and large transnational companies with fabulous funds. Under this situation, the government, of a big developing country, must play the leading role in promoting technological innovation.
The rapid development of high-tech industries represented by the IT industry since the 1990s shows that government policy still plays a leading role in the development of high-tech industries in the future market-oriented economy. The leading role is reflected in six aspects: firstly, it is the guidance of strategy and planning of development; secondly, it promotes the improvement of the infrastructure needed in the technological innovation and cultivation of high-tech talents; thirdly, it provides fund for the research and development of major programs; fourthly, it creates market demands for high-tech industries, including the government’s purchasing of military equipment; fifthly, it standardizes the market order, protects intellectual property rights and maintains legitimate rights of subjects of the scientific and technological innovation; sixthly, it formulates and implements exchange and trade policies for the international economy and technology which are favorable to the improvement of competitiveness in science, technology and industry of our country, but our government’s favorable supporting policies for the development of high-tech industries must comply with the rules of the WTO after our accession to it.
Li: You worked in the munitions industrial sector during your youth, and now you are a member of the expert consultation committee on the state commission of science and technology for the national defense industry. So as an economist, why are you concerned with the military industry?
Lv: The military industry is an essential part of our industrial system, and a highly developed military industry builds material and technical foundations for the modernization of national defense. History tells us that lagging behind leave one vulnerable to attack. Although the development of the economy is the premise of national defense, it can’t ensure its realization because money cannot buy advanced army equipment. Therefore, the development of science and technology industries for national defense cannot be weakened while the economy is being developed. Paying attention to and undertaking research in military industries in order to accelerate the progress of the modernization of our military industry are important responsibilities of scholars in industrial economics.
Li: As far as I know, as an economist, you have gained great achievements in economics research, but also achieved deep literary and history literacy. Do you think there is any relevance between literature & history and economics research? How does the learning of the humanities help economics research?
Lv: My job is economic research, and I am also interested in literature and history. Social sciences consist of many categories, but economics, as a big subject, is closely related to history and literature. And literature, history and philosophy are the bases for social sciences research. Mastering literature is essential to writing good papers on economics. So I think it’s difficult to write refined modern economics articles without a good knowledge of ancient Chinese prose. Economics is also one historical science, because the progress of productivity and the transformation of production relations are historical processes, so learning and knowing history help to understand the current economic issues. As a scholar in economics research at the Chinese Academy of Social Sciences, we must have a deep foundation in literature, history and philosophy while we master professional knowledge of our own field.
Li: Mr. Lv, after talking with you, I have a more thorough understanding of some of the issues. As a famous scholar long engaged in scientific research work, could you give some suggestions for young people in this area?
Lv: To pursue theoretical innovation is the vocation and duty of scientific research workers. And theoretical research should not be taken as the duplication of labor. The published research results can only represent the past, because productivity is changing and developing, so the scholar researching current economic issues must study and answer new problems when we research a subject and write articles.
As a researcher of economic theory, we must have a strong social responsibility. Our comprehensive national strength based on the economy and the life level of people is far behind those of developed countries, so we are still facing a series of difficulties in realizing industrialization and modernization. It is the obligation and mission of workers in economic theory to ensure good and rapid growth of our economy and continuing improvement of people’s life level. I have published a prose poem in the Gazette of Chinese Academy of Social Sciences, and I would like to share one of the paragraphs with you: “Our labor is invisible, but it can be turned into material power. I don’t stand by a steel furnace, but I can send steel beam for buildings. Where there is production, circulation and consumption, from geosynchronous artificial satellites to drilling platforms in deepwater oilfields, from base stations of wireless communications to the limitless spread of the internet, from harvested farms to stores with various goods, these are our labor, wisdom and thoughts. The ideal of a Chinese economist is that China, with a large population of 1.3 billion, can go toward moderate prosperity from poverty, richness and power from backwardness, instead of winning the Nobel Economic Prize. ”
Li Xiaohua, Male, born in 1975, graduated from Nanjing University as a Bachelor of Science, Shangdong University as a Master of Economics, and the Graduate School of the Chinese Academy of Social Sciences as a Doctor of Economics. Now he is an assistant researcher in the Institute of Industrial Economy, at the Chinese Academy of Social Sciences.
(Translated by Xu Xiujun)
(Translated by Xu Xiujun)
Editor: Wang Daohang