RUSSIA AND CHINA IN THE GLOBAL KNOWLEDGE ECONOMY HARLEY BALZER GEORGETOWN UNIVERSITY CEIP, NOV. 30,...

RUSSIA AND CHINA IN THE GLOBAL KNOWLEDGE ECONOMY

HARLEY

BALZER

GEORGETOW

N UNIV

ERSITY

CEIP, N

OV. 30, 2

012

Nov. 30, 2012 For CEIP, H. Balzer, Georgetown U. 2

BOOK OUTLINE

• Puzzle: Why China, Not Russia?

• Existing Explanations

• Alternative: Quality of Integration With Global Economy

• Focus On 4 INTERRELATED Topics:– Economic Regionalism– Leading Sectors– Corruption– Education, Science & Technology, Innovation

2

3

Puzzle• Why China and not Russia? NOT what

modernization theory would have predicted

• December 2004:– Baikal Finanz buys Yuganskneftegaz– Lenovo buys IBM PC Division

• Commodities vs. Industry

• Best (China) and Worst (Russia) G-20 performers in 2008-12 crisis

3Nov. 30, 2012 For CEIP, H. Balzer, Georgetown U.

4

OUTLINE FOR TODAY

• Russia and China in Global Knowledge Economy• Education• S&T Indicators/Cases/Innovation

– Some Numbers– Autos– Nanotech– IT

• Changing Relationship• Conclusion: Why China, Not Russia


2 DISCLAIMERS

1. I derive no pleasure from this depiction of the Russian case.

2. The China story describes how they got to where they are; it is not a prediction of where they will be in the future (Winners problem. Pettis 2011).


6

LIVANOV RIGHT ABOUT DECLINE• Russia finally joined WTO

• Worst performance among emerging markets in crisis.

• Lost decade; no diversification

• Medvedev claimed lessons from crisis

• But few concrete achievements

• Russia losing Education and S&T capacity


7

Output Growth (%)

Russia China

2008 5.6 9.6

2009 -9.0 8.7

2010 3.6 10.0

2011 3.4 9.7

2012 (estimates) 3.5 7.5


H. Balzer London Oct. 2010 8

Growth in Research Output, 1999-2008


Share of Global Publications, 2010


http://www.globalsherpa.org/wp-content/uploads/2011/04/Global-Science-Research-Publications.gif

10

NOT What Everyone Expected• Modernization theory

– Literacy; higher education– Urbanization; industrialization– Media; communication

• Asian miracle– Education necessary, not sufficient

• Cf 1950s predictions: Rangoon and Manila, NOT Seoul.

• China got education and S&T systems from USSR = similar challenge to adapt.


11

Existing Explanations for China’s Economic Performance

• Initial Conditions

• Policy

Will go fast; can come back in Q&A11Nov. 30, 2012 For CEIP, H. Balzer, Georgetown U.

12

Initial Conditions I• Abundant supply of low-cost labor not

covered by the welfare system• Decision to begin reforms with agriculture• Shorter duration of communist rule• Fewer distortions• Less complete Communist Party

penetration of society • Qualitative differences in leadership (Stalin

vs. Mao)


13

Initial Conditions II

• Communities of co-ethnics willing to provide investment capital

• “Continuity hypothesis” (2 versions)– Neo-Ming: restore position before the

18th century = world leader;

– Maoist: strong, sovereign state and cohesive ruling party. (Putin’s favorite)


14

Policy

• Gradual approach

• Stable environment

• Authoritarian leadership (Putin’s other favorite)


15

Gradualism?• USSR 30 years of reforms.

• Hungary “goulash communism”

• China Rapid de-collectivization

• “Fevers” and intense competition resulting from partial openings (Zweig).

• Real gradualism was gradual acceptance of unintended private sector. Not necessarily permanent.


16

Stable?• Democracy Wall 1979

• Anti-Spiritual Pollution 1983

• Bourgeois Liberalism 1987

• Tiananmen 1989

Each time, economic reforms resumed, due to COALITIONS of winners, investors and political leaders.

Zweig: Development coalitions

Pei: “Social takeover coalitions”

Howell: “Spiraling out”16Nov. 30, 2012 For CEIP, H. Balzer, Georgetown U.

17

Authoritarian?• Deng’s “Three No’s”

– No promotion of privatization– No propaganda campaign– No crackdown

• Competition

• Repeated pattern: success where state partially lost control (Zweig, Nee and Opper)

• State priorities often not achieved, but (some) regions develop


18

Alternative Explanation• Character of integration with the

international economy: “Thick” vs. “Thin” • NOT simply open or closed (cf Japan)• China’s Thick integration generated

coalitions of entrepreneurs, officials and foreign investors = able to win (some) battles: BOTTOM-UP DEVELOPMENT

• Nothing comparable in “ democratic” Russia


19

Chinese Elites Embrace Globalization, Russians Not

• Bolshevik heritage?

• Time under communism?

• Timing of the opening?

– Cultural Revolutions

– Self-confidence of leaders


20

Quality of Integration

• China Thick; Russia Thin

• Chinese see Globalization as their best chance to catch up and surpass

• Russians view Globalization as Americanization, designed to relegate them to junior partner status or worse. Threatens epistemic communities.


BOOK OUTLINE:FOUR INTERRELATED TOPICS

DEMONSTRATINGQUALITY OF INTEGRATION

1. REGIONALISMS (Sub, Trans, Multi-National)

2. SECTORAL POLICY

3. CORRUPTION

4. EDUCATION, SCIENCE, TECHNOLOGY, INNOVATION



4) Education, Science & Technology,Innovation

• Stunning reversal of positions

• Russian Universities in decline

• China now the fastest-growing R&D community, changing innovation model.

• Russia less integrated with global S&T = increasingly less important.

22

INTERRELATED• Regions become financial supporters of

education, R&D, innovation. Competition.

• Growing industrial sectors create demand for R&D and innovation, & provide jobs.

• Less damaging forms of corruption = less severely distort merit-based decisions, less inhibit competition

• Knowledge economy more likely to promote merit and competition.


Global Education Competition:(human & financial resources, status)• For students (both bodies and brains)• For faculty (teachers and researchers; stars)• For managers (education, research,

development)• For status = RATINGS GAME• For financial support (state and private)CIRCULATION KEY = INCREASES

COMPETITION


25

Higher Education• Rapid expansion in both sysems = quality

problems: students AND faculty• Both emphasizing elite institutions

– China 211 (106; 9 top priority)– Russia National Research (29) and Federal (8 +

2) Universities• Chinese internationalizing; Russians losing the

best graduates, weak linkages• China far greater success in attracting SOME

returnees


26

Increased EnrollmentsRussia: China:

1990 2,824,500 (2%) 1997 1,000,000

2008 7,513,000 (5%) 2006 5,500,000

(China target of 30,000,000 by 2010)

Neither increasing faculty to keep up


For CEIP, H. Balzer, Georgetown U. 27

Doctoral Degrees: Science & Eng.

Nov. 30, 2012

Foreign Student Enrollment 2009

Russia: 90,000- 20% Kazakhstan- 20% Other CIS- 40% Asia (majority

from China)

China: >300,000

Top 5 Sources:- South Korea- Japan- United States- Vietnam- Thailand


For CEIP, H. Balzer, Georgetown U.

Students Abroad

Nov. 30, 2012 29

30

The Education Ratings Game

• U.S. News & World Report

• Times Higher Education Supplement

• Jiao Tong U. Shanghai

• Spanish Web-based

• Russian system

• Grande École des Mines Paris Tech

• 2011 Iranian “Islamic Universities”


31

Times Top 200, 2009

• Hong Kong: ( 5) #s 24, 35, 46, 124, 195

• China: (6) #s 49, 52, 103, 153, 154, 168

• Russia (2):– 155 Moscow Lomonosov– 168 St. Petersburg State (Mendeleev)

2012 Russia drops out of top 200


32

Shanghai Jiao Tong Top 100

• 77: Moscow State (Lomonosov)

• No Chinese or Hong Kong Universities in the top 100


33

Russian Version of Rankings

TOP 10 (Global universities ranking)

1 Massachusetts Institute of Technology, USA2 California Institute of Technology, USA3 University of Tokyo, Japan4 Columbia University, USA5 Lomonosov Moscow State University, Russia6 Harvard University, USA7 Stanford University, USA8 University of Cambridge, UK9 Johns Hopkins University, USA10 University of Chicago, USA


http://www.globaluniversitiesranking.org/index.php?view=article&id=94:top-100&tmpl=component&print=1&page=&option=com_content&Itemid=131

http://www.globaluniversitiesranking.org/index.php?view=article&id=94:top-100&tmpl=component&print=1&page=&option=com_content&Itemid=131

34

Results of Russian Ranking

• 2 in Top 100 (Moscow & St. Petersburg)

• No Chinese or HK in Top 100

• U. of MN # 26; U. of MD # 28

• Second 100: 2 Russia; 2 China; 2 HK

• Third 100: 3 Russia; 2 China

• 301-430: 45 Russian

52 of 430 = 12%


Real Life: ШПАРГАЛКИ


Real Life: внедрение


Russian Mass Tertiary Education = Growing Burden on Students

• 2/3 at State institutions pay tuition

• No price competition (yet)

• Cost rising, tied to budget students

• Corruption/Fraud

• Demographic situation makes this unsustainable


40

Perspective:Russia enrolls more students into higher education

than graduate from secondary school.China has a goal of enrolling 25% of secondary

school graduates in all forms of advanced education by 2010.

BUT China appears to be getting a higher return on its investment.- Better ratings- PISA scores (Shanghai)- Returnees


Emigration a Problem for Both

• China now losing entrepreneurs

• Russia losing creative class.


42

Migration & Creative Class• quality of life and community• even more pronounced for S&T. • Best scientists go where the best work

is being done = Technology clusters

• Focus on brain drain often ignores

brain gain, and brain circulation.• Putin willing to let creative people

leave if they are potential opposition.42Nov. 30, 2012 For CEIP, H. Balzer, Georgetown U.

43

Chinese Understanding of Issue

• Initial Drain. Deng said necessary & unavoidable. He underestimated by 50%.

• Learned to compete to attract SOME OF them back

• Competition between regions and institutions = INCENTIVES

• Returnees in general better than those who stayed home (self-selection.?)


44

Russian Ambivalence• Resentment of those who left• Housing issue• Subject to all problems of managing

research in Russian environment.• Do not recognize foreign degrees• Do not permit back-and-forth (beginning to

change).• Official Programs vs. epistemic

communities & corruption.


For CEIP, H. Balzer, Georgetown U.H. Balzer London Oct. 2010 45

Growth in Research Output, 1999-2008

Nov. 30, 2012

46

Publications Growth, 1990-2008


47

Numbers of Researchers



Change in # of Researchers

Nov. 30, 2012

PATENT APPLICATIONSTOP FIVE OFFICES, 1995 & 2010


PATENT GRANTSTOP FIVE OFFICES, 1995 & 2010


PATENT GRANTS, 2010


UTILITY MODEL GRANTS, 2010


INDUSTRIAL DESIGN APPLICATION/REGISTRATION

TRENDS


PROBLEMS IN THE RUSSIAN SYSTEM

• Science “a system for generating knowledge”

• “Science policy” does not include technology or innovation

• Low financing, almost entirely from State budget: 29th in world in share of GDP.– (OECD 2/3 private funding; Russia just 27%)

• Cadres

• Bureaucracy and Corruption

Nov. 13, 2012 Balzer, Govt 407, S T & I 54

CHINA PROBLEMS• Corruption and Falsification, including by

returnees

• Overly rigid incentives/criteria

• Nobel mania

• Time Horizon

• Lack of new product innovation

• Competition sometimes excessive

• Quality

• Growing role of SOEs deprives SMEs of talent and financing.


AUTO & TRUCK PRODUCTION, 2011

• Russia 2 of top 50 Producers (24 & 46)

• China 16 of top 50 producers (17, 19, 20, 23, 25, 26, 27, 30, 31, 32, 35 37, 40, 42, 43, 47, 48)


57

BMW 7 vs BYD F6


58

Logos


SETTING PRIORITIESOvercoming the resource curse works when the resource sector becomes the Knowledge-based sector•Russia buying foreign technology for oil and gas

•Russian priority sectors (to 2020) are:

Information & Telecom Nanotechnology

Life Sciences Biotechnology

Transport & Space Clean Energy

Security & Counter-terror Advanced WeaponsNov. 30, 2012 For CEIP, H. Balzer, Georgetown U. 59

60

Nanotechnology

• THE Russian program for Putin– Not clear why: not a strength

– Too small to see?

• Dwarfed by U.S. spending• China major program with little fanfare

World Nanotechnology Patents 2004-06:

USA 43%

China 1% (13th)

Russia 0.4% (22nd)


Home Country: Nanotech Patents


62

Skolkovo: The Innovation Center

• Chosen over Tomsk, Novosibirsk, & St. Petersburg, March 19, 2010.

• Intend to develop as rapidly as possible

• Dvorkovich and Surkov describing different planets.

• System change or Enclave?


63

Zhongguancun


64

Zhongguancun


H. Balzer London Oct. 2010 65

Skolkovo Site 2009



Skolkovo, 2009

66

Skolkovo, 2010


Skolkovo Hypercube, 2012


69

Explaining Zhongguancun Success• Beijing government liberal approach to networks;

some funding. (Good Mother-In-Law, Segal 2003)• Nonhierarchical relationships: Lacked power to

control SOEs or spin-offs• Ownership restructured = shareholders

(Market provides capital, undermines hierarchy)• Outperformed Shanghai, Xi’an & Guangzhou• Indigenous companies learn from MNCs but focus

on domestic market. (Zhou 2008) • Key role of returnees.• Red Queen innovation model.


INNOVATION• No Russian Global Manufacturing Brands

• China gets bad press on innovation– Just imitate (cf Japan 1950s)– Do take risks; innovation happening– Lenovo, Heier, Baidu, Tencent


Value Added Computers, etc.


Value Added in High-Tech


Value-Added in Business/Financial Services and Communic. (3 to 7%)


74

Solving the Puzzle

• Why has Russia not maintained its lead in Education and S&T?

• China higher rankings, more spending

• China growing value-added

• China leading in “clean” technology, nanotech and IT.


75

Misleading Answers

• Soviet system overrated

• Money

• Resource curse

• Flawed privatization

• Flawed policy advice

• “Mentalitet”

• State programs by authoritarian regime75Nov. 30, 2012 For CEIP, H. Balzer, Georgetown U.

76

More Promising Answers

• Incentive structures & Competition

• Epistemic communities

• Institutions (including corruption)

• This is good news: problems can be mitigated through incentives and competition


AVOID IDEALIZING CHINA• Not yet product innovation (though rapid

manufacturing changes; Red Queen)

• Much assembly of foreign components

• Competition also produces fraud and angst

• BUT:– Enormous domestic market for small steps– Far higher value-added than would predict (3 times)– Avoid first mover costs, for now– Investment in Education and S&T could pay off in

next decade77Nov. 30, 2012 For CEIP, H. Balzer, Georgetown U.

78

The Lessons from China• Student has become the model

• Embracing Globalization reflects/creates economic and social interests.

• Domestic market and global production allow Red Queen Run (Breznitz & Murphree)

• Self-interested actors allied with supporters of reform fight retrenchment. Battle ongoing.

• KEY IS PARTIAL LOSS OF CONTROL.

• COMPETITION/EPISTEMIC COMMUNITIES78Nov. 30, 2012 For CEIP, H. Balzer, Georgetown U.

THANKS FOR STAYING AWAKE

QUESTIONS?


82

Trade Restrictions 2008-09



1) Economic Regionalism:Within, Across and Among States

• Both lost control over regions in 1980s– In China, this produced rapid growth in some areas– In Russia, “Involution”

• Russia-China border weakest integration in East Asia.

• Asian region dynamic; CIS moribund; Eurasian Union not promising

• Chinese regions support education & innovation

83


2) Leading Sectors

• Perhaps overdetermined:

Resources vs. Industry

• BUT not clear in 1991, especially given inherited human capital & oil prices at time

• China commerce and manufacturing, increasingly value-added (3x expected); new varieties of innovation

• Russia low productivity outside energy sector; diversification a slogan, not practice.

84


3) BRIC CORRUPTION 2009

Transparency International: Corruption Perceptions Index:

• India 74

• China 79

• Brazil 84

• Russia 146

85

Nov. 30, 2012 For CEIP, H. Balzer, Georgetown U.

DOING BUSINESS 2009

• CHINA # 20

• RUSSIA # 21

• EXTENT vs. QUALITY of Corruption

86

BRIC GLOBAL BRANDS

• CHINA: Lenovo, Huawei, Haier

• INDIA: Tata, Infosys, Wipro

Synonomous with offshore IT

• BRAZIL: Embrarer; BioTech

Leader in Synfuels and Agribusiness

• RUSSIA: Gazprom; Lukoil


G-20 Science, 1996-2008



Industrial Design Applications, 2007(different scales)

Nov. 30, 2012

PROBLEMS IN THE RUSSIAN SYSTEM

• Science “a system for generating knowledge”

• “Science policy” does not include technology or innovation

• Low financing, almost entirely from State budget: 29th in world in share of GDP.– (OECD 2/3 private funding; Russia just 27%)

• Cadres

• Bureaucracy and Corruption


CADRES

• Large Brain Drain, Internal & External

• No Brain Gain, Little Circulation

• Ageing – Age 40-59 HALF of proportion in U.S.– Over 60 3 times share in U.S.

• Programs to attract talent from abroad modest and insulated.


Bureaucratic Obstacles

• Grants small; funds often late

• Ambiguous legal status

• Federal Programs not transparent; criteria vague

• Regulations often limit awards: – Cost and length rather than quality– Specific budget categories

• Resist competition


CORRUPTION

• Customs barriers

• No competitive bidding on equipment

• Cost effectiveness about 10-15% of what is realized abroad

• Officials emphasize infrastructure projects

• Travel and large equipment purchases


Russia and Global Knowledge Econ.• Russia Similar in what it confronts:

– Mass Tertiary Education– Demands of Knowledge Economy– Resource Constraints

• Russia outlier in:– Demographic crisis– Academy of Sciences Role– Bureaucratic obstacles– Not confronting fraud and corruption– Resistance to internationalization

(epistemic communities)94Nov. 30, 2012 For CEIP, H. Balzer, Georgetown U.


Institutional ExpansionNumber of VUZy in Russian Republic/Federation at beginning of

academic year:

YEAR TOTAL STATE PRIVATE

1940/41 4811945/46 4561950/51 5161960/61 4301970/71 4571975/76 4831980/81 4941985/86 5021990/91 5141991/92 5191992/93 5351993/94 626 548 781994/95 710 553 1571995/96 762 569 1931996/97 817 573 2441997/98 880 578 3021998/99 914 580 3341999/00 939 590 3492000/01 965 607 3582001/02 1008 621 3872002/03 1039 655 3842003/04 1044 652 3922004/05 1071 662 4092005/06 1068 655 4132006/07 1090 660 4302007/08 1108 658 450

[Rossiiskii statisticheskii ezhegodnik, 2002, p. 227; 2004; 2008]95Nov. 30, 2012


State vs. Private

• Russian Private VUZy:

42% of institutions

17% of the students

• Full-Time Study:

State: >50%

Private: <25%

Nov. 30, 2012 96


VUZ Faculty ResourcesYEAR STATE PRIVATE

1993/94 239,800 3,800

1995/96 240,200 13,000

2000/01 265,200 42,200

2005/06 322,100 65,200

2007/08 340,400 78,800

2008/09 341,100 63,400

2009/10 342,700 54,800

(Students increase 165%; Faculty 66%; includes sovmetitelstvo.)

Nov. 30, 2012 97

98

Russian Elite Universities

• 2006-08: 57 Innovative Universities

• 2009-2010: Research Universities

2 Pilot; 12 & 15 by competitions = 29

• Moscow and St. Petersburg

• Federal Universities (no competition)

2 Pilot; 6 by decree = 8 (could increase)

(Total of 39 with special status, of 660)


99

Chinese “Key” Universities

• 1956 11

• 1978 88

• 1993 211 program goal of 100 by 2000

Currently 106

• 985 Program in 1998: 9 special funding– About 30 early 2000s– 2010 included 49


U.S. News USA Top 20, 2011

1. Harvard2 Princeton3 Yale4 Columbia5 Stanford5 U. Pennsylvania7 California Inst. Techno.7 MIT9 Dartmouth9 Duke

9 U. Chicago12. Northwestern13. Johns Hopkins13. Washington U. (St. Louis)15. Brown15. Cornell17. Rice17 Vanderbilt19 Notre Dame20 Emory


U.S. News #s 21-25, 2011

21 Georgetown

22 U. California Berkeley

23 Carnegie Mellon

23 U. of Southern California

25 UCLA

25 U. of Virginia

25 Wake Forest U.

[ONLY 3 of top 27 Not Private]


Male Births


For CEIP, H. Balzer, Georgetown U.H. Balzer London Oct. 2010 103

Research Articles by Field

Nov. 30, 2012

G-20 Science, 1996-2008


Patent Per R&D $, 2001-10


106

Chinese Policies for Returnees

• May choose where to work; Given decent housing• Special grants, plus competition for national research

support• Special schools for children with poor Chinese language

skills• WTO Membership increased demand.• 2002 “Diaspora Model:” Accepted that most/best would

not return permanently.• 2003 Hu and Zeng “three talks:” Returnees Irreplaceable • Focus on improving overall climate.


107

Not Entirely Positive

• Conflicts between retuning “sea turtles” and “land turtles” who did not go abroad.

• Some leave again; others go into business.

• Recourse to “swallows” who spend part of year in China: only way to get the top people.

• Fraud/including by those overseas


108

Benefits Outweigh Costs

• Returnees more likely to import technology.• Stronger global networks; more grants and

fellowships; publish more in international journals.

• Market forces most important factor in attracting people back: Incentives and competition.

• Virtuous circle (Jonkers 2010): returnees demand international standards


109

Lada 2010


110

Mass Automobile Production


111

Top 4 Auto Producers, 2000-06


112

Auto Manufacture in China, 2000-06


113

Mercedes C vs. Geely Merrie 300


114

Smart/Chinese Smart


115

Lada C Concept Car


116

Lada 2010


117

IT: Skolkovo vs. Zhongguancun

• Unique phenomena

• Most Tech Corridors NOT in Capitals:– Silicon Valley; Route 128, N. VA.

– Bangalore

– Grenoble

– Cambridge

– Milan



Zhongguancun

118


Skolkovo Architect Plans

119

Medvedev’s 5 Priority Sectors, November, 2011

• Medical Technology

• Energy and Energy Efficiency

• Information Technology

• Space & Space Science

• Telecommunications


CADRES

• Large Brain Drain, Internal & External

• No Brain Gain, Little Circulation

• Ageing – Age 40-59 HALF of proportion in U.S.– Over 60 3 times share in U.S.

• Programs to attract talent from abroad modest and insulated.


Bureaucratic Obstacles

• Grants small; funds often late

• Ambiguous legal status

• Federal Programs not transparent; criteria vague

• Regulations often limit awards: – Cost and length rather than quality– Specific budget categories

• Resist competition


CORRUPTION

• Customs barriers

• No competitive bidding on equipment

• Cost effectiveness about 10-15% of what is realized abroad

• Officials emphasize infrastructure projects

• Travel and large equipment purchases


RUSSIA AND CHINA IN THE GLOBAL KNOWLEDGE ECONOMY HARLEY BALZER GEORGETOWN UNIVERSITY CEIP, NOV. 30,...

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Transcript of RUSSIA AND CHINA IN THE GLOBAL KNOWLEDGE ECONOMY HARLEY BALZER GEORGETOWN UNIVERSITY CEIP, NOV. 30,...