eli james

Where is the Intellectual Capital of Asia?

1:18am, 3 November 2014

Historically, economic centres of growth have roughly mapped to also being the intellectual centres of their age. (Think: Venice, Athens, Austria, and London at different points in the past).

If Asia is where the growth is at, where is Asia’s intellectual capital? Is it Singapore? Or Korea? Japan, perhaps?

This question bothers me because it might mean that Asia isn’t really the centre of growth for this age. Or that if it is, it isn’t one of the kind that would last.

Is there truth to this claim? Possibly. I believe there’s something to the idea that intellectual capitals are leading indicators of the right kind of growth one wants to see in a country.

For starters, consider how long-term growth can only be achieved through creative disruption. Most of the growth we’re seeing in Asia today isn’t of this sort: it is driven instead by a shift from older, less efficient industries to newer, more efficient ones.^[1] Most of Asia’s newly rich are simply the first winners in a rush to own markets. There are no incumbents to defeat; many of the winning companies are then also first monopolies.

Once this growth levels off (the argument goes) the only way a country can keep growth going is via disruption: the old replacing the new, often with increased efficiency. Creative destruction may not be pretty, but the net gain from destroying old jobs tends to be worth it. (We don’t lament the loss of the horse as a primary means of transportation, nor do we miss the many jobs that went with it).

Unfortunately in Asia this tends to be harder to do. I once observed to a friend that it seems difficult to build a conglomerate in Asia without some sort of shady connection to the government. I now repudiate myself: all giant companies have shady connections to the government, regardless of where the governments are located. The difference, however, between lobbyists in the US and guanxi in China is that it’s a lot easier for newcomers to defeat lobbyist groups than it is for them to route around elite favours. At least historically, creative destruction happens more often in countries with permissive political institutions than without.^[2]

All this is to say that intellectual capitals tend be found in the places that have more permissive governments. In other words: the same conditions that allow for creative destruction lend themselves favourably to the gathering of good research. Asia’s lack of one may be a leading indicator of its inability to deal with creative destruction.

(Possible ways in which this might be wrong: intellectual capitals don’t matter as much any more, due to the globally collaborative nature of modern research; permissive institutions aren’t necessary for the growth of certain kinds of industries; on a personal level, these macro facts don’t matter - it’s probably a good idea to just make friends with elites and then join in on the land-grab.)

Footnotes

^[1] Vaclav Smil makes a compelling argument linking manufacturing to growth.

^[2]An argument from Acemoglu’s and Robinson’s Why Nations Fail is that Soviet Russia experienced breathtaking growth in the decades after WW2 due to a shift from agriculture to manufacturing. They then assert the growth we’re seeing in China is of the same kind. (I disagree with their conclusion that China will eventually not succeed; I think the Chinese government is a lot more economically permissive than they would assume). That aside: while the book has flaws, I think those two particular arguments work well. This is not the first time I’ve seen them used in such a manner.