Xue Lan: Imperfect Markets are the Biggest Restrictions of Innovation

Governmental organizations need to activelycooperate with social organizations. Take food safety for example, if weestablish a system encouraging people to report when they see illegal actions,and thus find and solve these problems.

Reporter: Luo Fen

Reporter: Itis pointed out in <OECD Chinese Innovation Policy Research Report> thatthere lacks coordination between regional research and innovation in China. Forinstance, Beijing occupies more basic research resources, yet does not haveequipped industrial foundation, while Shanghai enjoys active industrializationyet lacks strong use-oriented basic research facilities. How do you think cansuch situation improve in the future ten years?

Xue Lan:We need to give concrete analysis for concrete issue. Beijing enjoys verystrong research ability in that there are The Chinese Academy of Sciences andother famous universities, yet we also have to see that Beijing is already apolitical, cultural and educational research center of China, which makes itvery hard to become an industrial center since a city anyway occupies limitedresources and it is impossible to become “center” of all kinds. Judging fromelement cost (population explosion issue in Beijing is already very serious),it is not suitable to develop so many industries in Beijing, which is notsaying that Beijing’s knowledge potential has not been fully developed, but itis restricted by other elements that make it hard to develop so manyindustries. Of course, we can further discuss on how to make knowledge productsproduced in Beijing spread more quickly and effectively.

Shanghai’sresearch ability is also in front row like Beijing, and faces similar problemsas well, which means that they both need to make sure their position ofdevelopment. There is one point where Shanghai is better than Beijing -coordination. Shanghai’s coordination with Yangtze River Delta is better thanBeijing’s with Bohai Economic Rim. Yangtze River Delta provides innovationpotential for Shanghai and achieves strong radiation effect.

Reporter: Do you think that there will be innovative enterprise likeApple in China in the future ten years? Why?

Xue Lan:Frankly speaking, I’m not very optimistic about that. Currently, government hasalmost used all encourage measures and policy tool that it can use, such as2011 plan, yet the biggest problem is that there is still a big gap between ourmarket and a mature market for fair competition, and moreover, our marketimproves very slowly. Sometimes I talk with the founders of small enterprises,and I know that it is very hard to run a enterprise nowadays because there area series of problems. Imperfect markets are the biggest restrictions oninnovation.

Reporter:As to improvement of market, you have previously mentioned that China hasalready reached the key point to pursue overall improvement of marketenvironment and system structure. What measures should government takes inorder to achieve such overall improvement?

Xue Lan:Government can do a lot, and small enterprises as well as innovativeenterprises can feel the improvement most deeply. For example, the most basicmeasure is protection of intellectual property rights.Secondly, government should lower the threshold for enterprise start, andattack illicit competition including monopoly. Thirdly, government shouldstrictly attack irregular action, such as environment pollution and intellectualproperty right violations. Moreover, government should improve loan floatingenvironment and build relatively perfect credit system, which are all importantcomponents of perfect market environment.

Reporter:You have pointed out that the salary of researchers is highly suppressed anddouble-track phenomenon in science and technology labor and capital market isvery serious, which has become an important reason for flow out of youngtalents in universities and research institutes in recent years. Can you talkabout ways to solve such problem according to your experience of overseas studyand work? 

Xue Lan:Non-profit organization providing public service is called national institutein China, and if it provides knowledge dense service, it will pose higherrequirement on labor capital which costs a lot. Countries in the world allprovide encouragement for knowledge capital. Usually, foreign countries offerhigher salary for same post. Of course, non-profit organization has lowermarketization degree, and thus encounters certain restricts in salary. In theUnited States, government provides less for same post than enterprise, but workin government enjoys higher stability and retirement security. In marketeconomy, labor capital has a shadow price in market, and if there is a huge gapbetween salary provided by government and the shadow price, the whole laborcapital distribution will be distorted. 

TakeChinese hospital for example, it is impossible that all doctors lose theirconscience at once. The actual reason is that the salary system of publichospital is very unreasonable. The system offers low salary while at the sametime forces doctors to guarantee basic salary by means of irregular ways such asprescribing more medicine. Other knowledge-dense industry suffers similarproblem (maybe except financing). We should adjust basic salary system andpractice annual salary system, which is overall salary, not piecework system.Nowadays, teachers are paid by class hour, which far less reflects value of labor.Knowledge work should not be treated as brick making which provides one Yuanfor one brick. We should offer overall salary, and pose higher requirementaccordingly, yet piecework salary has already been a custom in China, andtherefore, if we try to practice a new system, there will definitely bedissatisfaction and misunderstanding in society, yet I believe that we canpractice it if we make it clear.   

Reporter:Do you think that innovation and improvement in science and technology canbetter guarantee Chinese people in production, food, natural disaster and otherpublic security issues in the future ten years?

Xue Lan: Ithink in order to solve social supervision issue, innovation in science andtechnology is not as good as innovation of the system. Fundamentally, we shouldimprove our social supervision system.

First of all, we need to improve oursystem of supervision, while at the same time enhancing organization power.Secondly, we need to strengthen cooperation between governmental organizationand social organization. It is difficult for government to catch all illegalactivities (such as food safety, production, etc.). If we establish a systemencouraging people to report when they see illegal actions, and thus find andsolve these problems. Thirdly, we can also build system between enterprises formutual supervision and restriction. There are many successful modes that we canlearn from, take nuclear safety supervision for example, there is NuclearSafety Control Committee in the United States posing high requirement on allaspects of enterprise such as formulating standard for setting up nuclear powerstation. There is also an association among enterprises. All enterprises pay alarge sum of insurance money to the association. If accidents occur, theassociation will withhold insurance money as punishment. Every enterprise mustjoin the association and practice mutual supervision. Sometimes, fellow colleaguerestriction is more effective than government restriction.

Introduction of Xue Lan:

Dean ofPublic Administration College, Tsinghua University, distinguished professor ofChangjiang Scholar, main research direction is public policy andadministration, science and technology policy and innovation administration, crisisadministration, vice-president of China Administration Management Society,vice-president of Chinese Management Science Society