Professor Angela Huyue Zhang and Professor S. Alex Yang of the University of Southern California Gould School of Law and The London Business School explain the Chinese economy as a ‘Platform State’.
Since the rise of Google, NVIDIA, Amazon, Meta and friends some have suggested developed economies should study these models with a view to governments adopting the better habits of these successful enterprises.
There’s a problem though, few governments have both the strong state capacity and large domestic base-markets to pull this off; but China does.
The authors are legal experts so inclined to see China’s progress through the lens of legal oversight. However this doesn’t stop them getting to the heart of how today’s China actually works.
They point out three stages to fostering platform-development:
First, prioritize the construction of an innovation ecosystem but don’t try to pick winners.
Second, embed control in key interfaces at the same time as participating in selective ownership.
Third, scale the businesses before worrying about value capture.
The importance of a robust legal infrastructure is self-evident in this process but at the beginning stages of growth the government should set standards, maintain a fair playing field and stabilize progress. In the mature stage, regulation, dispute resolution and reigning in of excess become more important.
This is a neat summary of the reality of today’s China and more satisfying than some other analysis I’ve seen that attempts to map Schumpterian logic on the economy.
There’s an element of that but this analysis is more satisfying in explaining the states’ ‘whip AND drive’ approach to what is clearly a very, very successful development model.
As the author’s note though, it’s unlikely anybody else in the world will be able to replicate the progress; which doesn’t make a better understanding pointless (especially for investors!) and some elements can still be adapted and adopted elsewhere.
You can review the paper in full via this link How China Grows and Governs Innovation.
Happy Sunday.