Consumption and capturing the value of innovations

You hear a lot about how the "rise of China" is going to come at the expense of Europe, America and other "fully developed" regions. Proponents of this view treat trade as a zero-sum game, never mentioning the eagerness of individuals in China to display wealth and status, often in the form of "foreign" goods and services. The list is endless: a Mercedes, an MIT education, a top-of-the-line hi-fi system, a pair of Italian shoes, a bottle of single malt whisky, a night at the opera, Rolls-Royce engines and expensive cosmetics. There is also little mention of the capital goods that are imported into China and the fact that most of the developed world's economies are made up of locally delivered services, not products manufactured in low-wage factories.

So what's all this got to do with innovation? It highlights the importance of consumption to innovation -- the demand side. It also reminds us of the simple and powerful idea that "consumption changes the consumer" -- there will always be new-market opportunites opening up and others shrinking.

Amar Bhidé, of Columbia University's business school, recently presented a paper in Venice at the CESifo and Centre on Capitalism and Society conference. This is a lengthy read, but it provides a very interesting perspective on innovation and the importance of consumption to economic growth.

innovation in China