Lessons from the Nobel Economics Prize for China's Technological Innovation

Duan and Lin

This year, the Nobel Economics Prize was awarded to three American economists: Daron Acemoglu, Simon Johnson, and James A. Robinson. The prize aims to recognize their research on how institutions form and influence prosperity. In other words, this year's Nobel Economics Prize honors institutional economics.

Institutional economics can be simply described as studying the impact of policies and laws on the economy. Early notable researchers in this field include the 1991 Nobel Economics Prize winner Ronald Coase, who focused on transaction costs. His important contribution – the famous "Coase theorem" – can be understood as follows: if property rights are clear and transaction costs are zero, then regardless of who owns the property, it is possible to achieve Pareto optimality. Pareto optimality means that the most people benefit.

This year's Nobel Prize winners, on the other hand, used a comparative institutional approach to find beneficial institutions for economic development. In this regard, there is a book called "Why Nations Fail" co-authored by two of this year's Nobel Prize winners, Daron Acemoglu and Simon Johnson. In this book, they compare North Korea and South Korea, East Germany and West Germany, Botswana and Swaziland, and conclude that there are two types of institutional systems: inclusive institutions and extractive institutions. Inclusive institutions have some common features, such as stable property rights policies, a well-developed legal system, a well-developed public service system, and smooth free trade. Extractive institutions also have some common features, such as designing the entire system for the benefit of one group of people, with some people gaining benefits through institutional privileges or exploiting others to gain advantages, resulting in a privileged class. Based on extensive comparative research, Daron Acemoglu and Simon Johnson point out that inclusive institutions lead countries towards prosperity, while extractive institutions lead countries towards failure.

The views of this year's Nobel Prize winners need to be objectively viewed. As American scholars, they are more likely to view the world from an American perspective, and they believe that inclusive institutions have the United States as their model, which shows that there is a certain limitation in their research scope. However, we must acknowledge that inclusive institutions can indeed promote innovation, including major technological innovations.

In recent days, we have seen SpaceX's impressive performance: the successful launch of Starship and its precise recovery on the launchpad. This is a stunning technological achievement. Currently, China's technological level is rapidly advancing, but it still lacks major breakthroughs in technological innovations, lacking achievements that can compare with Nobel Prize winners in physics, chemistry, and physiology.

China has now become the world's second-largest economy, but in terms of technology, it cannot be satisfied with imitation and following. Instead, it should actively move towards original scientific creativity, and China also needs scientists recognized by Nobel awards. Although countries around the world have ideological disputes over social sciences' Nobel prizes, they are highly recognized in natural sciences, and the number of Nobel awards in natural sciences can reflect a country or region's creative ability in frontier science to some extent.

Why does China lack major original scientific achievements? This is open to interpretation. Dr. Wang Yifang, director of the High-Energy Physics Institute at the Chinese Academy of Sciences, recently proposed an opinion worth considering: "Although there has been an increase in the return of talented individuals to China, top-notch research talent still faces challenges. China's research output and patent numbers have led the world, but cultivating Nobel-level scientists requires a more optimal research environment and academic circle. Overseas research environments and peer exchange are key factors attracting top-notch talent." To establish a high-quality research environment, we need to create a series of inclusive institutional systems, such as protecting technological property rights and being inclusive towards research projects. China has significant room for improvement in this area. If it can vigorously cultivate an atmosphere that allows for experimentation and error, gives researchers more latitude and academic freedom, and waits for the time, China will definitely produce numerous major original scientific achievements, and the Nobel Prize podium will increasingly feature Chinese scientists.

The opinions expressed in this column are those of the author only.