China’s innovation-driven practices call for indigenous economic theories

Source:Chinese Social Sciences Today 2023-08-23

A worker transfers key components of new energy vehicles at the warehouse of a science and technology enterprise in Nantong, Jiangsu Province. Photo: CFP

Since reform and opening up, mainstream Western economic theories, such as neoclassical and Keynesian economics, have been introduced to China comprehensively, and absorbed into a giant disciplinary system. Currently, China has entered the high-quality development stage. Faced with the principal contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life, theories for innovation-driven development are urgently needed for the country to set trends in the technological revolution and advance Chinese modernization. Economic theories should be basic theories for innovation-driven development, but Western mainstream economics is inadequate to explain the numerous problems in contemporary China’s innovation-driven development practices.

Limitations of Western mainstream economics

Innovation-driven development first needs to solve the contradiction between thinking and being. Essentially, it is a process of activities in which humans understand attributes of nature and transform it to meet their needs. This involves many issues, such as the relationships between humans and thinking, between humans and nature, and interpersonal dynamics.

In terms of the relationship between humans and thinking, neoclassical economics evaluates the impetus and obstacles for innovative activities with the attitude toward currency, instead of studying subjects’ perceptive and decision-making processes. Keynesian economists discuss entrepreneurs’ expectations and the propensity to consume, but shed no light on rules of innovative thinking. Neither of the two schools can decipher the ideal, will, and dynamics of China’s innovation-driven development, how China creates a loose innovative environment that allows failures and delegates decision-making power for research, or how it stimulates creativity through institutional reform, not to mention how to guide talent cultivation, selection, and employment.

Regarding the human-nature relationship, Western mainstream economics doesn’t interpret the processes of basic research, applied innovation, and product innovation. Neoclassical economics attaches importance to technology and resources but presumes that technology is exogenous, and resources are given, while Keynesian economics focuses on addressing insufficient effective demand with the “visible hand,” overlooking the relationship between demand and innovation, with innovation, the fundamental driver, missing. Their explanations for a series of major realistic issues are thus powerless, such as how China deals with key and core technologies, how it takes the lead in innovation from a follower position, builds self-reliance and strength in science and technology, carries out supply-side structural reform, and realizes high-quality development.

Neoclassical economics investigates competitive strengths primarily from the cost-price ratio, instead of considering innovative capacities. In this light, China should have stagnated at the labor-intensive industrial chain, rather than “overtaking on a bend” by strengthening its capacity for innovation. Because of this theory, regrettably, many developing countries’ innovation-driven development abilities have been undermined by “market forces,” as they are mired in the poverty trap of selling cheap labor and participating in the global division of labor with natural resources.

When it comes to interpersonal relations, Western mainstream economics exclude all factors with Chinese characteristics from its theoretical framework, such as ownership, the CPC leadership, state governance, national history, and traditional culture. However, these factors are indispensable variables in China’s innovation-driven development. Neoclassical economics regards ownership as a self-explanatory theoretical precondition, simply interpreting primary distribution as cost management through the supply-demand relationship. Keynesian economics also does not involve ownership and residual distribution, so they can never explain the significant advantage of China’s basic economic system, the strategic role of State-owned enterprises in innovation-driven development practices, the development model that aims at balancing fairness and efficiency, and the synergistic innovation model featuring collaboration between industries, universities, and research institutes.

In addition, due to its presumption of ownership as a theoretical premise, neoclassical economics also takes superstructure for granted in its theory. Although Keynesian economics examines government interventions, it doesn’t discuss political relations. Therefore, they have little idea how China ensures the people enjoy equal opportunities to participate in innovation and development, or how it improves the social governance system based on collaboration, participation, and shared benefits.

Theoretical roots of the limitations

The limitations of Western mainstream economics stem from its theoretical paradigm, manifested in dimensions for theorizing, thinking patterns, theoretical stances, and so on. The essential issue of innovation-driven development lies in the contradiction between thinking and being, and innovative subjects’ activities are bridges linking the two. The dimension of innovative subjects’ activities is critical in theorizing innovation-driven development, but there is no such dimension in Western mainstream economics.

Neoclassical economics reflects on the supply-demand equilibrium and price theory from the market, while Keynesian economics seeks equilibrium between total supply and total demand from the perspective of the monetary circuit. Lacking the dimension of innovative subjects’ activities, they can only research some factor relations in the world of objects, rather than the process of how humans make sense of and transform nature, hence Western mainstream economics cannot explain myriad problems in the relationships between humans and thinking, and between humans and nature, in China’s innovation-driven development.

Since the marginal revolution, Western mainstream economics has been committed to playing the role of “physics” in the social sciences. It doesn’t care about how complete the explanation of realistic issues is but is interested in the scientific nature of theory. To this end, it follows a highly abstract and subjectively rational thinking paradigm. First, it aprioristically abstracts opinions and verifies the correctness of the opinions through logical reasoning. Due to subjective rationality, researchers are usually confined to their study, passionate about one hypothesis after another in order to ensure their theory is scientific. Economists are increasingly fond of using mathematical tools to draw so-called tenable conclusions through assumptions, modeling, and deductions.

This thinking paradigm leads to two consequences. First, the quest for theoretical rigor often leads researchers to elaborate on merely certain aspects of one matter. To pursue the scientific nature, economists only research a few factors, splitting the world and viewing it in a static, one-sided manner. Second, they force social phenomena into a very solid box provided and manufactured by paradigms, constructing appreciable theoretical “artworks,” but are actually describing an abstract ideal world.

As such, neoclassical economics presumes technology and resources are unchanging variables, paying attention only to cost and benefit, instead of dynamic capacity. It abstracts lively humans into something that can be measured by currency amounts and ignores many distinctive factors of China. Keynesian economics is hyper focused on money movements, turning a blind eye to the flows of value and knowledge. Thus, Keynesian economists cannot offer explanations for multifold issues in China’s innovation-driven development practices, such as development drivers, innovative environment, talent growth, basic research, applied innovation, product innovation, the CPC leadership, and national history.

Constructing indigenous theories

In recent years, several economic papers authored by Chinese scholars, based on theoretical paradigms of Western mainstream economics, have demonstrated the relationships among several factors related to innovation. Some articles have attempted to explore non-mainstream economic theories, such as Schumpeter’s theory and evolutionary economics, but these approaches are also defective in terms of dimensions for theorizing, thinking patterns, and theoretical stances.

Schumpeter abstracts “entrepreneurs” into a group that can create all profits, while evolutionary economists tend to abstract “human society” into a world of living beings. Facing practical issues like who should innovate, where the impetus comes from, and how we should capitalize on innovative outcomes, researchers mostly rely on their experience and logic or resort to knowledge from other disciplines. This signals a disciplinary crisis, in that current economic theories are inadequate as basic theories for innovation-driven development.

According to dialectical materialism, human perception is a dynamic reflection of objective reality. Human knowledge is restricted by human activities, so theories must originate from practices and be tested and adjusted to match practice. Constructing innovation-driven development theories with Chinese characteristics must be people-centered and start from innovative subjects’ real activities to systematically examine the country’s practical issues and lift its innovation-driven development practices from perceptual levels to rational specifics.

The contradiction between unbalanced, inadequate development and the people’s needs for a better life by nature reflects the contradiction between humans and nature. To resolve this contradiction, we need to discover new attributes of nature through the interaction between material mediums and nature, which means basic research. It is also necessary to reorganize or change the materials’ attributes to figure out their usefulness, an applied innovation process. Moreover, we should alter the objects’ state of existence to tailor them to human needs, or conduct product innovation. The three innovation processes make up productive forces, and represent a fundamental pathway for addressing the principal contradiction facing Chinese society in the stage of high-quality development. Innovation-driven development theories with Chinese characteristics must regard the three processes of innovation as the core content of research, including, yet not simply studying, factor characteristics of physical objects valued by Western mainstream economics.

Economic relations have a bearing on innovative activity processes by conditioning the delivery of innovative outcomes’ social value and income distribution. Political relations affect activities of understanding and changing nature by restricting economic relations and order. Intellectual relations hold sway on people’s innovative behaviors by influencing our mental world. And human capacity for innovation is closely related to our thinking characteristics.

Innovation-driven development theories with Chinese characteristics should touch upon the economic, political, intellectual, and human cognitive aspects, including but not limited to the market supply and demand mechanism and monetary movement laws. Additionally, researchers should not abstract numerous factors like in neoclassical or Keynesian economics. Theories that can respond to China’s innovation-driven development must be rooted in the country’s real practices and rival Western mainstream economics, yet with unique, significant strengths.


Xu Quanjun is an associate research fellow from the Tianjin Academy of Social Sciences.

Editor:Yu Hui

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