LSE Public Lecture: Knowledge Economies in China – Professor Danny Quah
Date: November 14, 2007
Host: LSE Film and Audio Team
Speaker: Professor Danny Quah
Event Partner: Confucius Institute for Business London
Episode Overview
In this lecture, Professor Danny Quah, then Head of the Economics Department at LSE, explores China's transformation into a knowledge economy. He discusses China’s role in the global economy, particularly in relation to economic growth, the alleviation of poverty, and its burgeoning capacity in science, technology, and innovation. Quah examines common measures of knowledge-based growth, comparing China’s experience to that of Korea, and concludes with a nuanced optimism about China's future prospects, while also engaging in a lively Q&A on measurement, policy, and growth risks.
Main Discussion Points and Insights
1. Setting the Scene: Importance of Knowledge Economies
- Confucius Institute contextualizes the event: Emphasis on fostering China–UK business and cultural dialogue, particularly the importance of understanding the Chinese language and economic context.
- Quah’s Research Focus: The lecture weaves together economic growth, the knowledge economy, and the role of science and technology in China's global emergence.
2. The Big Picture: China’s Place in the World Economy
[02:00–14:30]
-
China as a Driver of Global Change:
- Cites the Goldman Sachs BRICS projections, noting China's rise from economic minnow (less than 5% of world GDP in 2003) to soon surpassing Japan and, eventually, the United States in total GDP by 2040.
- Notes the importance of understanding these as extrapolations, not facts, but confirms with current data that the trend is credible.
- Quote:
"As a national economic power, China, India, and the low and middle-income emerging economies are, dollar for dollar, matching the contribution to world economic growth that the currently rich countries already provide." – Danny Quah [11:22]
-
Emerging Economies as Engines of Growth:
- Even at official exchange rates, China and India’s contributions to world growth are on par with developed nations.
- Major global economic shifts are not theoretical—they are observable in real-time data on growth and trade.
3. Poverty Reduction: The 'China Effect'
[14:30–32:00]
- China’s Singular Role in Poverty Alleviation:
- Dramatic fall in the number of Chinese living on less than $1/day—from 634 million (1981) to 128 million (2004).
- Memorable Moment:
"All of the reduction in world poverty over the last 25 years has occurred in a single country: China." [24:15]
- Global poverty trends are essentially shaped by China’s internal progress.
- Visualization ‘Bubble Chart’ Explained:
- Bubbles representing countries move southeast as poverty falls and incomes rise; China’s bubble moves dramatically, in contrast to stagnating sub-Saharan Africa and slower-moving South Asia.
4. Under the Hood: Science, Technology & Total Factor Productivity (TFP)
[32:05–49:44]
-
What Drives Sustained Growth?
- TFP (A), not just capital (K) and labor (N), is key to long-run prosperity.
- Quote:
"Total factor productivity isn't everything in economic life, but in the long run it is the only thing in economic life." – Quoting Paul Krugman [35:12]
-
Case Study: Korea’s Cautionary Tale:
- Korea rose from poverty to OECD status in a generation, excelled in technology and education, but suffered in the 1997 Asian financial crisis. Its TFP remained low despite high tech adoption and R&D, challenging the adequacy of TFP as a sole predictor of resilience or future growth.
- Quote:
"Something is wrong with our picture of the world... These direct indicators of science and technology I personally find much more reliable than indirect measures of total factor productivity." [46:30]
-
Critique of TFP as a Measure:
- Direct indicators—problem-solving scores, R&D intensity, patents—show Korea (and increasingly China) thriving, while TFP indexes lag.
- The disconnect suggests TFP may not capture all dimensions of a ‘knowledge economy.’
5. China’s Knowledge Economy: Current Position and Trajectory
[49:45–53:38]
- Statistical Snapshots:
- China’s R&D and higher-education enrollment lag developed peers, but are growing rapidly.
- Patent applications, science & tech publications, Internet/mobile usage are all surging—often at rates outpacing population growth and other emerging economies.
- Key Takeaway:
- While still behind the US in static measures, China’s knowledge economy is on an explosive ascending path, suggesting strong future potential if current trends hold.
- Quote:
"On all indicators of science and technology, China has begun to break through the ceiling compared to everywhere else in the world." [52:15]
6. Conclusion: Optimism and Caution
[End of Lecture, ~53:20]
- Synthesis:
- China's economic and human development is a central engine in global growth and poverty reduction.
- TFP is a flawed but persistent measure, and direct knowledge metrics are more promising for forward-looking analysis.
- Growth in China is necessary for ongoing improvements in global human welfare.
- Quote:
"My conclusion is an optimistic one, and it's an optimistic one that's necessary if we’re going to continue world economic growth and…alleviate poverty in the world." [53:18]
Memorable Audience Q&A Segments
On World Poverty and Measurement
[54:41]
- B: "As a fraction of the world population, the number of people living on less than $2 a day has fallen. That is clear...China together with India will account for most of what's happening in that dimension."
On Skepticism Toward TFP
[56:30]
- B: "I simply want to suggest that we need to have a proper amount of skepticism in the way we interpret total factor productivity. That's all."
On Human Welfare vs. Income
[57:24]
- B: "The fact of the matter is when you move 500 million people from living on less than a dollar a day to being wealthier, however you measure it... that's got to be a good thing."
On Risks to China’s Growth
[58:51]
- B: "I would look instead at US and Western Europe protectionism. I think that's the single most important danger, single largest danger in the world right now."
On Political Liberalization and Knowledge
[63:14]
- B: "I don't take a strong view on how we must liberalize all political discussion and freedom in China or any other country before scientific knowledge can fully flower... I just don't know."
On Patents
[63:14–65:33]
- B: "An overly patented economy is not necessarily an economy where knowledge is used most productively... Having more patents is actually in some ways having more restrictions on the use of knowledge."
On Foreign Investment Flows
[65:56]
- B: "The real threat is that for some reason...foreign direct investment into places like China also shrivels away... The technology that foreign companies bring in is a necessary but not sufficient condition for ongoing scientific improvement in China."
Timestamps for Key Segments
- 00:00–01:59 — Introduction by host, context for the event
- 01:59–14:30 — Quah: Framing, China’s global rise, Goldman Sachs BRICS, hyperbole vs reality
- 14:31–32:04 — Poverty statistics, China’s contribution, global welfare implications
- 32:05–49:44 — Knowledge economy, TFP, case study of Korea, critique of economic measurement
- 49:45–53:38 — China’s science/tech indicators, discussion of knowledge growth
- 53:39–69:57 — Audience Questions: poverty, TFP, growth risks, policy, and open-ended challenges
Overall Tone and Language
- Professor Quah is rigorous yet accessible, cautious about economic projections but upbeat about data-led optimism. He is willing to challenge orthodoxy while relying on both empirical evidence and economic models.
- The Q&A features thoughtful, clear explanations and willingness to admit ambiguity.
Summary Takeaways
- China’s growth is central to global prosperity and poverty reduction.
- Static measures underestimate China’s scientific and technological progress.
- Optimism is justified, but global policies (especially protectionism) and nuanced, better metrics remain crucial for sustained progress.
- Direct indicators of knowledge and innovation should increasingly supplement traditional economic analysis.
This summary captures the lecture’s flow, central arguments, and substantial Q&A exchanges, providing a useful guide for listeners and non-listeners alike.