Enough With High-Tech Manufacturing

European Straits #46

Dear all,

I’m in Shanghai, reflecting on China’s rising economic power. In a book I’ve been reading to prepare for the trip, The One Hour China Contrarian Book, there’s the mention of China transitioning from an “investment-based” to a “productivity-based” mode of growth.

By coincidence, just one day before departing I attended a seminar at Mariana Mazzucato’s IIPP in London, during which Reda Cherif and Fuad Hasanov, both senior economists at the IMF, also touted the idea of countries moving “from an investment-based strategy to an innovation-based strategy”. This switch is key to explaining prosperity in countries like South Korea, Taiwan, and Singapore in the latter half of the 20th century.

According to Cherif and Hasanov, countries should avoid investing in an import-substitution strategy. They also should avoid specializing in inward-looking, low-value-added activities such as agriculture and tourism (Hi, France😉🇫🇷). They should avoid mingling with foreign multinational companie…