Innovation vital to digital economy
The fifth New Economy Think Tank Summit hosted by Ali Research in Beijing in early January Photo: Wang Junmei/CSST
“Innovate or perish” has become commonplace in the digital economy, according to experts at the fifth New Economy Think Tank Summit hosted by Ali Research in Beijing in early January.
Riding the wave of the Fourth Industrial Revolution, a new economy has continued to develop, realizing digitalization and network transformation, said Xue Lan, dean of Tsinghua University’s Schwarzman College. New technologies and models are constantly rewriting the competitive business landscape.
The development of economic practices calls for innovation in economic theory. George Gilder, an American economist, suggested going beyond the old concepts of economics. In the future, the concepts of consumer price index, purchasing power parity and negative interest rates will cease to exist. They will be replaced by true prices, which gauge the value of goods and services by the amount of time a typical worker has to spend to earn the money to buy them, Gilder claimed.
Xue explained the troubles brought by the development of new technologies, namely the productivity paradox and the innovation paradox. First is the productivity paradox, which is to say the coexistence of vigorous innovation and slow productivity growth, such as seen in the change of labor productivity in the United States, he said. According to a theoretical explanation, this phenomenon occurs because many new technologies of the Fourth Industrial Revolution are platform-based technologies. Many of the products or services they provide are “non-competitive products.” The value they create is free and is not reflected in market prices.
The second is the innovation paradox. Judging from the past several industrial revolutions, destructive creativity can lead to the demise of old industries and bring innovations with greater social benefits, such as electric locomotives replacing steam locomotives and digital cameras replacing film cameras. But now there are devastating creations, which is to say innovations that are good for a small number of companies but harmful to the whole society, such as the ecological crisis caused by traditional consumerism-oriented industrial innovation, financial innovation with insufficient regulation, and addictive online games for children. Xue believes that the existing system of economic theory itself may need innovation.
Xue identified two major governance issues of the platform economy. The first is the issue of economic regulation. For one thing, due to network externalities, economies of scale and economies of scope, the most economically efficient option may be a single platform to coordinate transactions, which leads to the formation of natural monopolies and market failures and requires government economic regulation. In addition, due to the dynamic development of the platform economy, iterative updates come rapidly, which poses a great challenge to government regulation and can lead to failures in governance. Moreover, because the platform economy is also facing the challenge of disruptive innovation brought by new technological progress and new business models, improper regulation of platform companies by the government may hurt their competitiveness and bring unfair competitive advantages to challengers outside the industry.
The second is the issue of social supervision. The platform economy based on the internet economy involves a large amount of user data. Processing and using this data poses potential harm to and could have an adverse impact on users. The supervision of such problems also poses huge challenges to relevant government departments, involving issues concerning the legal status of data and risk issues in the operation of platform enterprises.
Faced with the governance issues brought about by the development of the digital economy, Zhang Qiong, former deputy director of the Legislative Affairs Office of the State Council, said that there must be a good ecology of the rule of law in the digital economy. First, companies must find success through survival of the fittest. The second is tolerance and prudence, as there must be a fault tolerance mechanism. The third is global consciousness, and laws should be formulated from a global perspective. The fourth is to represent advanced productive forces. Fifth, the law must be flexible, inclusive and future-oriented.
edited by JIANG HONG