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Prof. Zhang Weiying: Entrepreneurship Sparks China’s Economic Growth

Jun 09-2023   



On May 13, National Economics Foundation (NEF) held a summit with the theme China’s Growth Miracle: Viewpoints from Different Schools of Thought. Prof. Zhang Weiying of the NSD delivered a keynote speech on the role of entrepreneurship in China’s economic expansion. He is also PKU Bo Ya Distinguished Professor and Director of PKU Institute of Market and Internet Economy.

 

Prof. Zhang pointed out that the two theories commonly employed to interpret economic growth – neoclassical on one hand and Keynesian on the other – are both problematic due to their sheer focus on quantitative aspects and their neglect of entrepreneurs and entrepreneurship, the most critical force for economic development. For example, who invests is of greater significance than how much to invest, and who controls capital prevails over how sizable the capital is.

 

According to Prof. Zhang, a more powerful framework is Smith-Schumpeter Growth Model, which he summarized over ten years ago. Adam Smith revealed the importance of market size and its impact on division of work and specialization. One lesson to draw is that domestic growth alone won’t be as impressive as growth within the context of global free trade. Another lesson is that economic growth is made possible by the emergence of new industries and new products, as well as continuous shift in industrial structure.

 

The growth theory of Adam Smith, though, misses a fountainhead that ought to provide a constant supply of driving force. Prof. Zhang believed entrepreneurs, highly valued by Schumpeter, are the source, for the simple fact that markets don’t exist until they are created by entrepreneurs – the same with industries.

 

Since the Industrial Revolution, every industry can be traced back to a pioneering entrepreneur, one of whose natural functions is to innovate, said Prof. Zhang. Whether wealth growth can be turned into new markets also depends on the undertaking of entrepreneurs. In other words, excess capacity results from entrepreneurs’ incapability to create new things to meet the needs of consumers at a new income level.

 

Entrepreneurs are born in the soil of suitable institutions and cultures. China’s growth over the last four decades, much like growth in developed countries, can be attributed to entrepreneurs’ innovations and enterprising efforts. With creativity, human beings are having more and more resources at their disposal, including things that used to be deemed useless. For Prof. Zhang, the biggest advantage of market is the ability to continuously create new resources, and not the much-hyped ability to reach optimal allocation of given resources.

 

Under market economy, entrepreneurs can’t conceal their mistakes because the market operates with a mechanism that eliminates the wrong-doers, said Prof. Zhang. In comparison, human creativity is prone to becoming a destructive force under a non-market economic system, as proved by many ‘ambitious’ strategies in history.

 

The last four decades have witnessed the appearance of four generations of Chinese entrepreneurs. Statistics from 2011-2016 show that the proportion of private businesses in a region is positively correlated to its economic growth. A higher density of entrepreneurs also leads to a higher R&D density. For Prof. Zhang, there is no miracle; instead, what works is a simple logic – how to get people’s creativity and entrepreneurship into play.

 

Prof. Zhang Weiying: Entrepreneurship Sparks China’s Economic Growth

Jun 09-2023   



On May 13, National Economics Foundation (NEF) held a summit with the theme China’s Growth Miracle: Viewpoints from Different Schools of Thought. Prof. Zhang Weiying of the NSD delivered a keynote speech on the role of entrepreneurship in China’s economic expansion. He is also PKU Bo Ya Distinguished Professor and Director of PKU Institute of Market and Internet Economy.

 

Prof. Zhang pointed out that the two theories commonly employed to interpret economic growth – neoclassical on one hand and Keynesian on the other – are both problematic due to their sheer focus on quantitative aspects and their neglect of entrepreneurs and entrepreneurship, the most critical force for economic development. For example, who invests is of greater significance than how much to invest, and who controls capital prevails over how sizable the capital is.

 

According to Prof. Zhang, a more powerful framework is Smith-Schumpeter Growth Model, which he summarized over ten years ago. Adam Smith revealed the importance of market size and its impact on division of work and specialization. One lesson to draw is that domestic growth alone won’t be as impressive as growth within the context of global free trade. Another lesson is that economic growth is made possible by the emergence of new industries and new products, as well as continuous shift in industrial structure.

 

The growth theory of Adam Smith, though, misses a fountainhead that ought to provide a constant supply of driving force. Prof. Zhang believed entrepreneurs, highly valued by Schumpeter, are the source, for the simple fact that markets don’t exist until they are created by entrepreneurs – the same with industries.

 

Since the Industrial Revolution, every industry can be traced back to a pioneering entrepreneur, one of whose natural functions is to innovate, said Prof. Zhang. Whether wealth growth can be turned into new markets also depends on the undertaking of entrepreneurs. In other words, excess capacity results from entrepreneurs’ incapability to create new things to meet the needs of consumers at a new income level.

 

Entrepreneurs are born in the soil of suitable institutions and cultures. China’s growth over the last four decades, much like growth in developed countries, can be attributed to entrepreneurs’ innovations and enterprising efforts. With creativity, human beings are having more and more resources at their disposal, including things that used to be deemed useless. For Prof. Zhang, the biggest advantage of market is the ability to continuously create new resources, and not the much-hyped ability to reach optimal allocation of given resources.

 

Under market economy, entrepreneurs can’t conceal their mistakes because the market operates with a mechanism that eliminates the wrong-doers, said Prof. Zhang. In comparison, human creativity is prone to becoming a destructive force under a non-market economic system, as proved by many ‘ambitious’ strategies in history.

 

The last four decades have witnessed the appearance of four generations of Chinese entrepreneurs. Statistics from 2011-2016 show that the proportion of private businesses in a region is positively correlated to its economic growth. A higher density of entrepreneurs also leads to a higher R&D density. For Prof. Zhang, there is no miracle; instead, what works is a simple logic – how to get people’s creativity and entrepreneurship into play.