China’s success in combating the coronavirus is a sign that it has already caught up with the United States and other Western nations in some areas of innovation, including public health policy, according to Paul Romer, co-recipient of the 2018 Nobel Prize in economics.
Romer warned that the West’s response to the coronavirus pandemic was evidence of a complacent mindset on innovation, particularly in public policy.
“In the response to the pandemic, part of what we saw was more effective innovation in policy responses in Asia than in Europe and the United States,” Romer told the Asian Financial Forum in Hong Kong on Monday.
“If some nations lose the momentum for progress, then those [nations with the ability to truly innovate] could be leaders, perhaps the new leaders in the coming century.”
But Romer, an economics professor at New York University, also warned China that the road ahead would be difficult.
“As [China] moves into this era of being at the lead in innovation, true innovation becomes more important and harder,” he said.
“The danger in the US and in Europe was that people thought they already knew what to do. We’ll just do what we’ve always done before. And that’s the mindset that kills innovation.”
The pandemic highlighted that China’s use of widespread testing to locate and isolate infected cases was more innovative and effective then the methods adopted in the US and Europe, Romer added.
“This particular virus turned out to be one which could not be controlled by the familiar methods of contact tracing and isolation of contacts because so much of the transmission of the virus was by people who were not already showing symptoms. We needed to innovate to come up with new ways to control this pandemic. I was particularly struck by the decisions in China to use testing to completely wipe out the virus in [places like] Wuhan and Qingdao,” said Romer.
Without citing Joe Biden by name, Romer seemed to give him advice before his inauguration on the need to rejuvenate the innovative spirit in America.
He noted America’s economic advantages, including per capita income that is 6.38 times greater than that of China in nominal terms and 3.32 times higher in purchasing power parity.
He stressed that national confidence can be maintained if there is a mindset for innovation. This involves listening to people on the periphery with what could be initially perceived as wild-sounding ideas, and to try different experiments not just in the market, but also in setting government policy.
In the new and uncertain era of fighting the coronavirus and the resulting economic downturn, the problem is that many countries are relying too much on monetary policy and interest rate cuts as a way to stimulate the economy and support employment, he continued.
Although governments learned from the coronavirus that there is little fear of the explosion of inflation seen during the 1970s, the danger is that monetary stimulus and tax cuts will create excessive levels of debt relative to gross domestic product, or create asset price bubbles and financial instability down the road, Romer said.
This means that one of the most important areas for innovation in the coming five to 10 years will be to find ways for effective fiscal government spending to stimulate the economy without relying just on monetary policy and interest rate cuts, he explained.
Cross-border cooperation is good policy if it is achievable for a country, but the pursuit of an international consensus can actually become an excuse for inaction and hold back innovation, Romer warned.
Romer praised late paramount leader Deng Xiaoping, who began China’s radical experiment of opening up its markets in several special economic zones in different provinces without first creating a consensus, even though China’s entry into the World Trade Organization helped.
“This idea of we’ve got to get national consensus, international consensus first, that will just hold us back,” Romer added. “That’s a trap and a danger that every nation should watch out for.”
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