Why China Remains a Economic Backwater Since 1500: The Crucial Role of Human Capital and Innovation
When power and knowledge is concentrated in the hands of a few elites, they will resist progress out of fear that it may challenge their status and economic interests.
A deep sense of helplessness often gives rise to fear, anger, and hatred.
Recently, I shared my thought about AI on YouTube. Many of my long-time viewers are a curious bunch, so I often try to provide them with a variety of topics, including my alternative take on history and economics, as well as finance and technology. These topics are not distinct but interconnected. I see history as a slow but powerful evolutionary process, rather than revolutions that are sudden and unpredictable. I believe that heroes are made by the times, not the other way around.
Adopting an evolutionary view of history allows us to examine problems from a long-term perspective and helps us avoid the fear of change. I am optimistic every time I see technological progress. I believe that human civilization still has much room for improvement.
For the past few hundred years, humans have achieved much through their continual search for new solutions.
However, progress also brings anxiety. Many people are attached to their wealth, status, and knowledge. They do not see new opportunities as certain. Some may even see changes as threats to their exceptional status in society.
As a result, society is always divided into two broad camps: the progressives and the conservatives.
In the field of artificial intelligence, there are also two opposing views. Some believe that AI is too powerful and will ultimately destroy human civilization. Some others dismiss AI altogether, arguing that it can never replace humans or do anything meaningful. While the fearful outnumber the dismissive, both camps have one thing in common: they dislike others discussing the new opportunities presented by AI.
During one of my YouTube live streams, I received an angry comment from a viewer who claimed to have been involved in the early days of the internet. From what he said, I guess he was an engineer in the early 70s. I have great respect for him and his peer as pioneers. So I politely explained that while I understand that AI is not omnipotent, nor omniscient, popularization of the technology can allow people to learn and have a significant impact on society. He challenged me to fully automate my creative process, but that is currently impossible with today's technology. However, I use technology to make my work more efficient, such as handing over repetitive and time-consuming tasks to machines. This cooperation between humans and machines is how progress happens.
However, this random stranger seemed to harbor strong resentment toward me. Perhaps in his eyes, I, as a layman, should not discuss about technology because it is not yet ready, and optimism about the future is a sin. Perhaps, deep down, the elites and experts like him feel threatened by the popularization of technology. In the no-so-distance-past, knowledge was controlled by a few, experts were once the most elite members of society. They were pioneers and game-changers. But they did not realize that from a historical perspective, the profound knowledge they possessed are merely a high school curriculum for the next generation. When generalist commentators like myself discuss something, it means that progress and development have reached a critical mass, and are forces empowering the masses.
I firmly believe that it is always a good idea to give people knowledge and access to new technologies. However, to some, powers in the hands of the many is dangerous. Former Google guru Geoffrey Hinton may be one of them. Although I admit some of his concerns are valid, he underestimates the capacity of the market to eventually figure out solutions to the challenges.
When there are new problems, someone will naturally find a new solution. New solutions will pose new, unexpected challenges. This is how human civilization evolves into how it looks today.
China was once an economic and technological power. Prior to the Ming and Qing Dynasties, China exported high-tech products; however, after these dynasties, China began exporting cheap labor. Its gradual decline from a strong country puzzled many historians and economists.
How did China fall behind? If I had to identify two key factors, I would say that the first problem was the low literacy rate of ordinary people hence the lack of human capital in society. In addition, rent-seekers who controlled economic interests, along with rulers at the time, preferred to cut off global trade and use isolationism to protect the interests of the agricultural economy. As a result, China went from exporting high-tech products to sending cheap labor all over the world. Even till today, China’s economic advantage lies in its cheap labor.
Today, China's neo-nationalists, also known as "little pinks," often dream and brag about the glory of the distant past. They blame their nation’s backwardness on the oppression of Western imperialism. However, when compared to Japan, which has been completely open since the 19th century, can the Chinese blame the West for its backwardness? Hasn't Japan experienced all sorts of hardships as well? Didn't Japan start almost from ground zero after World War II? Japan, despite the economic crisis in the 1990s and the subsequent recession, remains an affluent society.
Let’s look at what happened after World War II in China. Communist fanaticism brought the nation three decades of chaos. China is facing not only a balance-sheet recession following the bursting of its economic bubble but also economic disparity and demographic challenges. However, the irony is that China instead of seeking to reform its distorted institution, the regime intensified its efforts to return to the failed ideology of the past, as if repeating the same mistakes will lead to different outcomes.
Why can Japan modernize itself while retaining its traditions, and become a resilient society?
It is worth noting that illiteracy was eradicated in Japan long ago. The most significant difference between China and Japan, and the distinction between manpower and human capital, is that the latter can renew itself. Human capital is technology. The present-day communist regime talks about of acquiring talents from other nations and rejuvenating China through science and technology. Unfortunately, the attempt strikingly resembles the mistake Qing Dynasty made a century ago in attempting to modernize itself without considering its single biggest inhibiting factor. The regime believes in elitism while ignoring the investment in human capital.
Perhaps because Japan did what China wants to do, but cannot, the ultra-nationalistic “little pinkies” have a weird, deep-seated love-hate sentiment against this nation.
There is a lesson for everyone from the above. When we observe such fear, anger, and hatred, we should be mindful that helpless and weak people are often confused and consumed by emotions. We must be mindful that regardless of how much one has accomplished in the past, the world will not stop because of them. As soon as a society or any individual ceases to learn, anxiety and resentment begin to grow.
The world is not perfect. But as long as there are new challenges, there will be new solutions. Creativity is, therefore, the most fundamental human capital. Human capital is a collective phenomenon that cannot be replaced by a few geniuses, elites, or heroes. A free and open society will discover new ideas and solutions more quickly, and confront challenges more efficiently. These new solutions will inevitably give rise to new challenges and therefore a growing society always has its growing pain. However, I am optimistic. When new challenges arise, it often implies it is time for us to leave the petite troubles of the past behind.