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Behavioral Economics: Why China cannot be innovative?

October 12, 2014

This is my response this morning to the BBC program I just watched saying that “we don’t know if China can become an innovative society.” For my readers who want to predict economics better than the BBC the answer is Yes, we do know why China can’t afford be an innovative society and stop copying others. The reason is that China must continue to have control over society and control prevents Chinese people with innovative ideas from implementing their ideas, i.e.,  going bank shopping for a loan (government controls the banks in China). I have been watching China and India for ten years, 2 giant economies, one overly permissive (India) and one strict (not overly strict), China. Let me give you the Likert Behavioral Attitude Scale (L-BAS) of economic and cultural development. It runs from overly permissive to permissive, neutral, Strict and overly strict. India is overly permissive, almost any behavior goes in its economy, although now with a new right-wing conservative prime minister (Narenda Modi) India is bound to move to permissive from overly permissive which would be ideal for a less chaotic development. China, on the other hand, will not move from strict to neutral because it does very well now copying innovations from the United States which is an overly permissive society and very innovative. There are 2 overly permissive societies on earth, Israel and the U.S., the 2 most innovative societies in history. China in now moving into a strong economic relationship with Israel, which shows not only how smart the Chinese are but how skillful in copying others. They know that they can’t give up control (see what is happening in Hong Kong), and the next best thing is copying those 2 countries that gave up control over their societies in favor of innovative spirit that requires psychologically to not have fear of the authorities (requires also permissive fathers at home). If the Chinese gave up control over their society the next generation would become the most innovative – and chaotic – place on earth. They can’t do that, but the Indians, they can and will. expect India in the next few decades to come up with new technologies (apps) that will boggle the mind. The future of innovation belongs to the US, India and Israel. The economic future in general belongs to China because they don’t have to spend a fortune on R&D to get the future app goodies!

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