Edmund S. Phelps, the 2006 Nobel laureate in Economics, urges the West to adopt a laissez-faire policy, insisting governments must refrain from protecting “incumbent firms at the expense of new market entrants.” In the absence of a “free and fair competition” entrepreneuers see little incentive to innovate. Many economists believe the slump in productivity growth often reflects the stagnation of innovation. History shows that economy in the West grew thanks to the technological discoveries of “scientists and navigators.”

In order to boost growth in total factor productivity (TFP), which measures the combined productivity of capital and labour, the West must invest in human resources, as well as equipment and structures. Christine Lagarde called for more spending on education, R&D, innovation and less red tape a year ago, as a means to ramp up productivity, which is the most important source of higher income and rising living standards.

The author says China has realised the problem and is seeking to “out innovate” the West. Instead of copying what is available, Chinese are “showing not only the entrepreneurial drive to adapt to new opportunities, but also the desire and capacity to innovate for themselves.” Taking advantage of a weak innovative activity in the West, the Chinese government supports domestic businesses to develop “a capacity to produce indigenous innovations,” encouraging people to start new a business and compete.

Competition is healthy to a country’s economy, because a “society benefits – through lower prices, more jobs, better products and services.” It is also motivates people to innovate, forcing them to update their knowledge and know-how. If a government intervenes by protecting “established enterprises from competition, even when it comes from new firms offering new adaptations or innovations,” it will only discourage people from bringing new and better ideas.

The author points out the sluggish TFP growth rate in Britain until Margaret Thatcher came to power. She ditched “anti-competitive practices,” and the country’s TFP grew again by the mid-1980s. China faced a similar problem and its TFP growth increased since Xi Jinping took office. With the country’s vast economic and human resources, he seeks to achieve technological dominance over the US.

Stephen L. Sass, a former scientist and Cornell professor who had worked in China doubted if the country would lead in innovation anytime soon - or at least not until it moves its institutional culture away from suppression of dissent and toward freedom of expression and encouragement of critical thought. He is convinced that political freedom is crucial for scientific innovation.

Sass said most innovations and cutting edge technology come from countries with relatively high levels of political and intellectual liberty. Free societies encourage people to be skeptical and ask critical questions. Most of all they attract foreign talent. Innovation is typically the product of a bottom-up approach, started with the bright ideas of a few individuals, sometimes in a garage.

While the author calls for an end to government intervention in the West that hurts innovation and impedes competition, critics and observers are not – yet – worried that China will “out innovate” them anytime soon.