Institutional Design for China’s Innovation System: Implications for Intellectual Property Rights

Abstract

China has committed itself to becoming an "innovation economy." This chapter examines the institutional arrangements that will most facilitate its accomplishment of that goal. This is especially important as China attempts to close the knowledge gap that separates it from more advanced industrial countries. Much of this chapter is devoted to intellectual property, but sees intellectual property as only one part of a country's innovation system—and a part that has often been overemphasized. Because China’s circumstances are markedly different from those of the United States and Western Europe, the dictums emanating from Western governments regarding a model IPR regime should be viewed with some skepticism. In fact, the IPR regime that dominates much of the world largely designed to maximize the profits of a few sectors that derive their returns from intellectual property rights rather than to either maximize innovation or the benefits that society derives from innovation. Such rights (like all property rights) are social constructions and must be adapted to the circumstances, history, and objectives of each country. China needs a development-oriented intellectual property regime. The chapter discusses what a development-oriented intellectual property regime might look like, and how various design features of the IPR regime affect the pace, efficiency, and direction of innovation. While intellectual property typically introduces a static inefficiency in the economy (both in the use of information and in the extent of competition), a poorly designed IPR regime can actually inhibit innovation, direct innovation in unproductive ways, and impose unacceptably high transactions costs. IPR needs to be seen as one component of a "portfolio," consisting also of government supported research and prizes, which together constitute a country's innovation system. The chapter argues that there should be greater emphasis on a prize system and less on the patent system. The chapter concludes with an analysis of some global perspectives on innovation and IPR, including an analysis of how the burden of financing the production of knowledge, viewed as a global public good, should be shared, and a critique of TRIPS, the intellectual property provision of the Uruguay Round trade agreement.