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A Chinese flag hangs next to a new development under construction on the busy Nanjing Road shopping street in Shanghai, China.
It's not a trivial question. This is Douglas Hervey, from the Harvard Business Review blog:
In the United States, disruptive innovation has harmed a few but benefited many. In China, top-down capitalism has benefited a few but harmed many. An absence of disruptive innovation and entrepreneurship is suffocating China's future growth potential. The future of that growth potential will depend in large part on whether China suppresses or unleashes its would-be disruptive entrepreneurs.
Hervey says that the Chinese are facing a "middle income trap — losing their competitive edge in labor-intensive industries and not yet gaining new sources of growth from innovation." So does this mean that China won't become the economic powerhouse we might once have expected?
It depends on how much faith you place in innovation. And here's why you should place a lot in it: because innovation really has no upper limit. More traditional contributors to GDP do. When an economy extracts as much growth as it can from some established process, it starts to outsource that process to a region where labor costs are cheaper. Or it fires up the innovation engine to make the process better — or replace the product in question with something better.
AP Photo / J. Scott Applewhite
The Federal Reserve Building in Washington, DC.
The Federal Reserve publishes its so-called "Beige Book," a snapshot of the economy taken through the lens of the Fed's district banks, eight times per year. It is booor-ing. You may not even want to read the executive summary of the latest version. Luckily, you don't have to, because I've broken it down into bullet points. And I've assigned my own grades, on how the various parts of the struggling economy are doing. (The Fed, needless to say, doesn't hand out grades.)
•The Big Picture
"...overall economic activity continued to expand in September, although many Districts described the pace of growth as 'modest' or 'slight' and contacts generally noted weaker or less certain outlooks for business conditions."
Translation: Stuckflation, an economy going nowhere, for the rest of the year.