The state undergirds risk-taking under both approaches. 1/

In China, the state is very explicit about where it wants to encourage innovation, it calls industries strategic, subsidizes them, is forgiving of failure. 2/

In the West the state incentivizes risk-taking with the prospect of huge profits, and (at least used to) subsidize the riskiest part of the innovation chain, basic research, via grants to academia and institutions like defense contracting. 3/

The state does not "centrally plan" innovation in either system. In both systems, the state imposes some direction on research that does not obviously pencil, via what grants and other forms of support fund (in the US), via what industries are subsidized (and also academic research funded) in CN. 4/

It's true that the Western system of tolerating and helping impose market power enables more incentive for innovation totally out of the blue, on ideas or in sectors the state would not encourage ex ante. 5/

But it has very large costs. The welfare costs of drugs not taken, for example, by virtue of the market-power tax imposed is very large. The market-power approach rewards "innovation" in extraction as much as innovation in useful goods and services. 6/

So there are tradeoffs! And ten years ago, I might have been persuaded that the Western approach was genuinely, importantly more "creative", and would be less willing to write broadsides against it. 7/

But I think this is a harder case to make now, as China is now at the innovation frontier in most industries. It's true in nearly all of these industries they began by copying. But now it's we who have to copy if me mean to catch up. 8/

I think the case is stronger that our historic position at the frontier owed more to path dependence rendering us an insuperably great power (for a while) than for any great genius in the arrangement of our incentives for innovation. /fin