Every penny counts in innovation

Human capital and institutional value are the greatest wealth of all nations. China should promote innovation by revising the accounting system of its national economy, said an article in Southern Metropolis Daily. Excerpts:

It was reported in 21st Century Business Herald that the National Bureau of Statistics will propose a new accounting system for the national economy to the State Council for assessment and approval by the end of this year. A noticeable point is whether the input in research and development of intellectual property will be counted in the gross domestic product in the new system.

The old GDP accounting system does not include the costs incurred by environmental pollution. That explains why local governments do not take environmental protection seriously.

China will increasingly rely on innovation in its economy.

GDP remains the most important tangible standard to evaluate local officials’ performance. If R&D input is included in GDP, governments will have a stronger incentive to increase investment to promote innovative works.

To boost innovation and reflect the true size of the economy more accurately, the United States, Canada, Australia and the European Union have already revised their GDP accounting system in this direction. Japan will count the huge intangible assets of its cartoon industry in its GDP from 2016.

The GDP gap between rich and poor regions in China will grow further under the new accounting system. The central government must be vigilant of the possibility that some local governments will cheat on R&D input to inflate their economic size.

There should also be an independent and professional auditing mechanism to verify the R&D input reported by local governments, in case the new system is misused.