Abstract The author of this article is the core of the Zhang Weiying financial system of Peking University's National Development Research Institute. I propose two propositions: The first proposition is that human economic development mainly comes from the market economy system. In history, there are many systems under which the economy has also achieved...
The author of this article is the professor of the National Development Institute of Peking University, Zhang Weiying, the core of the financial system needs to consider the issue of entrepreneurs. I propose two propositions: The first proposition is that human economic development mainly comes from the market economy system. There are many systems in history where the economy has also developed, but sustainable development depends on the market economy. The second proposition is that entrepreneurs are the core driving force of the market economy.
The combination of these two propositions is that the core driving force for human economic growth is entrepreneurship. Therefore, we must understand entrepreneurship in order to understand economic growth. The economic growth of each country is the history of entrepreneurship and the history of innovation. Understanding the story of entrepreneurs will understand how a country's economy grows, and so is China. Economic growth comes from the efficiency of resource allocation and technological progress
The reason why the market economy can bring economic growth comes from two reasons: the first is the improvement of resource allocation efficiency, and the second is technological progress. Because the efficiency of resource allocation is improved, it determines how each resource under the given technology can achieve the most effective distribution and meet the needs of consumers.
The so-called technological progress is that we must constantly create new products, new technologies, new growth methods, and new markets. In the past, economics focused on the first aspect. In fact, the second aspect is more important.
If economic growth is only due to the efficiency of resource allocation, it will not increase to a certain extent, because no matter how poor the initial allocation efficiency, we will bring new growth by improving it, but after the optimal configuration, the economy will not It may grow again. The reason why the economy grows is that it constantly creates new technologies, and the resource allocation itself has to achieve new changes.
On the one hand, the financial system helps the social resources to achieve optimal allocation. On the other hand, it can make technological progress in the economy possible, and re-transport the actual growth factors through the flow of financial capital, thus promoting the overall economic growth.
These two functions of the market actually come from the two basic functions of entrepreneurs.
In some words, an economic growth is not simply a growth of GDP, but should be understood as a structural change, new products and new technologies are constantly emerging, and the industry is constantly upgrading. For example, more than 200 years ago, human consumption was only 10 to 2 powers, and today it reached 10 to 8 powers. These new things were created by entrepreneurs.
Every new product can be traced back to the entrepreneur who originally created it. For example, the automotive industry was originally invented by Karlbenz and Daimler in Germany more than 130 years ago. The personal computer can also be traced back to Woz and IBM in 1945. The software industry can be traced back to Bill Gates in the 1970s.
From this point of view, whether an economy grows or not depends on what happens to the product structure in the economy every 10 or 20 years.
If we look at food consumption, the Chinese economy has not grown in the past few decades, but has gone backwards. Looking at some other products, I found that some of the original things used in the department are not important now, such as bicycles. Other things, such as color TVs, have grown over the last century, and now they are starting to fall, and some things have not been in the past, and they are growing very fast, such as cars and mobile phones. This is called economic growth.
Let's see if a regional economy develops. Let's see what your grandfather is spending at your age. What do your dad consume at your age? Look at what you are spending now. If there is a big change between the three, there will be economic growth. If there is no change between the three, it is that the economy has not grown.
When I visited the museum, I found that when I was a child, I was no different from the lifestyle of the Tang Dynasty when I was in the countryside. It was no different from the Han Dynasty. But today is different. We have changed a lot with what we consumed 20 years ago. For example, the mobile phone did not exist before, but now it is like a mobile computer. These economic growth comes from entrepreneurs. Resource allocation and technological advancement stem from entrepreneurial arbitrage and innovation
Therefore, these two functions of the market actually come from the two basic functions of entrepreneurs. What are the two functions of an entrepreneur? First, arbitrage; second, innovation.
The so-called arbitrage is that in the case of unreasonable resource allocation, in the case of imbalance, if you find these unreasonable and unbalanced and change resources in a balanced direction, you can make money. Innovation is that if the economy reaches equilibrium, arbitrage is impossible to make money, and it is necessary to create something that was not originally available.
Entrepreneurs do two things for the purpose of making money, objectively promoting the improvement of voluntary allocation efficiency, thus realizing economic growth, that is, the emergence of new technologies and new markets.
Of course, in reality, these two things can't be completely separated. Arbitrage is also accompanied by innovation. For example, Liu Chuanzhi, the initial Lenovo computer is arbitrage, but if he does not invent Lenovo Hanka, the possibility of this arbitrage is getting smaller and smaller. Opportunities to make money will be less, so arbitrage and innovation are long together.
Traditional financial institutions mainly engage in arbitrage activities. Arbitrage is also very important for economic development, and innovation is to create new arbitrage opportunities.
To give you an example, I went to Silicon Valley and Wall Street to visit and found that Silicon Valley entrepreneurs are innovating, while Wall Street entrepreneurs are arbitrage. For example, the world's famous arbitrage entrepreneurs are Soros and Buffett; the innovative entrepreneurs are Bill Gates, Jobs and so on.
When I visited, I chatted with Silicon Valley entrepreneurs. They complained that the existing radar system of the car is too stupid and has limited functions. After the new chip is implanted, it can scan in 360 degrees. Going to Wall Street on Blackstone, I found that most financiers are interested in liquid assets and arbitrage in stocks, bonds, and currency foreign exchange markets.
If everyone arbitrage in one place, the profit of the place will be very thin. Thin to one in ten thousand, a large number of mathematicians and physicists have been hired to create very sophisticated models for arbitrage. The founder of Blackstone said that this means that there is a lot of room for real estate arbitrage. So Blackstone invested in real estate and made a lot of money.
In this sense, human beings have arbitrage entrepreneurs from ancient times to today, such as the folk songs of the Northern Shaanxi Province, and the people who rushed to the spirits are arbitrage entrepreneurs, who bought them from cheap places and rushed to the horses. Another place to sell. There were no innovative entrepreneurs in ancient times, and innovative entrepreneurs began with the British industrial revolution. The invention of the steam engine led to the emergence of innovative entrepreneurs. Innovation is divided into subversive innovation and improved innovation
Innovation is divided into two categories: the first is disruptive innovation or destructive technological innovation; the second is improved innovation, or continuous technological innovation. The innovation that Schumpeter talks about is mainly subversive innovation, which is innovation from 0 to 1. The improved innovation is minimally invasive in the prior art, improving its function and reducing its cost.
Taking cars as an example, Carl Benz and Daimler Karbenz and Daimler invented cars 130 years ago, which is a subversive innovation that subverts the carriage. Henry Ford's automated production line has subverted hand-made parts, but since then, the automotive industry has not had big disruptive innovations, until recently new energy vehicles (Aiji, net worth, information), driverless cars, can be considered disruptive innovation .
What is the difference between disruptive innovation and incremental innovation? Subversion is that innovation is generally made by laymen, and incremental innovation is made by old companies in the industry.
For example, computers, IBM invented the first computer in 1945, the computer entered the market in the 1960s, followed by microcomputers, personal desktop PCs, laptops, and mobile phones. This is a modern computer. This means that every new product, when the disruptive product appears, the performance must be worse than the older generation, but over time to reach and exceed the function of the older generation of products.
For example, when the microcomputer was first started, many people still used IBM mainframe computers, but the microcomputers developed very fast. In the 1980s, they reached the functions of large computers, and soon overtook large computers. The same is true for personal computers and laptops.
Looking at the history of computers as a whole, large computers are dominated by IBM, but the microcomputer market is not dominated by IBM, but DEC, General Digital, PRIME, Wang An, and Lidofu.
On the desktop computer, the emergence of new companies, Apple, Commodore, Tandy and IBM, no manufacturer of a microcomputer company eventually developed into a major manufacturer of desktop computers.
When I got to the laptop, I had Toshiba, Sharp, and so on. Tablet PCs are mainly dominated by Apple and Amazon, and then to smartphones, mainly Apple, Huawei and Samsung.
Examples of such industries have universal significance. Explain that revolutionary and disruptive technological innovations are usually not done by leading companies in the industry, and incremental and improved innovation is the most advantageous for industry leaders.
For example, the automotive industry, the history of the old American auto companies in Europe, for example, Mercedes-Benz's every component is very refined, but now it is no longer ahead of the new energy vehicles, this industry is the new enterprise-led. This is very important, which has certain reference for the financial industry to think about economic development.
Using a simple demonstration of the economic model, if the abscissa of a graph represents corn, the ordinate represents soybean. Whether a farmer produces corn or soybeans, the land has boundaries. But in fact you may misconfigure the resources, you should use it to grow corn, you use it to grow soybeans, or if the government taxes too much, you will not work hard.
For example, the economy also has a balance point C, then the entrepreneur will find that A or B are unbalanced, which brings opportunities for arbitrage.
They will organize resources, such as organizing production, transporting trade, and stimulating the economy to reach equilibrium point C. After the economy reaches C, it is unprofitable. Entrepreneurs will find ways to create new products, produce marginal shifts, and push the economy to a new equilibrium. Economic growth comes from these two sources, and the driving force behind these two sources is entrepreneurs.
Without innovation, economic growth will surely stagnate. In the actual process, it is not the boundary of point C that begins to innovate, because entrepreneurs are always innovating, and innovative entrepreneurs create more arbitrage opportunities for other entrepreneurs.
Therefore, economic growth has caused the production feasibility curve to move outwards. Economic growth is not only an increase in GDP, but also a new product that does not believe in technology. But true economic growth cannot be reflected in this simple picture, and real economic growth continues to have new products. Chinaâ€™s economic growth in the past has come from an increase in allocation efficiency
Under this judgment, it is easy to understand that the past growth of the Chinese economy has come from the improvement of allocation efficiency, and behind it is the arbitrage of entrepreneurs.
In the planned economy, the allocation of economic resources is very scarce. After the reform, a lot of arbitrage opportunities will be brought. Many products are in short supply. Trade activities that were not allowed in the past can now be done. The fruits of the South can be made to the north to make money. Video tapes can also be used to make money in Beijing. At the same time, China's opening has brought more arbitrage to the world. Not only do Chinese entrepreneurs have more arbitrage opportunities, but American and European entrepreneurs can also make better arbitrage.
Cheap things in China, which may be expensive in the United States, can be shipped from China to the United States for arbitrage. For example, the labor force, the cost of hiring a person in the United States is 40 to 50 times that of China. Therefore, American entrepreneurs come to China to run enterprises, and actually arbitrage in the labor market. For example, Microsoft is doing research and putting its research and development institutes in China. There are some excellent engineers in China. Microsoft can use this arbitrage in China.
There are of course many policy arbitrage, which is not the same as productive arbitrage and does not necessarily create value. For example, the trust industry has many sexual policy arbitrage. For example, many commercial banks can't do things, and trusts have a certain amount of policy arbitrage. The off-balance-sheet business and on-balance-sheet business that we are talking about today can be largely arbitrage space caused by policies.
The space for arbitrage in the future is getting smaller and smaller, and there are still opportunities for arbitrage, but the difficulty is getting bigger and bigger. For example, mobile phones, but it is more difficult to produce mobile phone molds. It is even harder to produce molds for arbitrage.
I visited the home appliance companies in the South. All the machines that produce the abrasive tools are either from Japan or from Germany. There is no one part from China, because the machine for the production of abrasive tools is difficult. If you donâ€™t have the technology accumulation, there is no considerable process accumulation. No raw materials can be used for arbitrage. Therefore, China's arbitrage space will become smaller and smaller, so we must move toward innovation, that is, shift the production possibility curve outward.
Entrepreneurs must change from arbitrage entrepreneurs to innovative entrepreneurs to challenge the system and financial system. The financial system is generally the same. The past financial system is in line with the arbitrage behavior of entrepreneurs. If Chinese entrepreneurs really go to innovation, the financial system Need to have big changes. Entrepreneurs should move from arbitrage entrepreneurs to innovative entrepreneurs, demanding the entire system and demanding the financial system.
Whether it is arbitrage or innovation, it is highly demanding for free competition, protection of private property, and the rule of law. Because arbitrage is much easier than innovation, it is much less sensitive to the system.
Innovation means change, why? Because innovation has two characteristics that are different from arbitrage, the first is highly uncertain, and the second is that the cycle is particularly long.
When we draw a graph, the abscissa represents time and the ordinate represents the level of uncertainty. Arbitrage is innovative, but relatively low, especially when time is short. For example, the speculative that was said before can be arbitrage in two nights. Arbitrage in the financial market, even a matter of seconds. But innovation is very different, and the time for improved innovation is shorter, but the period of disruptive innovation is long. It takes ten years or even decades.
It is worth mentioning that we should not mix risks and uncertainties. The uncertainty of the financial industry is risk, and the risk is statistically regular. For example, the bad debt rate of commercial banks and the correlation with the macro situation are traceable.
Uncertainty is unique, there is no statistical law, and there is no way to count the probability of failure when it is innovative. We do things by faith, so the success of many innovations depends not only on ourselves, but also on the technology behind them.
For example, a computer, its own innovation, if it is not mature behind other supporting technologies and environment, its efficiency is very low. The first personal computer produced by IBM in 1945 has not been put into the market because the cost is too high until the 1960s. With integrated circuits, computers have come into play. For example, steam engines were initially used only in coal mines. Later, the emergence of trains and ships also relied on the appearance of lightweight materials and the improvement in quality.
For example, the cycle of innovation is very long, such as the diaper for children, it took 10 years from research and development to commercial production, because the cost can not be reduced, only when the cost is reduced to 3.5 cents, the market is available. . Another example is the copier, which took 24 years from R&D to a copier at the end of 1960.
Many people think that innovation is a patent, but getting a patent is the first step in the long march. Many companies go bankrupt after they get the patent. Because patents are the invention of technology, innovation must make the invention have the value of commercial use. Consumers are willing to pay for it, which involves too many subsequent conditions to mature.
Therefore, arbitrage makes money from the beginning, then less and less, and the cost is rising. But innovation is totally different. Innovation starts with a loss, and the loss does not know much. The things that make money from the beginning cannot be innovation. Only a loss at the beginning can be innovation. Innovation creates a new arbitrage space, so it will allow many people to come in arbitrage until a new equilibrium point is reached.
This is important to our financial industry. If our financial industry is financing for arbitrage, our target is the same, if it is financing for innovation, it is completely different. So what kind of financial system does China need if it needs innovation? The financial system needed for innovation and arbitrage is different.
The financial system required for innovation and arbitrage is different. China's financial system as a whole is still a financial system that serves arbitrage. It is the funds provided by short-term liquidity credits, bridge funds, and other short-term business activities. But in the future, financial services will need to be provided for decades of innovative behavior.
In short, the financial sector has equity financing and debt financing. Arbitrage activities mainly require debt financing, while innovation activities mainly require direct financing and equity financing. This is a basic feature.
What kind of financial system is needed in such a situation? Can only be said from the opposite side:
First, the leading financial system of commercial banks is not suitable for innovation:
The earliest appearance of commercial banks was mainly to finance the arbitrage activities of entrepreneurs. Commercial banks' funds are mainly from residents. Whether it is bank risk control itself or responsible for residents, the most important is risk control, which means that commercial banks can only support a certain degree of improved innovation.
Some excellent companies have to make some technological improvements themselves. Banks can give them some technology credit, but good companies themselves are not short of money and have good cash flow. In this case, the demand for banks is not great.
Commercial banks cannot support disruptive innovation because the risk of such innovation is too great, the probability of failure is much higher than the probability of success, and if commercial banks support disruptive innovation, the bad debt rate is above 50%. So this is impossible. If you invest in ten projects and only one project is successful, how much interest rate do you have to ask? It requires an interest rate of 1000%. Because of the existence of adverse selection, real good projects will not borrow money from you.
So stock market financing is critical to disruptive innovation. From a global perspective, the German and Japanese models are bank-led financial systems. The US and UK financing stock markets are well developed.
If it is only for resource allocation and arbitrage, the German and Japanese systems will suffice, but if it is to innovate, the financial systems of Germany and Japan will have problems. This is also why we have seen a large number of high-tech innovations appear in the United States, not Japan. An important reason is that US equity financing accounts for a large proportion and has a high degree of freedom.
I recently visited Israel. This is something that no other country can learn. For every Israeli, you must first think of a way to survive. Now Israel has a lot of technology to sell to the United States. Some people in China also go to Israel to buy technology and buy companies.
So why is Israel so innovative? Because of Israel's venture capital investment, Israel's per capita venture capital investment in 2008 was 2.5 times that of the United States and 30 times that of Europe. If there are not so many venture capital investments, Israel will not be so innovative.
Second, the state-owned bank-led system cannot serve innovation:
State-owned banks are mainly serviced by state-owned enterprises, not for private enterprises. This has been the case since the beginning, and it is still the case. The essence of state-owned banks is an arbitrage behavior. Half of the profits of listed companies in the previous year belonged to several listed banks.
In fact, the policy stipulates our arbitrage space, and the bank loan-to-deposit ratio is enough to make us rich. Of course, this also gives the trust an arbitrage space. The entire financial earning comes from policy arbitrage.
It is now impossible for state-owned enterprises to carry out subversive innovations themselves, because some factors are subject to institutional constraints. All state-owned enterprises themselves cannot become the subject of innovation.
Innovation must be able to withstand losses. Only private companies can tolerate losses for several years. Therefore, state-owned banks cannot be innovative by serving state-owned enterprises. If funds are mainly distributed by state-owned banks, then I think China cannot become an innovative country.
Third, the regulation of private investment cannot be too much, and too much is not conducive to innovation.
Innovation as a long-cycle business activity with high uncertainty must be capital-rich. Who pays when the consumer doesn't pay? It is a high-risk investor's money, such as DDT taxi financing of 10 billion US dollars, although we pay every time we pay for the car, but it is not enough. Investors come to the money.
So why do investors pay for it? It is because investors expect to make big money after the expansion of their operations in the future. But in the end, whether it can make money, this is uncertain, there is no way to give a relatively definitive answer according to statistical laws. In this case, it means that there is no way to rely on the funds provided by commercial banks in the long run, and it depends on various forms such as equity, venture capital, equity investment, PE, and IPO.
All equity financing has a characteristic. It should be understood as a contract between private individuals. This is not the same as a bank. The bank takes everyone's money and then lends it to others. Therefore, the supervision of commercial banks is much stricter than other funds.
This means that equity financing needs to give investors full freedom of choice. Without freedom of choice, true innovation cannot be funded because it is one-on-one. If there is no freedom, it will appear that it thinks that the project wants to give money, but according to the regulations, it cannot give money. Some projects are not attractive and attractive, but they can be given according to policies.
Venture capital, PE, these are private money, at your own risk, in principle should not be controlled by the government. Therefore, it is not appropriate to implement so much supervision on equity financing, otherwise innovation is not easy to achieve. If the industrial policy and the production capacity are the same, it is done in accordance with the unified government regulations, and may go to the opposite side.
Fourth, government investment companies/government PEs are not suitable for innovation. Since equity financing is required, can the government do equity financing not? wrong! The government has already done a lot of equity financing. In 2015, China established 297 government guidance funds, managing 1.5 trillion yuan, accounting for 2.2% of GDP, which is 5.24 times that of 2014, which is twice the total in 2000-2014. By the end of 2015, there were more than 780 in China. The government guidance fund manages RMB 2.18 trillion, which is five times that of other VC funds around the world.
But what problems will the government bring with so many guiding funds? We have no way to ensure that the government's guiding funds and equity funds actually invest in innovative projects, which bring a lot of arbitrage space, even corrupt space and rent-seeking space.
Uncertainty in entrepreneurship and innovation has led us to no way to effectively regulate government investment funds. Cognition is a problem, and innovative losses and bankruptcies are normal. Can you lose money? If you lose money, how do you blame it? If you can't lose money, you will not be able to invest a lot of money, you can only put it there, or use it for arbitrage. The nominal support for innovation is actually arbitrage.
To put it simply, the government has a problem with guiding funds, and it does not meet the purpose of supporting the financing and supporting innovation in the stock market.
Even without corruption, government-guided funds will bring adverse choices. Who has the ability to innovate, many people are invisible. That is to say, people who do not have the ability to be entrepreneurs pretend to be entrepreneurs, and there are cases of indiscriminate use.
Therefore, I do not advocate that the government take the money. The money for the real equity investment must be private money. He wins his profit and loses his responsibility. Otherwise it is like the money of a commercial bank to support arbitrage. Arbitrage is also an entrepreneurial behavior. Many innovative achievements must become popular. It also needs arbitrage. For example, the innovation is the drill bit, and innovation is the latter. Without a drill bit, there is no way to drill deeper, and only the drill bit does not work.
Fifth, the financial system that serves macroeconomic regulation is also not conducive to innovation.
According to Hayek's cycle theory, credit expansion will certainly lead to entrepreneurial investment mismatches, inducing entrepreneurs to carry out arbitrage without creating value, rather than innovation. According to Schumpeter's theory, economic growth comes from the emergence of new technologies, new products, and new enterprises, eliminating the process of old products, old technologies, and old ones. The innovation cycle determines the business cycle.
If we use monetary policy to stimulate aggregate demand, it will certainly delay and hinder this elimination process, which must be harmful to innovation and long-term economic growth.
For example, we engaged in home appliances to the countryside a few years ago. This is a macro policy. These companies originally produced new products to eliminate old products. However, home appliances to the countryside have misled the enterprises that produce home appliances to a certain extent, leading to the upgrading of the home appliance industry.
Studies have shown that innovation activity begins at a low point in the recession because the market is saturated and companies cannot profit from old and mature products and resort to new products. Therefore, the financial system that serves macroeconomic regulation is also not conducive to innovation.
In conclusion, what I am talking about today is very simple, that is, China is shifting from an arbitrage economy to an innovative economy, which puts new demands on the financial system and the entire system. Our past service arbitrage is basically feasible, but there will be big problems in serving innovation in the future. In the future, financial system reform should be an entrepreneurial innovation activity, and it is better to encourage entrepreneurs to innovate rather than arbitrage.
Of course, finance is a derivative of the whole society and is very important for economic development. But human progress is the emergence of real innovation. The function of finance is to make entrepreneurs' innovation activities easier. Some people have some ideas, but there is no money. Money is in the hands of the rich.
Finance is how to make people with innovative ideas get the funds needed to mobilize resources, then hire people, rent land, and finally make innovation possible. In this respect, the financial industry shoulders a heavy responsibility. The future will also have a broader prospect.
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