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Sunday Papers

The Sunday Paper – Education and Innovation: The Long Shadow of the Cultural Revolution

In the paper highlighted today Zhanghai Huang from the Tsinghua University (et. al.) takes a look at the long term consequence on business innovation of denying managers a college education.

China’s a good place to study this as one of the greater wickednesses of the so-called Cultural Revolution was to close down all institutes of higher learning from 1966 to 1976. Thus an unlucky cohort of bright minds, those born roughly between 1948 and 1958, didn’t/couldn’t go to university.

Development economists agree and common sense suggests the greater amount of ‘human capital’ in your society the more likely it is your society is going to progress. The researchers stay away from trying to quantify by how much China’s economy may have been retarded by this lost generation instead looking at how publicly listed companies behave with and without college-degree-toting CEOs.

CEOs without college degrees are not uncommon; but during the study period it was noted nearly half of listed Chinese companies had a CEO without a college degree whereas in the U.S. over the same period the number was 8%.

What they found was companies with the lower qualified CEOs invested less in R+D, obtained fewer patents and where they had patents they were referenced less (i.e. were of poorer quality).

The paper makes in interesting digression as to why such an obvious inefficiency doesn’t/hasn’t fixed itself? The problem seems to be one of societal convention favoring age and a system that values continuity.

Looking forward, I read this as a very optimistic summary.

Today in China a 60+ year old CEO without a college degree is probably at the helm of an under-performing enterprise. Retirement at SOEs, by convention, is 65-years so a large part of the economy is about to undergo a change of leadership. The old-guard haven’t done a bad job; but new will arrive with not only the natural vim associated with fresh leadership but also less political-indoctrination-baggage and better trained minds. Something to look forward to right?

You can access the paper in full via the following link Did the Cultural Revolution Stifle Innovation?

Happy Sunday.

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