Flowers from China
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Flowers from the Netherlands, one of the largest exporters of natural flowers in the world.
In my neighbourhood in Colombo, there was an artificial floral shop. It specialised in selling artificial flowers, plants, foliage, greeneries, trees and similar decorative items made of plastic or polyester materials. Amazingly, they all looked so real to anyone that it was hard to distinguish them from their natural equals. It’s not a surprise that everything there was imported from China.
There are hundreds of artificial floral factories in China, located mostly in the Pearl River Delta area of the country’s southern coast. Pearl River Delta is one of the largest economic zones for manufacturing industries in China.
Chinese floral products are exported all round the world. Over 90 per cent of the world’s exports of artificial flowers come from China, which amounts to the value of over US$2 billion, as of 2022 data. The world’s largest importer of artificial flowers is the United States, which purchases over 40 per cent of world imports to the value of over $1 billion.
Import substitution
As the COVID pandemic caused economic lockdowns and disrupted global supply chains, the artificial floral shop that I referred to also had the problem of getting down its supplies from China. As I had been visiting this shop occasionally, I could observe the decline in the displayed products on the shelves and on the tables.
Although the COVID issue was over, the subsequent economic crisis hit the final nail in the coffin. The shop was unable to continue by ordering the floral products from China due to import controls. I could clearly see that the shop looked half-empty with no new supplies. What were left there were mostly the unsold or, rather the less-demanded items that were still displayed at price discounts.
It really looked sad to see that the shop was empty and both demand and supply going down. In an occasional discussion, one day I asked the shop-owner about the possibility of getting locally produced substitutes – import substitution products!
He replied: “We tried that too. But local products cannot get this quality.”
He continued to explain his answer with some economics too: “Even if someone can produce at this quality, this is a very small market. How many customers in this country want to buy plastic flowers? Unless our products go to the export markets competing with Chinese flowers, they cannot survive by producing a small quantity for the local market at high cost.”
“If China cannot, how can we?” he asked, raising an interesting point.
I thought to myself: “If competing imports are the obstacle for many local businesses, as many would claim, here is a golden opportunity for them. We would expect local businesses flourishing now under import controls, but they are not at all. What we have seen is rather the opposite – negative growth as businesses contracted.”
A few weeks later, I saw that the flower shop was closed down. There was a notice on the frontside glass panel: “TO-LET”. As the crisis deepened such notices on commercial buildings were quite common along the streets in Colombo.
There is a “better way”
Last week I touched upon the question of importing national flags from China. In spite of the fact that the product being “our national flag”, generally the underlying message of that discussion could be read as follows:
“Import controls of a product can, perhaps, lead to more of individual businesses to survive than to thrive. But their scaling-up to a national policy cannot lead a whole nation to thrive.”
One of the important supply-side factors that determine the success of businesses and, thereby the prosperity of a nation, is the innovation: doing new things in new ways, differentiating one’s product from its competitor products.
Entrepreneurs are equipped with creative abilities to engage in innovations differentiating their products to be more competitive in the markets. Apparently, the lack of innovations must seek import protection, because without protective walls the products cannot survive even in the local markets.
A nation’s innovative ability can be developed in a conducive environment. It is the government which has the legitimate role to play in establishing such a conducive environment. This is clear from the studies in innovative capabilities of different countries in the world.
Global Innovation Index
Innovation should result in a new or an improved product or a production process or any combination of them. Accordingly, it differentiates one’s product or its production process from the competitors. As the whole world has realised over the past few decades, China has excelled in doing so.
The countries which have greater innovative capacity than others tend to grow and expand faster than others. On the other hand, countries which have not focussed on developing their innovative capacity continue to lag behind them.
The Global Innovation Index has captured important factors that determine the innovative capabilities of different nations. The Index is a composite measure of 80 sub-indicators representing both input and output sides of innovative capabilities.
On the input side, these indicators represent business environment, quality of public services, regulatory environment, rule of law, policies for doing business, education, R&D, ICT infrastructure, energy and logistics, and many other factors that enable innovations. On the output side, indicators representing knowledge creation, knowledge impact and knowledge diffusion, and creativity-related measures are part of a country’s innovative capabilities.
Reforms and investment
The Index depicts that the innovative capability of a nation is determined by a broader set of complex measures that establish a conducive environment rather than a narrowly defined R&D expenditure and educational attainment, though they are two essential aspects of innovation.
Some people may have born with such innovative talents and capabilities, but as a nation this area must be developed and established. It requires an active role of the government towards policy and regulatory reforms and investment in the areas of R&D, education and entrepreneurship development. What about the role of
the people? Their role is critical too, because they can form political opposition to changes.
This point is clear from the diverse experience from many different countries in the world. Countries which have established such environments conducive to innovations have prospered, while others which failed in doing so have displayed dismal economic performance.
Out of 132 countries, Sri Lanka performs “poorly” by occupying at the 90th ranking position in terms of the country’s innovative capabilities. High-performing countries in Asia – India, Thailand and Vietnam, are all having higher ranking positions at 40, 43 and 46, respectively.
While Japan is in the 13th rank position, China with its 12th rank position performs even better than Japan. With a high innovative capability, it is not surprising that China can produce many of the manufactured products better than many other countries in the world and grow faster than them. Top-10 countries with the highest innovative capabilities are Switzerland, Sweden, US, UK, Singapore, Finland, Netherlands, Germany, Denmark, and South Korea.
Nation that disregards new things…
In conclusion, I must note a well-known line of a Sinhala poem by Kumaratunga Munidasa who lived during 1887-1944. The literal meaning of the poem line reads as “the nation that disregards ‘new things’ in the world will not rise”.
Munidasa is basically known as a pioneering Sinhalese linguist, grammarian, commentator, writer and a poet. With this line of the poem, he has depicted a key economic challenge that we are faced with even today. And what he said about 100 years ago is confirmed by the country’s poor score in the modern Global Innovation Index.
Although I have seen his poetic line written as a slogan in many places including government office walls, its practice has been a challenge. Rather what we have seen during our day-to-day affairs is the historically slow pace of changes and reforms as well as the existence of political opposition to such changes and reforms.
(The writer is Emeritus Professor of Economics at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk and follow on Twitter @SirimalAshoka).
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