Disruptions in Education Stunt Innovation in the Long Term
A decade of upheaval that brought traditional education to a standstill birthed a cohort of Chinese CEOs less inclined to spend on R&D.
As part of his Great Proletarian Cultural Revolution, Mao Zedong shut down China's universities and colleges from 1966 to 1976. High school graduates were sent to work on farms and in factories, and many never again saw the inside of a classroom.
In Education and Innovation: The Long Shadow of the Cultural Revolution (NBER Working Paper 27107), Zhangkai Huang, Gordon M. Phillips, Jialun Yang, and Yi Zhang use this tumultuous period in Chinese history to illuminate how disruptions in schooling can negatively affect an economy's long-term growth and innovation. They find that Chinese firms led by CEOs who lack college degrees are less innovative than those with CEOs who are college graduates.
The researchers gauge a company's commitment to research by the ratio of its R&D investment to its total assets. Among firms led by CEOs with college degrees, the R&D/assets ratio averaged 16.6 percent higher than it did among companies with less educated CEOs. College-educated CEOs, they find, "value research and innovation more, given they themselves have received a college education and may have more specific technical knowledge or know more about the importance of R&D."
The study's sample consists of companies listed on China's two major stock exchanges for the period 2008–16. The median age of CEOs in the sample is 55, making it likely that they were born between 1948 and 1959 and graduated from high school during the Cultural Revolution.
Most Chinese in that cohort lost the opportunity to attend college. By the end of the upheaval, they either had families to support or were squeezed out of the relatively few available college slots by a new generation of high school graduates. The revolution decimated the ranks of faculty and scientific researchers, reducing admission and research capacity. The disruption in education was so stark that the age of a CEO can serve as a proxy for educational status in predicting a firm's level of innovation.
The researchers use multiple approaches to control for the possibility that firms hire CEOs with or without a college degree based in part on their innovation opportunities. They conclude that Chinese firms led by CEOs without a college degree spend less on R&D, generate fewer patents, and receive fewer citations to these patents.
— Steve Maas