Despite telling us that Communist Chinese premier Wen Jiabao is “the man of the people” and offering us a paean to global government that starts with the sentence “Mao Zedong was right,” the latest Newsweek offers a pleasant surprise: an article accurately stating the benefits of Joseph Schumpeter’s creative destruction:

At times like this, governments tend to champion particular sectors like
manufacturing, or industries like green technology. But true dynamism
flows from continuous innovation, experimentation, adaptation, and
change, all of which raise productivity over time. Those productivity
gains, in turn, lift incomes and drive consumption. This fuels more
innovation?and a dynamic economy thus expands in a healthy, sustainable
way.

How exactly do we foster economic dynamism? Twenty
years of McKinsey Global Institute research shows that the mix of
sectors within an economy explains very little of the difference in a
country?s GDP growth rate. In other words, dynamism doesn?t turn on
whether an economy has a large financial sector, or big manufacturers,
or a semiconductor industry, but instead on whether the sectors are
competitive or not. Instead of picking winners and funneling subsidies
to them, countries must get the basics right. These include a solid rule
of law, with patents and protections for intellectual property,
enforceable contracts, and courts to resolve disputes; access to
finance, particularly for startups; and an efficient physical and
communications infrastructure.

Once the basics are in place, the key is ensuring
strong competition within sectors. Governments can encourage this by
minimizing the barriers to entry and exit in an industry, opening their
markets to trade, repealing subsidies and regulations that favor
incumbents, and breaking up monopolies. They can create greater
transparency in heavily regulated sectors such as health care and power
generation. They can also nurture human talent by providing workers with
the ongoing education and skills needed to adapt to 21st-century jobs.