What is economic growth? The question seems easy, but many schools of economics contain no growth—Marxist economics, for instance, appears to be economics without growth. Or rather, without growth in the Schumpeterian sense of "creative destruction":
An economy uses a particular technology and organizational form to produce butter and bread. If the inputs increase (labor and capital), or if some optimization improves factor utilization, producing more butter and bread—this is not economic growth in Schumpeter's sense. This is a "static circular flow." Such a circular flow may grow in quantity or be optimized in efficiency, but it is not economic growth, because in Schumpeter's framework, it does not produce new production functions (economic structures), and therefore it fundamentally does not grow. Economic growth, in Schumpeter's framework, is substantively defined as the reproduction of production functions—specifically, new products, new technologies, new combinations of factors—new production functions, what we now universally call innovation. So it is not that "innovation drives growth"—innovation is economic growth itself.
There are many definitions of economic growth. Why is Schumpeter's important? Because Schumpeter's definition captures the core of capitalism. Capitalism is a social system highly optimized for growth, and one that operates on the premise of growth. Without growth, capitalism runs into serious trouble.
For latecomer countries (such as China over the past few decades), the production of production functions is not necessarily—and in practice, mainly not—an indigenous, spontaneous process, but rather one of importation: introducing the products, technologies, production lines, management systems, and social institutions of the Western world. In short, "Reform and Opening Up." Non-indigenous innovation can also generate economic growth, and may even be more successful in terms of growth magnitude, because it has greater certainty of success and lower costs.
But there comes a day when an economy develops to a point where import-driven production function renewal can no longer provide sufficient growth momentum. At this point, the economy will encounter serious problems. These are problems of growth—fundamentally, the economy's inability to generate sufficient creative destruction, rather than problems of optimizing existing production functions. For example, China's current economic problems do not fundamentally lie in chips or AI bottlenecks. These may matter to some extent, but what matters more is the insufficiency of innovation.
Let us return to the earlier proposition: why is Schumpeterian growth the core of capitalism?
Because Marxist economics' critique of capitalism is correct in the absence of Schumpeterian growth. In the static economic circulation of capitalism, capital must earn profits, which means labor income is inevitably insufficient to consume all output. Economic crises of relative overproduction are unavoidable.
And why, after Marx got this right and declared that capitalism was doomed to perish, has capitalism instead thrived all the way to the present? It is precisely because of Schumpeter's "creative destruction." Creative destruction is characterized by high risk, high returns, and (relatively) long cycles. In recent decades, the entire structure of capitalism has been highly optimized to produce "creative destruction." The quintessential social mechanism is venture capital. What Marx called surplus value is channeled through venture capital into the production of "creative destruction," which then enters consumption, thereby resolving the problem of overproduction while also enormously advancing productive forces.
When we say Marxist economics is economics without growth, we mean it failed to consider that the reproduction of modes of production (production functions) is a fundamental part of capitalism. Like other general equilibrium economics, it assumes that modes of production already exist and are not a factor requiring consideration. The truth is precisely the opposite: if it is not the only important factor, it is the most important factor in economic development. When I say "most important," I mean first historically—this is easy to understand. An economy that only produces butter and bread is clearly inferior to one that also produces iPhones. This is absolute historical progress, and creative destruction is the fundamental driver. Second, without this kind of growth—without all the activities of production function reproduction (i.e., innovation) undertaken in pursuit of this growth—an economy will inevitably fall into economic crisis. This has been proven by Marx.
Therefore, for China's current economic predicament, what is fundamentally important is not the construction of any specific production function (chips, automobiles, including all so-called "new quality productive forces"), but rather the continuous generation of creative destruction to indigenously produce economic growth, thereby addressing the problems of social utility growth and economic crisis. And to generate innovation, what is needed is sufficient economic freedom and reduced institutional costs of innovation.