Towards a Theory of Modular Natives: Explaining Superscaling, China's Greatest Innovation Yet

Abstract

First, we present a new theory of "modular natives." A modular native is a basic building block that is born modular, e.g., a solar cell. The theory predicts that using modular natives in building things reduces complexity and improves predictability, resulting in better outcomes and faster scale-up. Second, we test the theory on the largest dataset of its kind. We find, at a high level of statistical significance, that modular natives operate under a fundamentally different risk regime than other project types, with finite and predictable risk, in contrast to non-natives that have infinite and unpredictable risk. The findings help explain why modularity is key to successful building while bespokeness often leads to failure. Third, we relate our findings to economic and geopolitical development, arguing that China understands modular natives and scale-up better than any other geography and that this is key to China's swiftly growing dominance in renewables, batteries, EVs, robots, etc. We argue that China's mastery of modularity and scale-up is a major innovation in its own right, among the greatest and most impactful in human history, falsifying the common notion that China cannot innovate. Business and government outside China ignore these findings at their peril. Finally, we spell out policy and practice implications and identify areas for further research.