During the process of urbanization in the new era, the key to achieving quality economic growth is cultivating, attracting and retaining talent.

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During the process of urbanization in the new era, the key to achieving quality economic growth is cultivating, attracting and retaining talent. Since 2017, many Chinese cities have rolled out measures to vie for talent in what has been dubbed the “talent war.”

So far, related regulatory policy has been absent and academic research insufficient, so it is urgent to reflect on pertinent theories.

 

Talent matters
From the perspective of political economics, productive forces determine the relations of production. Science and technology are the primary productive forces while human labor is the most valuable active factor in productivity. Therefore, it is reasonable to advance scientific and technological development by leveraging talent, thereby boosting productivity.

When it comes to Western economics, the founder of the Cambridge School Alfred Marshall said more than a century ago that urban agglomeration will lead to economies and diseconomies of scale at the same time, and urbanization should strive to balance the two.

Marshall held that the agglomeration of talent will generate rather obvious economies of scale, while the diseconomy of scale is weaker, so vying for talent is a necessary move that cities should take.

The endogenous growth theory articulated by Robert Lucas stressed the importance of human capital, arguing that talent is the source of economic growth.

However, more factors need to be taken into consideration in practices and current policies. First, talent introduction incurs execution costs. Moreover, the supply of talent is limited within a certain period, so an increase of talent in one city necessarily means decreases in others.

Hence the talent war may lead to imbalanced regional development, and further intensify the principal contradiction facing Chinese society. In addition, an overemphasis on the scramble for talent rather than talent cultivation may cause friction between cities to the detriment of society as a whole.

Many research projects have shown that most Chinese cities are small, so continuing urbanization conforms to the requirement of urban agglomeration and satisfies the threshold condition of city capacity, which is the precondition of the scramble for talent.

There are external and internal reasons for the talent war. As the economy slows down, all regions are actively exploring new sources of growth while paying close attention to essential areas like innovation, science and technology.

As General Secretary of the CPC Central Committee Xi Jinping said in the report to the 19th Party congress, “Innovation is the primary driving force behind development.” The subject of innovation is talent, so securing talent means seizing the initiative for innovation.

Externally, a city will fall behind if it doesn’t move forward. The talent war has posed a prisoner’s dilemma. Whatever strategies adopted, those cities trying to attract talent will gain an edge, putting pressure on other cities to join the competition.

Specifically, common measures to attract talent include granting local residency, preferential terms or subsidies for home buying, temporary housing, settling-in allowances, employment or business startup support, preferential promotions, and tax reduction and exemption. The measures vary from city to city.

 
Guidance needed
Should the central government unveil regulation policies regarding the talent war? Economic theories suggest that government regulation is a means of coping with market failure. The fierce “war” between cities is also a kind of market failure, so the government should regulate the phenomenon when needed.

The necessity of regulation first depends on whether the prisoner’s dilemma brought by the talent war can cause deadweight losses. In other words, it is contingent on whether the Nash Equilibrium deviates seriously from the optimal equilibrium. If cities engage in cutthroat competition for talent, ignore talent cultivation and invest lots of manpower, materials and financial resources directly in talent attraction, local governments will face heavier fiscal burdens, talent flow will become more frequent, and their productive activities will be inhibited.

Moreover, it’s worth contemplating whether the talent war will aggravate imbalances of urban development. Eastern cities are affluent and have solid development foundations. They have an upper hand in the talent war. On the contrary, western regions have seen a grim brain drain in recent years. A lack of regulation from the central government will exacerbate development imbalances between eastern and western cities.

Also, is the talent war a market failure or does it represent the efficient allocation of resources by the market? The normal flow of talent is a manifestation of market resource allocation that maximizes their potential and boosts production efficiency. However, some local governments distort talent flow through various policy restrictions and incentive measures. Although their moves can realize massive talent inflow in the short term, a lack of supporting systems and innovative environments will restrain productivity.

The talent war is apparently a tussle among cities, but it actually involves a trilateral game among the central authority, local governments and talent individuals. The central authority chooses to step in or adopt a laissez-faire attitude toward talent flow, local governments formulate appropriate policies to attract talent, and individuals choose to start their career or business in the right city in view of their self-interests. Thus how to rationally guide talent flow from city to city entails a holistic consideration from the aforementioned three aspects.

In terms of the central government, talent flow requires guidance, instead of restrictions. In fact, the Chinese government is supportive of talent flow to western regions and has implemented some measures, such as subsidizing and rewarding recent university graduates for taking jobs in western cities and initiating a project dedicated to western regions financed by the National Social Sciences Fund. However, compared with diverse preferential clauses in the talent war, the measures have produced weaker incentive effects.

Hence proper government interventions are necessary once the talent war brings about considerable deadweight losses, exacerbates regional development imbalances and distorts the allocation of human resources. Nonetheless, guidance is more appropriate than restrictions, because fettering talent flow at the macro level might hinder the efficiency of resource allocation while leading brain drain to developed countries.

The government can lend greater support to institutions of higher learning in western regions to enhance their capacity in talent cultivation. At the same time, the “Belt and Road” initiative can be utilized to make an industry layout favorable to western cities.

Local governments should pay more attention to improving supporting systems and creating an innovative environment, rather than bringing in talent by unsustainable means like fiscal subsidies.

Introducing talent is not the purpose of city development. Only when the long-term mechanism following talent introduction is improved and every professional is allowed to achieve their full potential can cities develop more rapidly. Housing price is a crucial factor affecting the flow of talent, so how to effectively curb housing prices and remove their worries is the basis for talent introduction.

In addition, equal attention should be paid to talent strategy and industrial construction. Talent relies on industry. Without industrial support, it is hard to attract or retain high-quality talent. A key issue for city managers is finding ways to improve systemic integration of industry, academia and research institutions to realize the synergy of talent strategy and industrial construction.

Individually, talented professionals should adopt a long-term view to choose the industry and city suited best to their career development and most conducive for the realization of their self-worth. They should also sign complete contracts and establish the spirit of contract, instead of changing jobs frequently to bear unnecessary losses. As individuals, they should integrate into urban construction as part of the city they choose to stay in and strive to realize self-values while contributing to city development.

 

Deng Zhongqi is an associate professor from the School of Economics at Sichuan University; and Yu Xiaoyu is from the National School of Development at Peking University.

(edited by CHEN MIRONG)