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Adam Smith, the arch-capitalist, didn't like corporations (the trade guilds of his day). He wrote in 1776 in The Wealth of Nations that they breed "negligence and profusion" and "scarce ever fail to do more harm than good." In his day, governments handed out corporate charters rarely and grudgingly, thus bolstering the corporations' monopolies in their markets, their high prices and limited supplies of goods.

But a century later, as the required scale of enterprises grew, new corporations fed by socialized capital through private and public stock ownership came to the fore. They built railroads, steel mills, refineries, and other businesses of unprecedented size, scope and complexity. In so doing, they played an indispensable role in what University of California at Berkeley economist J. Bradford DeLong calls the "central fact" in 20th century economic history: the greatest increase in material wealth ever.

Now the divisions of labour of the "industrial economy" are giving way to those of the "creative economy," and corporations find themselves at another crossroads. Attributes that made certain corporate forms ideal for the 20th century could cripple them in the 21st. So they may have to change, dramatically. The Darwinian struggle of daily business will be won by the people––and the organizations––that adapt most successfully to the new world that is unfolding.

The creative industry (CI), as a concept, is a relatively new idea in China. It is a term that was first used in the United Kingdom in 1997 and now is a term used all over the world. It is related to business sectors whose origins are found in individual creativity, skill and talent, which have the potential to create wealth and jobs via the generation and exploitation of intellectual property. This includes advertising, architecture, art and antiques, crafts, design, fashion, film, music, performing arts, publishing, software and computer games, television and radio.

The creative industry has been identified as a key to economic transformation, and cities and nations around the globe have been considering the futures of their own creative industries in response.

CI also enables innovation and improved productivity across other sectors within a given economy. Its production includes niche manufacturing, media, live arts, design, visual arts, heritage, scientific discovery and entrepreneurship.

The Internet is a driving force behind the creative economy, in which individual people's ideas, skills and creativity, rather than systematic "top-down" programmes, are the driving force. Given the right skills and opportunities, it is expected that people from all backgrounds around the world will develop ideas best suited to their lives. Digital technologies make it possible to eliminate "middle men," as with artists who can now deal directly with their audiences. This may be the best thing to happen to artists in hundreds of years.

Beijing is facing a looming creativity challenge as its established industries face new sources of competition. Tapping into Beijing's creativity will be essential for its continued economic development. The promotion of the creative industry, a dynamic new sector of advanced economies, could be conducive to Beijing's efforts to recast its own image. In addition to its world-class capability, the creative industry, as a knowledge-based sector, can leverage Beijing's culture and has the potential to generate wealth on a sustained basis, while repositioning Beijing as a city of new ideas and new thinking. The creative industry will generate untold opportunities for medium and small businesses, a prime source of new jobs in the developed world.

Since the beginning of the year, Beijing, Nanjing, Shenzhen, Guangzhou, Qingdao, Hangzhou, Xi'an and Chengdu and other large cities have been involved in setting up their own creative industry zones, with an eye toward making CI enterprises a new engine for economic development.

In February, the construction of a creative industry zone called "Window of the World" began in Nanjing, the capital of East China's Jiangsu Province. The zone, expected to be operational in September, will be the city's first creative industrial base. The municipal government plans to set up 10 more such areas over the next three to five years.

In Shandong Province, "Creation 100," the province's first creative industrial zone, which will feature advertising, design, film and television businesses, is now under construction in Qingdao, a major coastal city of Shandong Province, where the 29th Olympic Sailing Regatta of the 2008 Olympic Games will be held.

In Beijing, in addition to the "Beijing Creative Centre" in Dongcheng District, the construction of five new such districts is under way, said an official from the Beijing Municipal Development and Reform Commission. They're located at Shijingshan Digital Amusement Base, Zhongguancun Pioneering Base, the National New Media Base, Deshengyuan Creative Base of Industrial Design and at the Dashanzi Arts Centre.

"In the development wave of creative industries, government is the most important driving force," said Wang Qin, PhD, from the Industrial Economy Institute of Chinese Academy of Social Sciences. "The strategy of building an innovative country proposed by the central government provides a good climate for creative businesses."

The strategy has been warmly welcomed by local governments. Many of them, including Beijing, Shanghai and Nanjing, have written "developing creative industries" into their municipal 11th Five-year programmes (2006–2010). Beijing has listed the "cultural creative industry" as one of its cornerstone industries and aims to make the city the country's "capital of creative industry." Shanghai asserts it wishes to become an "international creative industrial centre" alongside the likes of London, New York and Tokyo.

The turn of the millennium is a turn from hamburgers to software. Software is an idea; hamburger is a cow. There will still be hamburger-makers in the 21st century, of course, but power, prestige, and money will flow to the companies with indispensable intellectual property. You can see it already. At the end of last year, Microsoft Corporation (MSFT), with just 31,000 employees, had a market capitalization of $600 billion. McDonald's Corporation (MCD), with 10 times as many employees, had one-tenth the market cap. Or consider Yahoo! Incorporated (YHOO)––a virtual place in a virtual medium, the Internet. Although far below its peak price, Yahoo trades at more than 40 times its book value. If USX Corporation's US Steel Group (X) traded at the same multiple to book as Yahoo, its market capitalization would be nearly $90 billion, instead of less than US$2 billion.

In an economy based on ideas rather than physical capital, the potential for breakaway successes like Yahoo is far greater. That's because ideas, like germs, are infectious. They can spread to a huge population seemingly overnight. And once the idea––say, a computer program––has been developed, the cost of making copies is close to zero, and the potential profits are enormous.

With the possibility of gargantuan returns, it's no wonder that idea-based corporations have easy access to capital. The pool of investable money has been swollen by the rising tide of wealth around the world, coupled with a new culture of investing. US companies received nearly US$50 billion in venture capital last year, 25 times as much as in 1990. The amount of money raised in US initial public offerings (IPOs) last year, nearly US$70 billion, was 15 times the amount in 1990. Both records are certain to be broken this year.

The rising importance of ideas creates all kinds of difficulties for corporations. Books, music, and software are devilishly difficult to create––and diabolically easy to copy. And now, so is the Internet, thanks to services that enable people to download music, movies, and software for free. The legal battle over the biggest of the music piracy havens, Napster Incorporated, is a sign of things to come.

To keep the creative economy growing, governments will have to strike a delicate balance: enforce patents, copyrights, trademarks, and noncompetiton clauses to preserve incentives to create, but not so much that it suppresses competition. "Intellectual property is going to be the big fighting issue" of the coming decades, predicts Lester C. Thurow, a Massachusetts Institute of Technology economist.

In the creative economy, the most important intellectual property isn't software or music or movies; it's the stuff inside employees' heads. When assets were physical things like coal mines, shareholders truly owned them. But when the vital assets are people, there can be no true ownership. The best that corporations can do is to create an environment that makes the best people want to stay.

In the creative economy, the power to exert influence is nearly unlimited because there's no ceiling on how many people can be made to depend on idea-based assets, notes the University of Chicago's Raghuram Rajan, an expert on banking and comparative financial systems. An example is America Online Incorporated’s instant-messaging system, which is marketed to select companies and individuals. Companies will exercise power by sharing––or withholding––crucial intellectual property.

Global corporations will try to take advantage of their transnational status to operate beyond the control of national governments. They can play governments off one another through their decisions about where to locate factories or research labs. And many use unrealistic transfer prices to shift income from high-tax jurisdictions to low-tax ones. Last year, a US General Accounting Office study reported that from 1989 to 1995, an outright majority of corporations, both US and foreign-controlled, paid zero US income taxes.

For all the talk of a brave new world, nation-states aren't going away in the 21st century. So it's a good bet that there will be repeated clashes between corporations and the countries––and their peoples––that play host to them. In response to the globalization of business, governments may coordinate their efforts to regulate corporations on issues ranging from taxation to pollution.

The Beijing Municipal People's Government has revealed that it will focus on the development of the cultural creative industry, with stress on enhancing independent innovation. 

According to its plans, Beijing should accelerate planning and development for its cultural creative industry and nail down development focuses and a layout for the industry. Supportive policies should be developed and that enterprises featuring diverse forms of ownership should be allowed to engage in developing the cultural creative industry.

At the same time, they also advised that the government should enhance its efforts to support independent innovation, protect intellectual property rights and particularly to create a favourable environment for Beijing-based centrally owned enterprises and its scientific research academies and institutes to elevate the innovative capabilities of China's capital.

Lastly, they said that since Beijing is a typical resource-dependent city that is deficient in water, the government should adopt more practical and strict standards for energy conservation and environmental protection and vigorously promote new technologies and techniques. It has to speed up the use of clean energy sources such as solar energy and wind power.

Professor Jin Yuanpu of the Renmin University of China said, "The creative industry is emerging in China against the background of global consumption and serves to meet people's needs in cultural, arts, intellectual and amusement products."

It appears that investment-driven economic success is no longer an absolute requirement with China attaching significant importance to boosting economic development through expanding the power of the purchaser. At the same time China is changing from a supply-oriented to a demand-led economy.

Jin said that developing creative industries could exploit new markets serving a new consumer bases.

Experts have suggested that as China is new to the creative scene, the basic foundations must be established quickly to allow the industry to grow.

Wang said, "Government should act as an engine in developing the industry." He added that government's role should be working out strategies and plans for creative industries, setting policy orientation, providing space for development and reasons for more investment.