Diatribes of Jay: Make Plans, not War

For an essay on Elizabeth Warren’s qualifications for the presidency, click here. For comment on how not doing our jobs has brought us Americans low, click here. For brief descriptions of and links to recent posts, click here. For an inverse-chronological list with links to all posts after January 23, 2017, click here. For a subject-matter index to posts before that date, click here.

In less than two weeks, the Dow has dropped 691.3 points, or 2.6%. President Trump caused the drop by threatening to impose major new tariffs on Chinese goods by Friday unless China concludes an acceptable trade agreement first. What’s “acceptable” he left vague and unspecified. But we know it includes forcing China to stop commandeering and stealing US technology and intellectual property.

Unless Trump and his team accept a charade—yet another “reality show”—China is highly unlikely to agree to that. Its meteoric rise as a nation, and its lifting of hundred of millions out of extreme poverty into the middle class, have come from taking jobs and technology away from the United States. There is no chance that the Chinese are going to give them back. Anyway, technology is intangible knowledge that can’t be given back once revealed. The cat is already out of the bag.

Even our own US business community doesn’t really want this to happen. It’s making billions from its plants in China, which rely on those offshored jobs and technology to enrich their shareholders. American plants in China need to keep the jobs and technology there in order to keep bringing profits home. And if the American plants in China don’t continue to have leading-edge technology, their Chinese competitors will soon take the Chinese market away from them, even if the Chinese government doesn’t favor them unfairly.

So the chances for a tariff trade war, which could easily morph into a new cold war or even a hot war, are now quite real.

Before starting down the same path to war that our own Smoot-Hawley tariffs against the Japanese blazed a century ago, we Americans should consider a glaring truth. The current state of affairs, with China on the rise and our nation in relative decline, is equally the fault of both sides. It’s hardly the result of some demonic Chinese plot of which we Americans were innocent victims.

At fault on our side is our own national ideology, which has made us easy marks. For most of the past two generations, we’ve believed in Providence. We’ve believed that our economic God—the Deity of free and unregulated Markets—will always provide. In the form of an “invisible hand,” He will organize our industry and commerce for the best. He will forge our prosperity and success out of the random and uncontrolled impulses of thousands of self-interested capitalists.

He will even self-correct and contain His own failures and excesses, we believed. Our once-Fed-Chairman Alan Greenspan recanted that last bit of religious faith in 2009, after he had failed abysmally to control the random acts of bankers that caused the Crash of 2008. But still the beat goes on.

Still we believe that trusting in the random Markets Gods is best. “Picking winners” with the aid of government subsidies or industrial policy, we are told, is wrong and foolhardy, even when oil and gas will run out in the lifetimes of children born this year and the best alternative is electric cars. (Coal cars, anyone? Think of the afterburner sales prospects!) We shouldn’t regulate Facebook, the Markets Gods and Freedom Gods advise, even after it has crushed our national democracy and maimed our civic dialogue and is busy doing the same to the rest of the non-totalitarian world. And we shouldn’t control Amazon’s monopolization of national retail even as it threatens to extinguish good, middle-class retail lifestyles for millions of perhaps otherwise unemployable people.

No one dragged our American capital and technology, kicking and screaming, over to China. Our oligarchs sent them there. They did so to build their empires, their profits, their shares’ values, their dividends, their salaries and their bonuses, without the slightest thought to the future of their Americans workers.

So if you want to blame someone, blame our oligarchs, not the Chinese. They are much closer to home, and they have deluded us for decades with their false Markets Gods which, as in The Wizard of Oz, are mere masks for themselves. The false ideology they have propounded is not far from the Old French Aristocracy’s notion of the “best of all possible worlds,” which Voltaire ridiculed in his classic work Candide, decades before the French Revolution.

Only in the last few years has China resorted to wantonly stealing technology, mostly by cyber espionage but sometimes by bribery and other means. It did so as its spooks quite rightly guessed that the hollowing out of American manufacturing would eventually make the pump of American jobs and technology run dry. The vast bulk of the transfer of investment, jobs and technology to China from the United States was purely voluntary, however much hard bargaining may have preceded it. Our oligarchs gave our technology to China because enriching themselves without much thought to social consequences is what they do.

So China built its miraculous rise on the twin foundations of its own necessity and ingenuity and Americans’ naïve faith in the all-curative power of our oligarchs’ greed. Now the consequences of that naïve faith have become apparent to the least educated rural American voter, and the results are in.

Our naïve superstition has given us Trump as President, Steve Bannon as a power behind the throne, and a nation in which our leaders can think of nothing more constructive to do to “make America great again” than blame others for our growing misery and focus aggression against foreigners and our own minority groups. Their dystopia is now America. (To understand how much Steve Bannon believes in Armageddon, economic or otherwise, as a “solution” to our woes, see the latest Frontline feature on “Trump’s Trade War.”) So we now have a national policy proven counterproductive almost a century ago, by humanity’s most terrible war so far, with fifty million prematurely dead.

Wouldn’t it be better to have some sort of national plan to promote our own economic dominance, rather than, like Russia, tearing others down? No, I’m not talking about about a planned economy, socialism, Communism or any other simplistic “ism.” I’m talking about a bit of intelligent social engineering, of the kind that our Founders did. That social engineering would focus our national effort in education and innovation on selected fields of technology and industry that we now know will dominate the Twenty-First Century, things like alternative energy, sustainable alternatives to plastics (that don’t pollute our land, rivers, seas, bodies and own blood), smart energy grids, electric cars, nanotechnology, robotics, quantum technology, artificial intelligence and personalized medicine.

I’m talking about industrial policy that will keep our best innovations at home, at least for a while. I’m talking about a national plan to do just that.

Once we had such a plan, and it helped cut World War II short. It was called the Manhattan Project, and it invented nuclear weapons and produced our species’ first atom bombs. Not only was it entirely secret. It was entirely a government project, under the command of an army general, who was authorized to commandeer military personnel and materiel throughout the United States. At the height of its production of enriched uranium, the Manhattan Project consumed ten percent of the entire nation’s electric power to run the centrifuges.

The point here is most definitely not to plan or prepare for war. Even a trade war with China, let alone a real war, would be the height of human folly. It would kill all our species’ near-terms chances of a golden age that might replace all the fighting in our mostly sorry history. Anyway, we should not even think about making war on a nation that has done such a magnificent job, entirely peacefully (although occasionally dishonestly), of lifting hundreds of millions out of poverty in only two generations.

What we Americans must do is make a plan of our own. We must stop relying on the kindness of oligarchs, whether ours or others’. We must stop believing in the providence of the Markets Gods, lest Voltaire rise from the grave and make us the butt of new jokes.

Nor should we work to keep China down. That would be futile. Already China has risen so far, so fast, that further rise is inevitable.

Instead, we must recognize China as a rival and roughly equal industrial power. We must develop new technology of our own and keep it strictly to ourselves, so that we have something unique to trade with China (and the rest of the world) as China and others make innovations that we can’t match. Such a plan is entirely within our capability, as long as we don’t let our oligarchs sell all our latest stuff, and the technology to make it, to China and other low-wage nations for a song.

Globalized free trade was an ideology that came much too soon and spread much too far too quickly. Its primary rationale is that each nation will succeed in trading the goods and services that it makes or provides best. That’s the so-called theory of “comparative advantage.” But if your let your own capitalists give away or sell your best technology to low-wage nations, how can you sustain your comparative advantage?

Anyway, a big reality mars the glimmer of this once-shiny theory. Our species still has nation-states, and the welfare of their respective peoples still depends as much or more on what their governments do as on any trade between them. As long as nation-states exist, their governments will be responsible for creating and maintaining enough comparative advantages in enough things to sustain their lifestyle as industries rise and fall in the “perennial gale of creative destruction” that is innovative global capitalism.

For the foreseeable future, each nation-state must work to create something unique or unusual to trade with others, lest its people suffer economically. Each must have and maintain one or more comparative advantages, which it keeps in part by attracting personnel from around the world to specific fields of innovation in which it excels. Among the current models within the United States are Silicon Valley for software and the Internet, San Francisco and New Jersey for new-technology pharmaceuticals, and Texas for energy.

Some places might find their comparative advantage in natural products, such as sugar, or tropical fruits and vegetables. But big nation-states that span several time and climatic zones can’t rely on nature alone. Each big nation-state must specialize in at least a few zones of innovation that others can’t match. And it must maintain its comparative advantage in those zones by strict secrecy, massive investment, education, and consequent attraction of human talent from around the globe.

It would be nice, in theory, to have a world in which all innovation in all fields spreads worldwide. Then competition among regions and nation-states would accelerate innovation. But that will not be possible for most of our new century, until wages and working conditions have equalized worldwide. Until a middle class lifestyle spreads around the world, with roughly equal protection of women, labor and the environment, regimes that oppress their people can create an artificial comparative advantage of low wages and poor working and environmental conditions. Then, if trade is truly free, any consequential innovation made anywhere will migrate for production to the places with lowest labor and environmental costs, just as many leading American technologies have already migrated to China.

It goes without saying that such migration is destabilizing, just as it is for the US today. To avoid economic, political and labor instability, nations have to create conditions for sustainable comparative advantage. They might even parcel out specific fields of technology among themselves by agreement. This “cartel-like” allocation of markets must be made permissible because war (trade or worse) and social instability are poorer alternatives.

Whatever longer-term future may bring, one thing is clear. The manufacturing jobs that we already lost to China aren’t coming back to the United States. If we Americans want to maintain our job-making ability and restore our greatness, we must look to the future, not the past. We must look beyond steel and aluminum, which anyone can make. We must even look beyond solar panels, unless our capitalists invest in making better ones quickly. The reason: if Chinese panels remain cheaper and about as good, we can use Chinese ones to build our own local infrastructure and create millions of good infrastructure jobs, which can’t be outsourced, while we fight global warming and prepare for oil and gas to run out.

So we must plan for and, where possible, negotiate for supremacy in selected fields of new technology. We must plan comprehensively, seeking supremacy in investment, education, innovation and production in key critical fields, perhaps by agreement with other nation-states.

Henceforth, there will be no simplistic rules of the road. There will be nothing like the “everything goes in trade” philosophy that has brought us to this sorry point. Every case of industrial policy promoting work in a particular field of innovation will be like the Manhattan Project, which started with a letter from physicists Albert Einstein and Leó Szilárd to the president of the United States. The goal of the industrial policy will not be war, but preserving American comparative advantage and thus jobs, technological infrastructure and social stability.

To do that, we must select fields in which to maintain strict secrecy, keep our technology to ourselves, and invest massively, including with government subsidies. We may have to modify our trade agreements, including WTO, to be able to do this legally.

But do it we must. Free global trade in technology is just not working for us or, it seems, for the Brits in their Brexit madness, or for anyone else. Our technology is migrating to low-wage countries like China, Mexico and Bangladesh. It raises up their workers but lets ours down. That simple but painful phenomenon is responsible for all the destructiveness of so-called “populism” around the world, which is causing our species to abandon democracy and turn to a dismal series of strong men, including our current president.

This does not mean we should abandon trade. Trade in goods and services is good. As I’ve written before, it’s the primary means, besides war, by which vastly different cultures interact. And it’s far more pleasant and constructive than war.

But in order to make global trade sustainable, each nation must maintain significant comparative advantages, just as Germany has done with its machine tools and the infrastructure of its Enegiewende. Each nation, including ours, must be allowed to do so, through government policy and in modified trade agreements, so that free trade in goods and services will not become socially and politically destabilizing, as it has been for two generations. (Within each advantaged state, strict rules of competition must still insure against monopolies and other bullying.) Our species must allow national plans, including industrial policy and subsidies for research and more, so that trade in technology does not cause the golden-egg-laying goose of trade in goods and services to commit seppuku.

In America such a plan will go against the grain of two generations of ideological cant. It will contradict the superstition that markets serve all human needs automatically. To make our own plans, we will have to give up our naïve faith in the oligarchs’ Market Gods. That’s why progressives will probably have to create our American plan, because only they have maintained a healthy skepticism of our new American version of the Old French Aristocracy’s “best of all possible worlds.”

Footnote: It might not be necessary to modify trade agreements formally to implement these sort of plans. Each nation-state might tacitly recognize others’ massive investments in education, buildings, facilities, and research in their chosen fields of comparative advantage, without pressing claims for unlawful government subsidies under current trade agreements. In other words, a healthy informal reciprocity might take the place of, and avoid the necessity for, prolonged renegotiation of existing trade agreements. Eventually, however, some formalized rules restricting the amount and nature of state subsidies might become advisable. Likely they would take years to work out.

Links to Popular Recent Posts

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For a discussion of what the Mueller Report is and how its release could affect American politics, click here.
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For comment on the special candidacies of Beto O’Rourke and Pete Buttigieg, click here.
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For my message to Southwest Airlines on grounding the 737 Maxes, click here.
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For analysis of the Virginia blackface debacle, click here. For an update on how Twitter subverts politics, click here.
For analysis of women’s chances to take the presidency in 2020, click here.
For brief comment on Trump’s State of the Union Speech and Stacey Abrams’ response for the Dems, click here.
For reasons why the Huawei affair requires diplomacy, not criminal prosecution, click here. For how Speaker Pelosi has become a new sheriff in town, click here.
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For a deep dive into how Apple tries to thwart Google’s capture of the web-browser market, click here.
For a review of Speaker Pelosi’s superb qualifications to lead the Democratic Party, click here.
For reasons why natural-gas and electric cars are essential to national security, click here.
For additional reasons, click here.
For the source of Facebook’s discontents and how to save democracy from it, click here.
For Democrats’ core values, click here.
The Last Adult is Leaving the White House. Who will Shut Off the Lights?
For how our two parties lost their souls, click here.
For the dire portent of Putin’s high-fiving the Saudi Crown Prince, click here.
For updated advice on how to drive on the Sun’s power alone, or without fossil fuels, click here.
For a 2018 Thanksgiving Message, click here.

Diatribes of Jay

08 May 2019

Make Plans, not War

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Links to Posts since January 23, 2017

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