U.S. Risks Becoming a Technological Runner-up

Editor’s note: America’s no.1 futurist George Gilder, fears the U.S. has lost its technological and entrepreneurial edge. China has instead emerged as the next global technological leader. Today Mr. Gilder defends a controversial Chinese company against accusations by The Wall Street Journal, and shows you why the U.S. is in no position to complain.

Dear Reader,

On Christmas day, overflowing with holiday cheer and bursting with goodwill for all men, I decided I could let pass the latest Wall Street Journal resentful essay against China’s emergence as a global leader in technology.

There it sat on the front page, one more egregious slander, this time in the form of a “special report” portraying the telecommunications giant Huawei as a dependency of the Chinese government.

Ah, but it was Christmas and to the intrepid — and far as I knew, merry — gentlemen of the Journal I was content to wish God’s rest and the good tidings of the day.

Now, after winging my way back to China, I am feeling a tad less noble about letting the Journal get away with one more entry in a propaganda campaign as absurd as it is dangerous for the U.S.

The basis of the latest charge is a bold venture in investigative journalism — the reporters read Huawei’s annual reports and a few other public documents.

Much Ado About Nothing

They came away with the breathtaking conclusion that Huawei received some $1.8 billion in Chinese government grants since 2008 or about $180 million a year on average

For 2019, Huawei’s revenues look to come in at around $122 billion. I wonder what they would have done without that $180 million per year.

China, like the U.S., does make grants to firms making progress in key technologies. I would be unsurprised to discover Chinese bureaucrats — who tend to be actual scientists and engineers — do a better job at rewarding actual merit than we do.

Also gravely suspicious to the Journal’s merry men were substantial local subsidies in the form of discounted real estate, tax breaks, and even government-built housing for Huawei employees, offered by municipal governments desperate to get one of the world’s great companies to locate in their region.

This would never happen in the U.S. where state and local governments exhibit a pristine indifference to where, oh, say, Amazon decides to put down new roots.

But consider the facts. Part of the private sector, Huawei rose to the top by outperforming all the state-owned enterprises, such as ZTE, that previously dominated China’s telecom sector.

Its accountants at Price Waterhouse show no exceptional debt or government subsidies. Under staunch entrepreneurial leadership from Ren Zhengfei, son of a “capitalist roader,” Huawei is probably more independent than most. It is a multinational with operations in 170 countries and about a third of its executives are non-Chinese.

The U.S. Does the Same Thing

It’s a different world. Twenty years ago, I spent most of my time celebrating the entrepreneurial break-throughs of American technology leaders.

I was regularly beset by advocates of central planning buzzing in my ear about how the real credit belonged to DARPA (Defense Advanced Research Projects Agency) which “really” created the technology.

Meanwhile, carped the critics Texas Instruments, which manufactured the first reliable silicon transistors or, Fairchild Semiconductor.

Which in turn invented the integrated circuit and would have gone broke without massive military “subsidies.”

That’s exactly how they portrayed the military’s purchase of never-before-possible electronics that could sustain the stress of flying in jets or rumbling around in tanks.

Certainly, the U.S. military’s desperate need for a solid-state helped power the fledgling U.S. semiconductor industry. Entrepreneurs need customers, and well-funded customers demanding levels of previously unavailable levels of performance can be a great spur to creativity.

Nevertheless — in terms of actual products that made it to market or manufacturing processes as fantastic as the devices themselves — the contribution of the U.S. government to the semi-conductor industry was trivial at best and possibly negative.

The Anti-capitalist Chorale

The anti-capitalist chorale is always with us. In those same old days, the American press and politicians convinced themselves that Japanese government planners were the reason that nation had joined the first rank of industrial powers.

Their solution: we needed more politicians of our own, were we ever to regain our competitive edge. And yet in those years one barely heard a peep from the politicians about China, then still a dreadful tyranny holding the world’s record for murders of its people.

Only as China has become capitalist have U.S. politicos and media concluded it is it not a partner in wealth creation but an implacable enemy.

Even my conservative friends — lifelong defenders of capitalism and deriders of central planning — seem to suddenly have decided that in China, central planning and government subsidies work, and brilliant firms like Hua Wei owe all their success to government-controlled banks and bureaucracies.

Critics say the current Chinese model is self-defeating. Less-deserving companies receive most of the financing and opportunities. The staggering misallocation of capital is only worsening, they say.

But the misallocation of capital in the U.S. is far greater. We are subsidizing useless wind mills across the country in a demented campaign against delusions of climate change. We have devastated and paralyzed our companies with lawsuits. We suppress manufacturing with lawyers and luddites. We are now moving on to tie down our social networks and high-tech goliaths with regulatory chains.

By contrast, the Chinese built 106 new cities, most of them viable. They continue to open new “free zones,” such as the 13,000-square mile island of Hainan in the South. They are favoring an efflorescence of high-tech ventures and promoting new industries such as AI and blockchain.

Unlike in China, where IPOs and high technology startups have boomed, the government sector in the U.S. has been growing far faster than has the private sector. U.S. politicians and journalists should halt their increasingly outlandish efforts to blame China for the effects of our own mistaken socialism, mercantilist trade war, educational and monetary manipulations.

The U.S. Risks Becoming a Technology Runner-up

Meanwhile, I’ve been focusing on the titanic and widely underestimated technical challenge of 5G networks. High-frequency transmissions at high power across a range of competing channels are the nightmare of telecom engineers — and the absolute requirement of 5G.

Neither this challenge, nor that of realizing artificial intelligence’s full potential, or creating the inherently secure internet, can be fully met by the U.S. alone. We need all the brains and all the entrepreneurial energy in the world.

U.S. politicians without the slightest grasp of this challenge are trying to isolate China from the rest of the world. As the world realizes that it needs China more than it needs us, it is the U.S. that may be cut off.

And it’s the U.S. that risks being reduced to a technology runner-up.

Regards,

George Gilder
for The Daily Reckoning

Does any of this matter? Unfortunately, yes.