IN-DEPTH: Reshoring US Industry from China Requires Defense-Driven Innovation, Economist Says

IN-DEPTH: Reshoring US Industry from China Requires Defense-Driven Innovation, Economist Says

It’s increasingly the received wisdom in Washington: China’s military power and manufacturing capacity are twin challenges America must face.

Economist David Goldman wants to address the two together through vigorous industrial policy driven by smart defense spending–but his analysis has already met with skepticism in some quarters.

“The United States is going to go bankrupt eventually,” Goldman told The Epoch Times in an April 14 interview.

He cited the country’s long-standing trade deficit, which has been widening for decades as the United States continues importing more in combined goods and services than it exports.

A truck passes by shipping containers at the Port of Los Angeles after tariffs on Chinese imports were imposed by President Donald Trump in Long Beach, Calif., on Sept. 1, 2019. (Mark Ralston/AFP/Getty Images)
Goldman worries about the country’s net foreign asset position. As of the fourth quarter of 2022, Americans were on the hook for more than $16 trillion in foreign liabilities.

“We take people’s goods and give them our paper in return. There’s a natural limit to how long you can do that. At some point, people won’t be able to take our paper,” he said.

The economist’s new article on domestic manufacturing is the latest in a series of “Provocations” from the Claremont Institute Center for the American Way of Life.

Goldman is known for his long-running “Spengler” column in the Asia Times, a perch that has let him closely observe the rise of China.

The economist pointed to recent indications of growing Chinese geopolitical strength despite American opposition, like Brazilian President Lula’s visit to a Huawei site in Shanghai and Beijing’s role in brokering a deal between Saudi Arabia and Iran.

Huawei is building Neom City, a smart city in Saudi Arabia near the Red Sea.

John Lee Ka-chiu (second L), Hong Kong Chief Executive, visiting THE LINE Experience Exhibition of NEOM Future City in Riyadh, Saudi Arabia, on Feb. 5, 2023. (Hong Kong Information Services Department)
“The economic power that China wields through its export machine is giving it a whole string of diplomatic successes, and that diminishes American power,” Goldman said.

“If these trends continue, we’ll end up looking like Britain, as a former imperial power against the United States, with China in the position of the United States,” he added.

Spengler Against Decline
How would Goldman prevent, or at least stave off, the decline of the United States?

Part of the solution would be to subsidize an American equivalent to Huawei.

In some ways, that might be a return to form. Not so long ago, the United States brought the world Bell Labs, a powerful engine of innovation throughout the 20th century.

Goldman claims a certain kind of economic inefficiency made that possible.

“The government gave AT&T a monopoly. AT&T overcharged people for telephone services. And that enabled AT&T to support Bell Labs,” he told The Epoch Times.

The government-led breakup of Ma Bell saved consumers money. Yet, according to engineer Michael Noll and other Bell veterans, the end of AT&T’s monopoly made it harder to justify the long-range, fundamental research programs that led to inventions like the transistor and the photovoltaic cell.

Goldman advocates more government research and development spending, focused on basic science and not on picking winners and losers in the marketplace—a job he considers best suited to the private sector.

Unlike other industrial policy hawks, including former President Donald Trump, Goldman is not a big fan of tariffs.

“Tariffs are a very broad subsidy, and I think they’re a lousy one,” he said, arguing that Trump’s tariffs failed.

American education is another one of Goldman’s targets.

Pasadena City College students at the graduation ceremony in Pasadena, Calif., on June 14, 2019. (Robyn Beck/AFP via Getty Images)
“Our engineering education is alarmingly poor,” he said, noting that China produces many more engineering majors than the United States.

Meanwhile, America’s brightest young minds follow the money.

In the words of one anonymous Twitter user, “almost all of the smartest guys I knew in college, guys who would have governed colonies in the 19th [century], are working email jobs or programming at a Tinder-for-dogs start up.”

“The smartest kids go to the big tech companies, where they hope to become millionaires by the time they’re 26,” Goldman said.

He wants to incentivize science and engineering education by bringing back the National Defense Education Act of 1958, a law motivated by the Soviets’ launch of the Sputnik satellite and attendant concerns about the nation’s engineering workforce.

Goldman would also boost the number of skilled factory workers through an apprenticeship system modeled on systems in Germany, Switzerland, and Scandinavia.

In addition to bolstering America’s labor pool, he would change the tax code to make life easier for capital-intensive businesses.

Manufacturing is a particularly capital-intensive sector; it requires a lot of real, physical goods, things like machines and production plants.

Employees work at the production line of aluminum rolls at a factory in Zouping, Shandong Province, China, on Nov. 23, 2019. (Stringer/Reuters)
“It takes years to write off the investment in capital-intensive equipment, which is a big disincentive to companies trying to make investments in that area,” Goldman told The Epoch Times.

He also thinks the United States’ stringent regulatory environment hinders domestic manufacturing.

‘War is the Father of All Things’
Defense spending, perhaps the Provocation’s sharpest thorn, is central to Goldman’s plan for rebuilding U.S. manufacturing.

“At the peak of the Cold War during the late 1970s and the 1980s, defense policy demanded a wide range of innovations in weapons systems that required the discovery of new technologies,” he wrote.

Many crucial digital technologies, not least the Internet, started with help from the Defense Advanced Research Projects Agency (DARPA).

Goldman believes intelligent defense spending could help America innovate in manufacturing sectors at the far frontiers of science and engineering.

He summarizes his call to defense-driven innovation with a line from the ancient Greek philosopher Heraclitus: “War is the father of all things.”

That doesn’t sit right with economist Marshall Auerback.

Auerback, a researcher at Bard College, has written about industrial policy for American Compass and other outlets.

In an April 18 email to The Epoch Times, he cited the work of economist Seymour Melman, who warned of the dangers of the military economy.

Notably, many analysts believe the COVID-19 response placed the U.S. economy on something like a war footing.

President Donald Trump greets the crowd before he leaves at the Operation Warp Speed Vaccine Summit in Washington on Dec. 8, 2020. (Tasos Katopodis/Getty Images)
Auerback questioned the efficiency and broader economic benefits of defense spending.

“Most weapons projects now require relatively little touch labor. Instead, a disproportionate share is siphoned into high-cost R&D (from which the civilian economy benefits little), exorbitant management expenditures, high overhead, and out-and-out padding, including money that flows back into political campaigns,” Auerback told The Epoch Times.

He conceded that any successful push for an industrial policy would require a justification based partly on national security, “especially among Republicans.”

“You won’t get bipartisan buy-in unless you bring the GOP onboard,” he added.

In an April 21 email to The Epoch Times, Goldman said Auerback “is certainly correct that there are more efficient ways to allocate R&D funding than military technology.”

Yet,  » …
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