Time for the West to Embrace Chinese Industrial Policy, Not Eliminate it

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Yves here. We’ve pointed out that the US does have an industrial policy, even if it comes out by default through which groups manage to extract the most subsidies. Favored sectors include housing, the defense-surveillance complex, financial services, higher education, oil and gas, and niche interests like sugar. So the umbrage about China (and Japan and the Asian tigers) being deliberate about it and getting better results is perverse.

By Marshall Auerback, a market analyst and commentator. Originally published at Triple Crisis

Robert Atkinson of the Information Technology and Innovation Foundation has just written a very compelling analysis of China’s national industrial policy, especially in relation to the exponential growth of its telecommunications industry. Some of the key findings of the paper, “How China’s Mercantilist Policies Have Undermined Global Innovation in the Telecom Equipment Industry” are as follows:

  • Without unfair, mercantilist Chinese government policies and programs for its telecom giants, China would lack a globally competitive telecom equipment industry. Neither Huawei, nor ZTE, would have more than minor market shares, even in China.
  • Chinese market-share gains have come at the expense of innovative telecom equipment providers in other countries. By artificially taking market share from more innovative companies, the latter have had less revenue to invest in cutting-edge R&D.
  • Beijing’s policies dramatically limit foreign access to China’s huge telecom markets, providing them with a guaranteed source of revenue to attack foreign competitors.

The analysis is characterized by an implicit bias against Chinese mercantilism, a bias that many champions of free trade naturally share. While reflecting those preferences to a degree, Atkinson’s report does offer a recognition that China’s state-driven capitalist model has played a significant role in driving industrial development and innovation (while also contending that such protectionism and heavy-state subsidies have had the negative byproduct of inhibiting innovation in western economies that have eschewed such practices).

And it is a model that is not unique to China. Economist and market practitioner Bill Janeway observed that state-driven innovation have been “put to repeated and successful use: by Japan beginning in the last decades of the nineteenth century, then by the emergent Asian Tigers in the second half of the twentieth century and now by China.” In another analysis illustrating the key role the state plays in driving industrialization, authors Ben Landau-Taylor and Oberon Dixon-Luinenberg argue, “The great strength of capitalist societies is that industrialists like Henry Ford or Jeff Bezos can transform single industries within an existing economic framework, but the economic framework itself is too large to be remade with the resources of any individual or corporation. Only the state can coordinate many different industries to produce a transformation at the scale of industrialization.”

This does not simply mean using the government to mindlessly pick winners and losers (the common complaint directed against national industrial policy).  To the contrary, the East Asian tigers used the market as a feedback mechanism to adduce likely areas for future growth, and then using that cumulative information to transfer state resources away from unproductive toward productive uses. In the case of South Korea, for example, this took the form of conglomerates such as Samsung starting in basic industries such as agriculture and textiles in the 1960s, rapidly progressing via government direction to more advanced industries, such cell phones, computers, and semiconductors, where it remains among the global leaders today.  So too has China emulated these policies to a degree and generated a corresponding quantum leap in living standards over the past 50 years.

By contrast, the crisis of 2008 (and the current pandemically-induced global depression) have highlighted even greater deficiencies in the western market fundamentalist model:  a policy matrix featuring free trade, deregulation, widespread privatization (and a corresponding diminution of the role of the state), and fiscal austerity, all of which contributed to a vast rise in inequality, asset bubbles, wage stagnation, and a vast industrial shell that has contributed to significant economic insecurity for vast swathes of the population.

These problems are nowhere close to being resolved today and, indeed, have been exacerbated by the COVID-19 pandemic.

It is becoming increasingly hard to make the case that a minimalist state which simply acts as an umpire for “the creation of efficient, rent-free markets coupled with efficient, corruption-free public sectors is even close to being a necessary or sufficient condition for a dynamic capitalist economy.”  That was an observation made almost two decades ago by Professor Robert Wade in his seminal work, “Governing the Market” and it is no less pertinent today.

Instead of simply sending “a clear message to China that, going forward, systemic innovation mercantilism that hinders global technological innovation will no longer be tolerated”, as Atkinson suggests, a better option might be to turn those very policies against China by restricting Beijing’s access to western markets, while simultaneously deploying the state as an active player to help foster western innovation and higher quality growth (which will also create the benefit of correspondingly greater economic security).

To a degree, this is already happening:  the Trump Administration is now forcing the world’s biggest chip maker – Taiwan’s TSMC – to stop taking fresh orders from Chinese mobile leader Huawei. But this is not enough. Even if Trump sustains a tough line against Huawei, this will mean little, if not combined with a more constructive national developmentalist strategy in which the state plays an active role, not merely serving as a neutral bystander for the market.

Washington need not mindlessly copy Beijing’s more coercive model but, rather, could well achieve similar outcomes via state-led purchases and subsidies. The Defense Department could play a key role here as it has in the past.  The key takeaway raised by Atkinson’s excellent study, however, is that the status quo is untenable. America’s market fundamentalist model is under enormous stress and failing to produce anything close to a socially sustainable economy. The U.S. has not turned into an industrial shell overnight; it is the product of decades of malign neglect. Hence, it will take many years before the current deficiencies are fixed. As the philosopher Lao Tzu argued: “The journey of a thousand miles begins with one step.” Absent these initial steps, national redevelopment will remain a pipedream.

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  1. vlade

    Those who don’t read history… and all that.

    In the late 19th century the UK went all free-trade, because it saw it as the way to buy and sell. And a lot of its domestic industries suffered (ex the shipbuilding).

    The US and Germany at the same time went very mercantilistic, and put high tarriffs on the UK imports, developing their own industries in the process (and yes, supporting oligopolies and local monopolies, so it’s not all nice and rosy) – but fundamentally, before ACW the US was mostly agrarian (the American dream at the time was to own your own self-supporting farm, and even by the end of ACW the US population was 75% rural), and only in later 19th century started turning
    industrial, finishing the move to industrialisation in 1890s/1910s, which saw the industrial output increase tenfold from the ACW times.

    So mercantilistic policies were important part of the US rise They were arguably less important in the UK’s rise in early 1800s, but that was mostly because of the cost of capital vs cost of labour IMO (i.e. the UK had cheap capital costly labour, whereas the most of the world it was otherwise. Which mean that ‘automation’, aka deploying capital produced higher profits than throwing more labour at the problem, which meant invention and industrialisation – and hit to some of the skilled labour*)).

    *) paradoxically, the skilled labour was more hit when the industrial revolution was starting to take place, because unskilled labour could (when it could) find place as well in the country as in the factory. The skilled labour on the other hand which produced high-value goods and was relatively well off, all of sudden found itself facing a situation where its product was competing with something that was way worse quality-wise, but much much cheaper (and the quality tended to improve over time). Of course the super-skilled ones (like watchmakers and similar) were actually _better_ off for quite some time, as precision machinery became sought after by the rich and enventually required in the industry too, but people like weavers, blacksmiths etc. were often destroyed unless they could find a specific local niche.

  2. PlutoniumKun

    There is no question but that the only proven way for a large* country (or group of countries) to develop a high productivity industrial sector rapidly is through aggressive mercantilism. As has been repeatedly pointed out here, the pattern was started in the 19th Century by Germany, then the US, then Japan and South Korea, etc. The details vary from country to country, scale being a particularly important determinant of which option is best. For example, the Japanese model was based largely on co-operating industrial conglomerates with the government acting as a disinterested conductor, while in South Korea the State had a much more active role in promoting and funding national leaders – similarly the difference between Germany (regional governments acting as catalysts) and France (notoriously centralised). Some countries (China being an obvious example) use aggressive internal competition to weed out the weak, while others focused on national champions. Smaller countries rarely had an option but to take the latter route.

    The most successful – at least in terms of speed of industrialisation – focused all national efforts on development. Education, financial, health, foreign and military policy, all aimed at the same objective. Everyone talks about China these days, but China itself most admires South Korea for the incredible speed and focus in its 30 year sprint to high tech leadership.

    The thing nobody really knows – because no country has managed it successfully over a long period – is how to maintain a lead and fend off competitors while still growing and innovating. The traditional view (even the Asian Tigers bought into this) is that once you establish a lead, the State should sit back and let markets take care of things – the US model if you like. But it seems clear from the Japanese example in particular that this leaves your nation vulnerable to more aggressive competitors. Japan is an obvious example of this – companies that looked like they were going to rule the world back in the 1980’s look weak and average now. The South Koreans themselves liberalised 20 years ago and have been relatively successful, although there have been some big casualties and they’ve been surprisingly ruthless about letting some national champions fall by the wayside (Ssongyong being the most recent example). Smaller countries such as Canada, Finland and Sweden have seen national champions falter and fall into foreign hands (Bombardier, Nokia, Volvo, Saab. etc) through a mix of ideology and circumstance. Even relatively large and rich countries such as Germany look vulnerable when technological change makes its industrial champions look weak as it may be about to find out with its huge car industry.

    My own view is that there is no boilerplate ‘model’ for anyone to use. Countries that have been successful have looked inwards to their own institutional strengths and weaknesses to come up with strategies for growth, but most have found that these policies themselves must change as circumstances change. Its not clear at all to me that China has cracked the problem – anyone who has worked within China will tell many stories of the chaos and corruption that ensures their companies are often led by mediocrities with Party badges. They have one enormous advantage over everyone else – scale – but its not clear yet that the government or their industrial leaders know how to use it to their advantage. That the aggressive promotion of Huawai would trigger a backlash seems obvious, but it doesn’t seem to have been obvious to the Chinese who seemed to have thought that those companies could absorb themselves in the the world system in the same way that US or Japanese companies have.

    It should be noted by the way that while Huawai and LTE, etc., look very strong now, when you compare China to other countries at a similar stage of development, China is notably weak in market leaders. At a similar stage of development Japan, South Korea and Taiwan had a far greater range and depth of major companies with international market penetration and recognised brand names. Its hard not to think that one reason is that in China, smart ambitious people have been reluctant to get involved in sectors that might be seen as national champions, because of the manner this will bring you to far too close involvement with security officials from Beijing. Much easier to just get involved in construction industry scams and take the cash and run.

    On a final point, I think the most important element of industrial policy any country can have is not the positive side of promoting industrial productivity, but in preventing the parasitic elements of the economy from spreading like a cancer to destroy good companies. This means not allowing excessive financialization to occur, and to actively suppress those elements that undermine ‘real’ productivity growth – property booms, resource extraction, etc. I think strict banking regulation, progressive land taxation and high taxation/regulation on mining, etc., can be as useful for business growth as active intervention. I think this is one understated key to the successful German/Scandinavian model. Like good farmers, they stop weeds and parasites from strangling the productive plants from growing.

    *there is a different model for smaller countries, to essentially import high productivity industries through FDI, but thats an entirely different topic

    1. Dirk77

      Noam Chomsky has stated that it is common knowledge among economic historians that countries that have advanced economically have done so through state intervention and protectionism. In other words, free market capitalism, i.e., neoliberalism, is the economic ideology of the third world – or the soon to be third world. Which gets to your question about the arising of parasitic elements in a society, and the abandonment of protectionism. Are the people advocating free markets then established mature industries or are they the parasitic elements, and where does the monetary gain for them come from then? The raiding of other industries or countries that aren’t protected or the cannibalizing of ones own industries? Both or something else?

  3. Dusty

    Perhaps the greatest example of state interference was that accomplished by J Stalin and the CCCP from 1925 to 1950.From a a wrecked peasant economy to a fully industrial state,crushing Germany along the way and providing the impetus to put the first man in space.All within 20 odd years.
    Quite an achievement even if one ignores the means.

  4. Ian

    Oh so we have gone from something else than capitalism to lets have proper capitalism than financial. Wow! Such original thinking! Has no one Thunk that maybe we need something beyond capitalism??

  5. a different chris

    Oh yes do go on Mr Atkinson:

    the latter have had less revenue to invest in cutting-edge R&D.

    Note the implication that “the latter” do cutting-edge R&D whereas it is so obvious that it isn’t even stated that China can only “copy and manufacture”.

    We heard the same thing with Japan, until Honda got annoyed enough to conquer F1. You don’t need to be black to feel white racism.

    China has over a billion people, they should be the major manufactures of the world. And *I* am pro-industrial policy. Or maybe I should just say “pro-policy”.

    Because your government gotta do something. The economy, as Professor Wade said so well, can’t be expected to just take care of itself. And Mother Nature can take care of herself, but not in ways you would like if you p*ss her off. So there has to be a plan, a very very adaptive one, but some sort of underlying and well-know principles. We will do this, we will not do that, and everybody will have well controlled economic and population borders to allow us all to try things, for better or worse.

    PK is absolutely right: “there is no boilerplate ‘model’ for anyone to use”. But repeating myself again and again, there is no consistent economic practice, over time, for anybody to use. And even harder for economists especially to understand, there is no “forward” or “backward”. You don’t move “forward” from mercantilism, you simply change so your population can reap the benefits and just as importantly export customers can catch their breath. Once the other countries get going again you may have to re-protect some old as well as new industries before you fall behind again. It’s a balancing act, not a progressive one.

    There are 2000 billionaires. They are running the world, and I can’t name more than five. Even if I could, I can’t vote them out of the club. So like it or not, we need politics and politicians to make these decisions and pay the price at the ballot box when they flub them up. Which they will, as this is hard, but at least the ship will actually maybe steer away from the iceberg occasionally.

    1. Yves Smith Post author

      Sorry, it is well documented that China copied Western technology. In fact, they were far more aggressive about it than the Japanese. Go read the China Law Blog and see how it has to advise its clients even now on how to protect themselves from their Chinese “partners”.

      The fact that the Chinese have risen to leadership in some areas does not mean they are not still behind in others.

      1. PlutoniumKun

        Not just technology, they also copied every aspect of how to build things. I knew some engineers who worked on the Shanghai underground for a major US project management company back in the 1990’s. They had Chinese staff shadowing them at every stage. Once it was reported back that they’d learned everything they needed about how to manage a project on this scale, the company was pretty much booted out before completion. Given the company in question was (and is) famously ruthless with clients and contractors, they were openly complimentary about how they’d been taken for a ride. But they never took another Chinese contract.

        I’ve heard it argued that while this has been very successful for China, its also a potential achilles heel. I’ve heard lots of stories second hand of very talented engineers and designers in China who find it almost impossible to get their good ideas implemented – its deep within corporate culture that the way to get ahead is to copy the industry leaders and just sell at a cheaper price. So they end up copying technology and design even when their own engineers and designers may well be capable of doing something better. The model so far has done very well for China, but its not clear to me that they are able to make the cultural switch that may be necessary to take the next step forwards. Time will tell.

        1. The Rev Kev

          A lot of people worry about China but I think that it has fundamental weaknesses that will undermine its development like those that you have talked about here. I suspect that a lot of its strength really comes down to its numbers and as Stalin once commented, quantity has a quality all of its own. I think that what would really worry me is if China suddenly got religion for quality itself like the Japanese did under the tutelage of people like W. Edwards Deming after WW2. Such a development would start to worry me then for what they could do with it.

          1. ptb

            Regarding Deming in Japan, IMO the culture of quality was there all along. Deming wrote it down into a form that combined it with the language of American corporate management of the time, who were in charge due to having won the war. This was in fact a massively valuable synthesis, producing tools to teach a culture of quality to large organizations.

            Regarding China and quality in technology development vs copying for cheap… If the comparison is between the stereotypical technical culture of China vs Japan or Germany or South Korea, then yes, there is a long way to go. If the comparison is vs tech development culture in the present day US corp’s… they are on par in quality and beating the snot out of us in speed and economies of scale.

            On a slightly related note, more to do with the topic of this post, which I think is management rather than technical quality, it seems to me that China has by now accumulated more experience in successful management of large and mega scale projects than the US, and they are pulling away.

            1. The Rev Kev

              The elements for quality in Japan may have been there but it never really surfaced for a long time. Pre-war Japan had a reputation for producing junk and it took decades to get rid of this reputation. You saw an echo of this in the film “Back to the Future III” when a 1955 Doc brown remarks that no wonder a component broke down as it was made in Japan whereas a 1985 Marty informs him that all the best stuff is made in Japan.

          2. workingclasshero

            Worry you?who cares!do you work for the council on foreign relations?i notice allot of progressive liberals pining for conflict and drama in relation to the so called threat of china.exactly what threat is that?i suppose we must cry for the neo liberal led protesters for hong kong.

        2. MLTPB

          Cultural switch…soft power.

          Time: late 19th C.

          Japan modernized after restoration of Meiji. They wanted western hardware as well as reform of their government, which while keeping the imperial system, added a parliament and students were sent abroad to learn western ideas.

          Qing China? There was the Self Strengthening Movement, like Japan’s modernization, except not much political reform.

          After the defeat by the Japanese, losing Taiwan as a result, among other things, the idea emerged for political and cultural change as well.

          The CCP knows. Their early leaders were responding to this, when they went abroad to the USSR (that mostly faction lost out later), France, etc., though the person most responsible for affecting political change, and cultural revolution, Mao, never went abroad.

          Is Beijing repeating the mistake of Self Strengthening Movement, during which China owned, at one time, the most powerful ironclad in Asia then, the Dingyuan.

      2. rosemerry

        This “copying” is something normal in scientific and technical developments, and China is not always the “copier, as explained in 7 minutes by Richard Wolff in “Wolff Responds: China’s Intellectual Property Theft”, worth watching on youtube.

      3. Peter Beattie

        Of course China copied technology, as has every catcher-upper in history using the means available. But a-different-Chris’ point was about the assumption that the only thing China can do is copy. Furthermore, as a normative matter, why shouldn’t we want developing countries to copy as much technology and know-how as possible to improve the lives of their people? I’d prefer the developed countries to freely share, but that ain’t happening.

  6. Ignacio

    The obvious conclusion from the article could be that free market fundamentalism spreads naïve ideas, though not naïvely. Atkinson’s article focuses on Telecom industry and says that China followed ‘unfair’ politics to promote Huawei and others as Telecom champions. The main argument in Atkinson’s article is that China ‘artificially’ introduced new competitors (in contrast with “natural” competition???) and this resulted in less innovation because previously existing companies sell less and have less margin to innovate (Some history on this industry explaining how other telecom giants surged “naturally” according to Atkinson was a must).

    He illustrates this idea with a fancy (but stupid) parabolic diagram that states that above some critical point, more competition means less innovation and at some point of extreme competition there cannot be innovation. Such a static diagram that does not account for time changes in markets that start being innovative, with enormous growth potential, and end being nearly commodities is totally useless and as he singles out Huawei and other Chinese players for being responsible for the decay of Ericsson or Nokia why forget other companies in a rapid process of oligopolization and concentration that can be deemed responsible for this. According to market-share data there aren’t more but less competitors with time and small players are loosing marketshare and it could be argued it is not more competition but “oligopolization” what might be reducing innovation. This is could be deemed “natural” in unregulated markets that become mature.

    This oligopolization process is indeed what bears some risks, particularly for an increasingly dependent Europe that has been playing this stupid free-market ideology indeed in the most naïve form, and lost control in this and many other markets and now looks herself in outrage about being dependent on foreign corporations for telecom and information services which in many cases are extracting wealth as Europeans had done in former colonies in some cases without adding a dime on regional development.

  7. rusti

    Maybe I am missing the bigger picture, but I have to laugh a bit at the tone of the Robert Atkinson article that Auerback cites:

    Chinese market-share gains have come at the expense of innovative telecom equipment providers in other countries. By artificially taking market share from more innovative companies, the latter have had less revenue to invest in cutting-edge R&D.

    One form of overly strong competition relates to intellectual property (IP). The purpose of IP protection (e.g., patents) is to enable firms investing in innovation to make enough returns over a fixed period of time to recoup their costs, and more. As such, weak IP protection, state sanctioned IP theft, and other forms of non-market-based technology transfer weaken innovation.

    Even though I haven’t been part of wireless communication standardization meetings myself, I work with people who have been involved with 5G standardization both in my academic research and industrial work. Standardization in telecom and the commercial wireless industry in general doesn’t seem to resemble anything like a free market of ideas where technological decisions are based purely on their merit, all the players are fighting continuous and petty battles to get as many of the ridiculous patents that they rammed through included in the standard because those royalties are ginormous cash when the technology gets rolled out. Big companies send huge delegations to the standards meetings and muscle out smaller players to protect their turf, even if the smaller players sometimes have superior ideas.

    Engineers at big telecom companies here can double their monthly salary by churning out a bunch of patent applications of poor quality that will never get used, because remuneration is tied to quantity and they can go on ski trips to Switzerland instead of Åre and pay for boat upkeep without sweating. It’s ammunition for the company for the standards meetings, I would have a tough time calling it “innovation” with a straight face.

    From what I understand, it’s seen as a really risky career move to work for Huawei now and all the US fights with China are a big (maybe unintentional, but I don’t know about lobbying) political gift to Ericsson.

    1. Ignacio

      Thank you for your comment. I very much appreciate your insider view about innovation in telecom and your critic on Atkinson’s article that I share 100%.

    2. Larry Y

      Huawei did have large US layoffs last year. Ericsson protected their R&D spending, while Nokia mainly focused on cost cutting via offshoring – R&D was not spared, either.

      Huawei has been on an aggressive R&D expansion for years, including poaching talent. I’ve heard stories of Huawei setting up food trucks handing out food and taking resumes outside competitors in China (Alcatel-Lucent Shanghai Bell, Ericsson, ZTE, etc.). In the US, their Futurewei NJ office is on the other side of the Bridgewater Commons Mall from Qualcomm’s office

  8. stefan

    As an Army intelligence analyst in Japan in the early 1970s, I was amazed by the remarkably detailed and specific market research published by JETRO on every conceivable product, country by country. At that time the Chinese were already demanding complete technology transfer as the price of entry into their huge market. I couldn’t believe we were going along with it. A golden egg…

    After the Army and college I worked as a machinist in an American computer company for a year or so, but after I left for graduate school, when I would return to visit my old friends at the factory, they would tell me despondently that, “We don’t make the machines anymore, we just write software.” The best machinist in the place was reduced to serving as the building facilities manager, all the others were let go. He said he was making more money mowing lawns in suburbia with his son.

    In recent years, I edited art books for an English publisher—a typical question about books being printed in China was, “Is there anything in there that they might find offensive. If so, we’ll print in Singapore.” I once met with the publisher in NYC and he told me that during a visit to the Chinese press factory, the printer proudly showed him a complete knock off of his book printed in Chinese! I asked what he could do about it, and he shrugged and told me that we just have to wait until they become as decadent as we are.

  9. hemeantwell

    I’m curious as to how those economic sectors that didn’t get mercantilist state support reacted to seeing support bestowed on winners. Were all boats expected to rise, or were there shut-up payoffs, or were they simply told to shut up? If mercantilist winners used their winnings to take over industries beyond their initial product line did that create tensions?

  10. Michael Hudson

    Ha! The “Chinese development policy” is basically the American School of protectionism, pubic infrastructure, etc. developed in the 19th century.
    This is quite conscious, as Remnin University has translated my Trade, Development and Foreign Debt, and the government has translated my America’s Protectionist Takeoff: 1815-1914.
    Via Simon Patten’s student Rex Tugwell, there was a direct link to the New Deal.
    So: when American neoliberals denounce China’s central planning, they are denouncing the strategy that enabled the United States to overtake Britain.

    1. Mel

      Whatever the incentives reward is the rational thing to do.
      So copying other peoples products when you find you can build them yourself is rational.
      And complaining about other people copying your products when that’s the strategy that made you rich in the first place, why, that’s rational too.

    2. ObjectiveFunction

      Hi Michael, while your historical observation is correct, does that mean we ought to continue sitting back and letting it happen?

    3. vlade

      The addendum to that is that while China learned that lesson from the US, the US didn’t learn the lesson from itself – that the point that allowed the US to overtake the UK at he time was the UK playing the world cop in an attempt to enforce free-markets ideology on at least a large part of it (believing it was in its interested – it might have, but only a short term one).

  11. flora

    Thanks for this post. Many very goods points. I have a quibble, though.

    One word not used is “monopoly” as in monopoly power. Huawei is a state sponsored tech monopoly acting in the global trading system. I agree with this article, but wish a little more was penciled in when phrases like this point from Robert Atkinson are used.:

    Chinese market-share gains have come at the expense of innovative telecom equipment providers in other countries. By artificially taking market share from more innovative companies, the latter have had less revenue to invest in cutting-edge R&D.

    In a global economy there can be global industry monopolists that act as monopolists. No surprise. This is also happening within the US with growing monopolies or near-monopoly concentrations in tech, finance, and media. Yes, monopolies hinder competition and innovation globally, and also at the national level. Monopoly capitalism is not dynamic capitalism in the sense of fair and dynamic competition leading to strong industrial innovations, imo. If the US accepts near-monopoly businesses in the US it’s hard to see how they can legitimately complain about foreign monopolies acting globally.

    1. flora

      The question is what lesson does the US learn; that monopolies are dangerous to dynamic and innovative competition, or that the US should have its own state sponsored monopolies ?

      1. Susan the other

        Exactly what I was thinking. Monopoly. I’m sifting thru it like this: we tolerate foreign mercantilism to a certain level, maybe a level playing field, and then we have to protect our own economy. And what Atkinson seems to be advocating is sort of a benign global mercantilism, which I think is a good idea. Global nationalism, if it can work. The missing ingredient, for the USA, since we were sleeping at the switch, is good social maintenance – which includes good R&D; education; environment; employment; healthcare; housing, blahblabla… So that if every country practiced a reasonable level of mercantilism, offset by good social spending it could work because the social spending would balance everything out. Or balance out aggressive surpluses and monopolistic tendencies – which are the death of neoliberalism. As we are now seeing.

  12. sam

    But as Michael Pettis has often pointed out from Beijing the world is long supply and short demand, with China, Germany and the smaller export tigers using mercantilist policies to appropriate foreign demand and thereby foreign employment. Since those policies depend on exploitation of foreign demand in the end the buyers have the power if they can only figure out how to use it.

    1. Ignacio

      We might call these beggar-thy-neighbour policies to distinguish them from industrial mercantilist policies. These has more to do with the management of money transfers between societal sectors and between countries.

      I find it curious that in English mercantilist is not written “merchantilist”. In Spanish merchandise (mercancía) and mercantilist (mercantilista) share the same root but in English these words have different origin.

  13. Carl Stoll

    When people think about industrial policy, their thoughts turn to the countries that adopted industrial policy and made a success of it, like Taiwan et al. This reflex behavior misleads people into believing that industrial policy is a panacaea that cannot fail. Nonetheless the number of countries that adopted industrial policies that failed is much greater than that of countries that adopted them successfully. The great theoretician of industrial policy — Raúl Prebisch https://en.wikipedia.org/wiki/Raúl_Prebisch — was not Taiwanese but Argentine, and his recommendations were put into practice in Argentina and other Latin American countries in the 1950s, at about the same time as Taiwan’s industrialization was getting underway as described in Wade’s Governing the Market. His policies were met with failure practically everywhere in Latin America. In the aftermath his model, called import substitution, was subjected to withering critique, often along the lines that instead of import substitution, what was necessary was export-oriented industrialization. This was very unfair, because for Prebisch import substitution was merely the preliminary step that would be followed by export-oriented industrialization. And this was what Taiwan did. Both Argentina and Taiwan granted tariff protection to their respective industries, which started substituting imports. The resulting extra profits were invested in industrial expansion that from a certain point onward was directed toward exports. The reason Taiwan’s exports succeeded where Argentina’s failed was not that Prebisch’s theory was faulty, but lay instead in the difference between the Argentine and the Taiwanese political systems. As Wade stresses, Taiwan was governed by a military caste that did not have any political base in Taiwan, since it had fled mainland China after losing the civil war in 1949 and controlled Taiwan more or less the same way as the Norman aristocracy ruled England after 1066 — by force of arms. This autonomy of the Chiang Kai-Shek régime vis-à-vis the Taiwanese industrial bourgeoisie enabled it to impose barracks-room-style discipline on the powerless capitalists, who were forced to toe the line or else. Consequently Taiwan started churning out high-quality merchandise that was very successful abroad. By contrast in Argentina the typical Latin American clientelism and corruption prevailed, so the capitalists were never subjected to any effective discipline from the state. The Argentine industrial expansion fed by a tariff wall was effective in substituting imports, but Argentina never managed to export industrial goods because their quality was too poor. Brazil did somewhat better than Argentina for some reason.

  14. LilaJean

    As a Canuck, I have a personal interest in the Huawei story. We’re sacrificing much to keep that CFO in check for the U.S. and it looks like we’re not getting much in return.
    The two Michaels are still in detention and my personal feeling is that their wives need to consider themselves widows. The two have now been charged with espionage and with a 99% conviction rate it means that they will not be coming back to Canada.
    Meanwhile what’s our great neighbour to the south doing? It looks to me like “not much.”

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