Whisky Tango Foxtrot
by Xenophon
[SEoN Editor’s note: The following is an opinion piece that addresses, to use Boyd’s framework, grand strategy, whose purposes, as suggested on Slide 139 of Patterns of Conflict (available for free download from our Articles page), include:
- Support national goal;
- Pump up our resolve, drain away adversary resolve, and attract the uncommitted;
- End conflict on favorable terms;
- Ensure that conflict and peace terms do not provide seeds for (unfavorable) future conflict.
As with all guest posts on this site, the opinions expressed are purely those of the author.]
We have a problem
I have a few questions:
- Why is the United States committing industrial suicide?
- Why are we not looking at and analyzing the economic models from our global competitors and responding with adjustments of our own to establish counter measures to make us more competitive?
- Why is our government so addled when it comes to the establishment of industrial and other strategic policies?
- Why do we continue to pursue a policy of industrial colonialism and chase the cheap labor dollar around the world to the detriment of our own working class?
Read more: Where are we going? (and a stab at a fix)
Other than the murky and extensive influence of the military industrial complex, the US government seems, at best, indifferent, at worst, hostile to industrial development and the industrial health of the United States.
For years, high level, Ivy League educators have been helping to set policy while teaching rubbish to an entire mandarin class of MBA weenies promoting the dissolution of the US industrial base. I forget who said “those jobs aren’t coming back” but it is undeniable that there has been a demonstrable hostility by the US Government and our top educational institutions towards the domestic industrial production of anything that doesn’t go boom.
The attitude seems to have been a “let’s move on” from this primitive situation where stamping, welding, and assembly are the technologies and requirements of yesterday, and instead move towards towards a bright, shiny world of software and fast food.
Could we learn something from China?
So, about 40 years ago, with the approval of the American government and justified by our intellectual elite, the American industrial base started to disassemble its US industrial infrastructure and ship it to China piece by piece. This meant that not only did the common laborer lose his job, but the entire infrastructure of skilled labor, toolmakers, machine fitters, PLC programmers, and electricians all lost out, and our ability to rebuild our industrial base (except for the defense sector) was soon severely compromised. China was not the only nation advantaged by these actions, but they had the best plan to take advantage of the situation.
I think we can make a conclusive argument that this is as strong a portion of bullshit as we have witnessed during the last 40 years, and we are only now beginning to see crippling effect that has resulted by its implementation.
The major justification seems to have been that we should let people who can do it the cheapest do it and we should specialize in what we do best. Thus, there will benefit to all global consumers by purchasing the cheapest goods produced in the most efficient manner. This is a basic tenant of the macroeconomic theory that I was exposed to during my educational process. There is however a major flaw in this theory and it is very simple: It does not reflect reality.
Why this hasn’t worked
For this concept and theory to work, there has to be an underlying assumption of a level playing field, where everyone is competing evenly with good faith and fair dealing. This has never been the case. There have been some complaints about just this fact over the years but these have either been ignored, or explained as an outcome-based necessity to allow poor countries to experience a rapid great leap forward and join the other economic powerhouses as fellow members while contributing to the most efficient global economy possible.
The problem here is that there has never been a level playing field with good faith and fair dealings as an underlying foundational element. Everyone, and more specifically the Asian powerhouses are playing their own game for their own specific interests. Therefore, we need to strengthen our own competitiveness as a matter of course. We also desperately need a national economic strategy and the policies put in place to execute to that strategy.
Yet , it will not help to make world class products if certain countries refuse to buy them or tax them to death. It will not help to better educate our workforce if there are no decently paid jobs in industry for them. It will not help to educate our engineers and inventors if certain countries can seize our Intellectual property with impunity and without sanctions. It will not help make our farmers more competitive if certain countries will not let a grain of rice or a pound of beef be sold in their markets. It will not help if we do not recognize that the Chinese in particular are dumping goods into our market by using certain gimmicks to appear to be playing fairly when they are indeed, not doing so.
What the Chinese did
There are many tricks employed to indirectly subsidize national companies. In China, for example, the state, through the Central Committee or the City Government of Shanghai, owns over 100 major manufacturing companies including three of the largest automobile manufacturers and AVIC, the company that makes virtually all of the different aircraft used by the Chinese military. It would be like the US Government owning Ford, GM, Boeing, Northrup Grumman, and Lockheed Martin.
Think of the advantages in planning and resource allocation. The Chinese have combined a largely autocratic, and now permanent, government along with a nationalized industrial complex. This is a tough combination for a democratic system to compete with. It also seems that the Chinese are not idiots when putting people in place to execute their strategic plan although that may now be changing. Our governmental officials, Sarah Palin, MTG, and AOC come immediately to mind, are incompletely educated who have no more business deciding national policy than my dog (although she has learned to open doors). So, from policy, structure, and intellectual capacity viewpoints, we are at a serious disadvantage vis a vis China. Their system works as a network of interrelated elements which all are working towards dominating markets, territories, and natural resources. What follows is a simple illustration of one trick that is commonly used.
Basically, it works like this. If I, as a manufacturer, have to spend a million dollars for a piece of equipment that I am going to make a million widgets with. I have to add one dollar per widget for the financing of said piece of equipment to the cost of labor and materials to know what my cost to produce that widget is.
However, if someone would give me that one-million-dollar piece of equipment instead of me having to buy and pay for it, then he or she would not have to add that one dollar to their cost model. This means that they could sell the widget for fifty cents less than I can and make fifty cents more in profit. This is exactly what happens in China.
Several years ago, I was invited into a huge stamping and welding plant in Chongqing. I have been making manufactured products for over 40 years and so I can pretty accurately estimate the value of manufacturing equipment. So, I knew that I was looking at around $600 million in investment. When I inquired as to the value of everything I was looking at, the plant manager stated proudly that everything had cost him almost $60 million. I knew then that the Chinese were providing capital to manufacturing companies either free of charge or severely discounted, which of course gives them a huge advantage in both pricing and profitability.
What this means is that western companies, who do not enjoy being part of an overall national plan, will always remain handicapped in competition with Chinese companies. They will continue to chase the cheap labor dollar around the world to try to achieve some short-term advantage in order to stay competitive with people who have a better plan and an advantageous system to the detriment of the American working class, skilled trades, and the management class. The Chinese work their system for their national benefit while we are reduced to a policy of industrial colonialism.
There simply is no level playing field.
If you combine this rigged game with a very aggressive market capture approach, which is willing to tolerate shorter term losses to buy the business, in order to achieve long term control of any particular market segment targeted, and then push up the price at a later date (once market hegemony has been achieved), you have a very potent and compelling business model. If you have the money, which the Chinese do, because we gave it to them when we exported all of our industrial might to China.
By further combining the Chinese government’s financial support for the long game for market conquest with the high intelligence and complete amorality of Chinese businessmen (don’t take my word for it, read AI Superpowers by Kai Fu Lee: chapters 1 through 5) and you will begin to understand what we are up against. Owing to the interconnected nature of global economics, nations can inflict grievous harm on the economies of other nations without taking any obviously offensive action. At the risk of appearing to be a bigot, this is exactly what it looks like China is doing to me.
Why we can’t compete today
The last two points are very difficult to deal with, as to address them would mean a tear-up of our entire system. Not the system as the founders envisioned, but the system that has evolved since the end of the second world war.
In his farewell speech to the American people, Dwight Eisenhower warned of the increasing influence of the “military-industrial complex”. Few people know that his original formulation was the “military-industrial-congressional complex” but that he deleted the “congressional” part, likely due to pressure, either self-made or external. However, few can doubt that this more inclusive definition is more accurate in its expression. This also seems to be a reflection, however darkly and through a glass, of what is going on in China, but there is a problem and an important distinction.
In the Chinese scenario, government controls industry, and so strategic and financial interests are combined, and both aspects are considered. In the US scenario, industry controls the government, and influence is peddled for money. Indeed, it can be argued that the congress has become a “money for influence” reelection machine. You pay to get someone reelected and for this privilege your interests will be represented. No countervailing strategic elements are required to be considered. There is no balance. Furthermore, the pressure to raise more money than an opponent causes the focus of the member of the legislature to be on getting his or her election bankroll together and not on performing the functions of government and developing laws and policies designed to enhance the felicity of the American people.
In addition, the Chinese system involves all industrial aspects of the Chinese economy, but in the US system, the overwhelming majority of influence peddling is in the defense sector, where the US government allocates almost half of all discretionary spending. Support for other industries, automotive for example, is limited to, and done by, the individual states in the form of grants and tax abatements. The Federal government is largely not involved. Thus, there can be no overarching strategic direction achieved as the individual states battle amongst themselves for the investments.
That we have no strategic industrial policy is stupidity. That we combine it with a corrupt system that involves only the defense industry is stupidity, doubly damned. Yet this is our system, and unless there is change, the system will continue to run as it is. We will continue to lose.
There is a solution, at least in theory
The solution is to take monetary compulsion out of the system. Make lobbying illegal. Limit the amount of money that can be spent in a reelection campaign. Limit the duration of electioneering before an actual vote. Make the focus of the elected officials’ job to serve the interests of the American people and not to worry about raising money to avoid getting outspent, and thus voted out of office, at the next election cycle. Overturn Citizens United! Reinstate Glass-Steagall.
Unfortunately, none of this will happen. The vested interests are too vested and are attached to the body politic like a lamprey on a trout. And so, the people of the United States are beginning to get frustrated.
Why Trump is a force
Which brings us to Donald Trump. When reflecting on “The Donald”, I am always reminded of the Max von Sydow scene in “Hanna and Her Sisters”, where he talks about the “puzzled intellectuals” declaring their mystification about Auschwitz. How could it happen? The answer is that they never are able to reach a conclusion because they are asking the wrong questions.
“How and why Donald Trump?” are also the wrong questions. The right question is: What drives half of the American population to follow a person whose only previous success of note was as a reality TV host? Again, the wrong question. The right question is what drives half of the American people so crazy about their government that they are willing to follow a politician who makes impossible promises and couldn’t care less about them.
The answer to the right question is simple. The people of the United States no longer believe that their government represents their interests and are so desperate that they will elect and then indulge a pitchman who only has to make the right noises and who doesn’t appear to be part of the beltway bampot parade.
Hence “The Donald”.
Trump, although not a great thinker, is however possessed of a highly developed sense of zeitgeist. Somehow, he, despite manifold failures, has retained popularity with great swaths of both the proletariat and the middle class.
Focus on the problem, not the symptom
So once again we must return to our abandonment of industry as a contributing factor for this nonsense.
I, for one, am amazed that we have become inured to pictures of tent cities with hordes of homeless people squatting in the streets, parks, and underpasses in almost every large city in America. In the land of my youth, this was almost unthinkable, and I would venture to postulate that the broad availability of fairly low skilled but decently paid jobs, at least decently enough so that people could afford a cheap apartment, and three squares a day, served to help to avoid festooning the streets of American cities with these modern Hoovervilles and the attendant social squalor which we see today.
So, by eliminating the industrial direct labor jobs and shipping our industrial might to China, not only have we lost a useful destination for these without other skills or aptitudes, but we have helped to undermine the very foundations of our society. We have allowed our government to fail to ensure domestic tranquility and to promote the general welfare. Furthermore, we have also largely allowed the elimination of skilled trades and the industrial artisans who create production systems and instead have given all of this know-how to others.
Now I must admit that our educational system is appalling and Americans have become preoccupied with studies of the most preposterous forms, colors, and consistencies, which have directed Americans away from more useful, if more difficult, subjects such as math, sciences, and engineering, all of which compel you to do your homework rather than spending dad’s money becoming the house foosball champion at the local saloon. This is not the situation in China. Tiger moms produce tiger cubs. Tiger cubs grow to become apex predators.
In the immortal words of Robert Heinlein, “anyone who cannot cope with mathematics is not fully human. At best, he is a tolerable subhuman who has learned to wear his shoes, bathe, and not make messes in the house.” Unfortunately, we seem to be raising a generation of “tolerable subhumans” who are more concerned with social justice than they are with differential equations and their application to the work of James Clerk Maxwell. If you do not know who James Clerk Maxwell is, then you are part of the problem.
Even the intelligent and talented have been seduced by the system. A good friend of mine has a very smart son who had the talent to become a great engineer, and I am pretty sure that if all things had been even, he would have followed his natural talent and he would have moved into a technical career. He is a brilliant mathematician. Yet when he saw what he could earn as a financial professional versus what he could earn as an engineer in America; well, like I said, he is very smart. He is now a rising star at a very famous financial services company, and all of that talent goes to moving money back and forth top maximize profits. Sad really, but reasonable from the individual perspective.
A Chinese perspective
Consider the following excerpts from a paper presented by Chinese students in 2019 at the 9th World Engineering Education Forum, WEEF 2019.
Title: The New Engineering Education in China
By Jinlu Shena , Tuoyu Lia, Mingchuan Wua
College of Public Affairs, Zhejiang University, Hangzhou 310058,
Institute of China’s Science, Technology and Education Policy, Zhejiang University, Hangzhou 310058:“Under the background of accelerating new industrial revolution, China’s higher engineering education is cultivating a group of innovative talents in engineering science and technology. In order to improve the quality of engineering education.”
“In June 2017, Lin Huiqing, vice minister of Ministry of Education of the People’s Republic of China, pointed out that “Universities should take the initiative to serve national strategic needs and industrial enterprises, accelerate the construction and development of new engineering, and launch the “Excellent Engineer Education and Training Plan 2.0”
“In early 2019, Tsinghua university launched its engineering development program, which focuses on innovating academic ideas and leads technological development, laying emphasis on strengthening basic engineering research, promoting interdisciplinary study and improving engineering education.”
“Li Deyi, academician of the Chinese Academy of Engineering, mentioned in his speech that China’s engineering education should learn from Germany and cultivate senior technical engineering talents with craftsman spirit. “Tianjin University Action” emphasizes that engineering students should strengthen their patriotism, global vision, legal awareness and ecological awareness, cultivate design thinking, engineering thinking, critical thinking and digital thinking, and improve innovation and entrepreneurship, interdisciplinary integration, independent lifelong learning, communication ability and engineering leadership.”
These are not my words, but are rather the words of three Chinese politicians (the bolds are mine).
I find it unlikely that our Secretary of Education would include the concept that universities should serve national strategic needs in any utterance they might make or that any US academician would include the strengthening of patriotism as an important aspect of an engineering mentality. These statements are again indicative of the integrative nature of Chinese governmental policy with industrial needs to achieve a strategic advantage in product development and manufacture.
Some specific, and feasible, actions
We may be at a serious disadvantage, but there are some things we can do to at least, slow the Chinese down:
- Enforce current anti-dumping laws
- Analyze and match tariffs
- Prosecute IP theft vigorously and deduct fines from current US debt to China
- Institute vigilant oversight of Chinese citizens operating in technical capacities in the US
China is neither omniscient nor invulnerable. China itself has major internal problems which will likely cause significant disruptions in the near to medium term. They have fallen into the same real estate valuation trap the Japan fell into in the 80’s. This has already caused significant disruptions at both investment and banking firms. The civil response has been met with, shall we say, overt recalcitrance by the government. Add to these structural problems the issues with population decline, environmental devastation and a rapidly increasing defense expenditure, and there may be an end in sight for China’s summer of gold.
We have, therefore, a window of opportunity. However, we must remain vigilant and use the levers that we have provided ourselves with to increase our own capacities in order to protect ourselves and we must return industry to American shores so that we cannot be held hostage by any foreign power.
Almost eighty years ago, we, as a nation, were able to defeat two major hostile powers simultaneously by our strength as an industrial power. We could not repeat that trick today. We are weaker as a nation than we were in 1941.
A glorious past; a better future
We must come to terms with the fact that our enlightenment-based system which includes, at least theoretically, respect for law and of the human condition, a separation of church and state, and those fundamental rights enshrined in our constitution, has allowed our country to be a force in the world driving towards a system that can be dominated by the better angels of our human nature, and is a superior system in comparison with any of today’s authoritarian systems, whether they be dominated by either religion or party.
While it is true that we have often been ham-fisted in our techniques and applications, and that there have been and will continue to be ups and downs, and successes and failures in our execution of a drive towards respect for the human being and his or her individual rights, the system offers a more splendid approach to human existence that any alternative system with which I am familiar.