A Big Lack of Trust.

            The rise of big business hotly followed the Civil War.  Railroads, coal mines, steel mills, oil, telegraphs, and banks all grew in size and wealth as America industrialized.  Big companies integrated horizontally and vertically.  They formed ‘trusts” to cut up the national market and set prices without reference to market forces.  Companies played a rough game with each other, with their workers, and with their customers.[1]  The aggrieved fought back in a variety of ways, none of them very effective.  State regulation of railroads, national anti-trust legislation, and guns and dynamite made headlines without braking the advance of big business. 

            Louis Brandeis, lawyer and then Justice of the Supreme Court, advanced a compelling theory of anti-bigness.[2]  Brandies argued that there could be neither competition nor bargaining in sectors where one actor dominated the market for goods, services, or employment.  Moreover, a dominant company—well the handful of men who owned or controlled it–could impose its will in other areas thanks to the wealth it accumulated.[3]  His views came to dominate legal and government approaches to the growth of big business from the New Deal to the Eighties. 

            If a criticism might be offered, it is that the approach is subjective, moralistic, and essentially aesthetic.  It didn’t try to measure whether customers were economically better or worse off from any particular size of or market domination by a company.  It believed that competition should not be carried to its logical conclusion, victory for one competitor.  It could cite many instances of bad behavior by companies without demonstrating the representatives of those anecdotes.  Fundamentally, it reflected a view that, when pushed too far, inequalities of wealth and power are unseemly. 

            This view finally sparked an effective response in the Reagan Era.  In 1978, Yale law professor Robert Bork published The Antitrust Paradox.  The “paradox” identified by Bork lay in the raising of consumer prices and the limiting of competition through anti-trust laws that effectively protected established competitors.  Bork argued that “consumer welfare” should be the standard for deciding whether some merger should be allowed.  The price and variety of goods offered to the consumer could be measured objectively.  Bork’s view gained dominance in the courts. 

            If a criticism of this approach might be offered, it is that it views humans too narrowly.  How much stuff people can buy and at what price isn’t the only measure of human happiness or welfare.  For example, trust in the larger social, political, and economic systems to give people what they believe to be a fair shake in life also is essential.  That confidence often is based in emotion and intuition, rather than cold logic.  It is subject to manipulation.[4]  It’s real.  It’s vital. 

            Now a new phase in anti-trust has opened.  The current approach has been labeled “neo-Brandesian.”  Its face is Lina Khan, the new chair of the Federal Trade Commission. 


[1] See Glenn Porter, The Rise of Big Business, 1860-1920 (1992) for a concise summary of the scholarly literature.  See Raymond Chandler, The Long Goodbye (1953) for a mid-century popular evaluation: “There ain’t no clean way to make a hundred million bucks…. Somewhere along the line guys got pushed to the wall, nice little businesses got the ground cut out from under them… Decent people lost their jobs…. Big money is big power and big power gets used wrong. It’s the system.” 

[2] Greg Ip, “Latest Antitrust Approach Has Its Own Risks,” WSJ, 8 July 2021. 

[3] It’s probably hard to regulate anything effectively when one party can hire all the best lawyers. 

[4] American media is the last great industry largely free from government regulation.  Long may it so remain. 

The Asian Century 19.

            The Trump Administration decided to deal with the puzzle of how to manage the ascent of the Peoples Republic of China by hammering the living daylights out of China.[1]  China runs a big trade surplus with the United States, so Trump slammed on heavy tariffs.  The payment asymmetry meant that the Chinese could never hurt the United States as much by reciprocating. 

China has long-standing claims on Taiwan, now a more or less democratic and economically successful country of its own.  The Trump Administration diverged from long-standing American policy on Taiwan by warming up to it. 

China has been extending claims over the South China Sea, notably by turning reefs into fortified islands, then claiming the airspace overhead.  The Trump Administration challenged these claims, but also pressed Congress to build up the Navy. 

China has engaged in a long-running struggle for American hearts and minds.  The Trump Administration turned the FBI and Department of Justice loose on Chinese theft of intellectual property; then did the same on China’s efforts to cultivate agents of influence in academia and media. 

            However, the most effective Chinese agents of influence, during the Trump Administration and long before, were American businessmen who profited from the China trade.  They have always argued for “moderation” and “dialogue” in China policy.  Sometimes, President Trump listened to them, as did many of his predecessors.  At times, he seemed to be seeking a “Grand Bargain” with China in which China would mend its ways in return for the United States easing up its pressure.  Any such hopes crashed on the rocks of the Covid-19 pandemic and Trump’s re-election campaign.  The “Kung Flu” line allowed him to blame China for the pandemic without acknowledging his own lackluster response.[2]  American policy on China got tougher during 2016. 

            Tougher didn’t mean more effective.  The Peoples Republic of China continues on the same path as before.  That leaves the Biden Administration with an array of important decisions.  Is “Get Tough With China” the wrong policy?  In that case, one could expect an abandonment of coercion in favor of a return to older policies.  Is “Get Tough With China” the right policy, but it hasn’t had enough time to work yet to change the behavior of such a formidable rival?  In that case, one could expect a continuation of the path we’re on, dressed up with rhetorical distancing from the Trump Administration.  Is “Get Tough With China” the right policy, but the Trump Administration didn’t go far enough?  In that case, one could expect the addition of tight controls on further American investment in China, ugly quarrels in various international organizations, and port-calls by the U.S. Navy all over the region. 

            Other questions naturally follow.  How much stress can either country take?  Does Zi Jinping represent a consensus of Chinese leaders?  If not, how solid is his grip on power? 


[1] Josh Rogin, Chaos Under Heaven: Trump, Xi, and the Battle for the Twenty-First Century (2021), reviewed by Dan Blumenthal, WSJ, 12 May 2021. 

[2] Yet uncertainty remains whether Trump was entirely wrong about the origins of the pandemic.  See: Michael Gordon, Warren P. Strobel, and Drew Hinshaw, “Report on Wuhan Lab Fuels Covid-19 Debate,” WSJ, 24 May 2021; Jeremy Page, Betsy McKay, and Drew Hinshaw, “The Wuhan Lab Leak Debate: Disused Mine at Center Stage,” WSJ, 25 May 2021. 

The Age of Revolt 1.

            Where did “Trumpism”–the political movement–come from?[1]  It arose out of the profits and losses from globalization.  The costs were born by one segment of American society while the profits flowed to another segment.  The beneficiaries were, first and foremost, the “political, cultural, and financial elite.”  Their right to lead rested upon the pursuit of the common good. 

In theory, the free-trade policies pursued by a whole series of American administrations after the Second World War would benefit Americans.  They would allow the American economy to shift jobs producing low-value goods offshore and to redeploy assets toward higher-value jobs and goods.  For a long time, these policies had no costs for Americans.  The American economy emerged from the war with a long-term competitive advantage over anyone else.  It could have not only butter and guns, but low-end butter and high-end butter.  By the Sixties, that advantage had eroded badly.  As foreign competition began to bite, it turned out that a lot of people depended on those low-value jobs for their living and found it difficult to shift into high-value jobs. 

Globalization began to take a more serious toll on the American working class in the wake of the “Oil Shocks” of 1973 and 1979.[2]  That seems incomprehensibly long ago to most journalists and politicians, so they just ignore the larger story.  Then the North American Free Trade Agreement (NAFTA, 1994) reduced tariffs on trade with Mexico and Canada.  It accelerated the early wave of job-losses.  Already in the 1990s, Pat Buchanan and Ross Perot could run for president, if not win, on the loss of blue-collar manufacturing jobs.  At the same time, China’s abandonment of suicidal Maoist economic policies and its entry into the World Trade Organization (1990) greatly accelerated the loss of jobs.  Those job losses not only tossed many workers into unemployment, they also left whole communities hollowed out and unable to address human problems.  They not only tossed workers into unemployment, they undermined the value of the homes that formed an important asset of many workers.  They not only tossed workers into unemployment, they also foreclosed the possibility of the children of the workers finding steady work at a living wage anywhere near their parents. 

Globalization may have eroded manufacturing jobs, but it created enormous opportunities for the American financial services industry.  Industrializing countries needed capital and expertise.  Wall Street could provide both, not least because of the inflow of Chinese profits to New York banks and to the swelling 401(k) savings of the Baby Boomers.  Increasingly “cosmopolitan” in its outlook, Wall Street also became increasingly influential over national economic policy.[3] 

The year 2008 marked a turning point.  A great deal of elite foolishness and some guile created the 2008 financial crisis.  That, in turn gave rise to revolts on the right (Tea Party) and left (Occupy Wall Street); and to the invasion of the political system by “outsiders” like Barack Obama and Sarah Palin.  Donald Trump, the ultimate outsider, was just a heart-beat away. 


[1] Gerald F. Seib, “Where Trump Came From—And Where Trumpism Is Going,” WSJ, 16-17 January 2021. 

[2] “In the wake of” does not mean “solely caused by.”   For more of my peculiar view of this process, see https://waroftheworldblog.com/2015/03/02/american-union-stay-away-from-me-uh/  and https://waroftheworldblog.com/2015/12/17/the-new-economy/

[3] For one highly critical view of this process, see Simon Johnson, “The Quiet Coup,” The Atlantic, 5 May 2009. 

The Asian Century 17a.

            It is now commonly accepted that the United States (US) and the Peoples Republic of China (PRC) are strategic competitors.[1]  All eyes regard this competition, for they represent two different approaches to government and economic management.[2]  China combines an effective authoritarian government with state-managed semi-capitalism.  The US combines democracy with a regulated free market.  For the duration of the “Fifty Years War”[3] the United States represented the preferred wave of the future for an ever-growing share of the world’s population.  Is the US able to win a new competition or have essential elements of its previous strength dissolved?  Is China better able than were Nazi Germany and the Soviet Union to win a competition with the US?  It depends where you look. 

Does the Covid 19 pandemic of 2020 offer any insight into the relative positions of the US and the PRC?  The answer must be NO if examined in international perspective.[4]  Democratic Taiwan did better than the PRC; the United Kingdom did even worse than did the US in spite of doing all the things that Democrats criticized the Trump administration for not doing.  The explanation for the diversity of results may have something to do with an Asian culture of compliance with the public interest in comparison with a Western culture of asserting individual rights at the expense of the community. 

It is sad, but true that the Covid pandemic is a transitory event.  It has been deadly and disruptive in its impact, but in a year it will be history.  More fundamental issues should be alarming.  So far, China has won the trade war launched by President Trump.  During 2020 its trade surplus increased, as did the trade deficit of the US.  The Trump administration’s attack on Huawei Technologies led the PRC to pour resources into its semi-conductor industry.  American efforts to get other countries to join in exerting pressure on China signally failed.  European, South American, and Asian countries are so entranced by the promise of the China market that they seek to fill the gaps when other countries try to pressure China.[5]  Nor is American politics oriented toward pursuing a coherent industrial policy during peacetime.  One of Trump’s last acts as President was to see his efforts to encourage an American rival to Huawei come to grief.  Intel announced plans to offshore some of its chip production; while Cisco rejected government entreaties to buy either Nokia or Ericsson.  Here they put the bottom line ahead of national strategy.  One of Biden’s first acts as President was to cancel the permit for the Keystone XL pipeline.  Here he put the demands of environmentalists over the interests of America’s Canadian ally (and over those of the American construction workers who had been building the pipeline). 

Finally, Chinese news media are portraying the riot at the Capitol as proof that American democracy is crumbling.  Many, here and abroad, would agree with this grim judgement. 


[1] Greg Ip, “China Played Its Hand Well in 2020.  Will It Keep Winning?” WSJ, 23-24 January 2021. 

[2] I’m not sure how Francis Fukuyama makes sense of this development.  Apparently, Hegelianism only takes you so far.  See Fukuyama, The End of History and the Last Man Standing (1992).  Still, he’s teaching at Chicago and I’m working at an educational wide spot in the road.  So,…

[3] The struggle from 1940 to 1990 between capitalist liberal democracy and autarkic dictatorships. 

[4] See: https://ourworldindata.org/covid-cases 

[5] For example, the European Union recently concluded an agreement with China to increase investment.  In doing so, they ignored a suggestion from Jake Sullivan, then President Biden’s national security advisor-designate that they should wait. 

My Weekly Reader 7 January 2021.

            The Enlightenment had a good year in 1776.  The year witnessed the publication of “The Declaration of Independence,” Edward Gibbon’s History of the Decline and Fall of the Roman Empire, and Adam Smith’s The Wealth of Nations.  Smith attacked the prevailing “mercantilist” economic policies of the time, arguing that tariffs serve only politically-connected special interests at the expense of the larger community. 

            Broadly, for much of their history, Americans rejected free-trade as the best engine of prosperity.[1]  While James Madison advocated a ‘very free system of commerce” in the early days of the Republic, Alexander Hamilton preferred a mercantilist/protectionist line.  Tariff policy veered toward the Hamiltonian line once industrialization began, to the great distress of Southern cotton exporters.  After the Civil War, high tariffs became an article of faith among Republicans.  It is by no means clear that tariffs actually contributed much to American economic development in the “Gilded Age.”  Abundant natural resources combined with a scarcity of labor that put a premium on technological innovation probably did much more than tariffs.  Still, they didn’t hurt.  High tariffs as a protection against “unfair” foreign competition became a totem.[2] 

            Making a totem out of high tariffs came back to bite Republicans when passage of the Smoot-Hawley Tariff Act (1930) coincided with the plunge into the Great Depression.  Even though the Federal Reserve’s tight money policy during the 1920s played a far larger role, the high tariffs and falling trade explanation was ready to hand.[3] 

After the Great Depression drove many countries toward high tariff walls and autarky, after the Second World War wrecked most world economies, Republicans and Democrats converged on a new orthodoxy of free trade.  The United States played the leading role in designing the new world order of the Bretton Woods System.[4]  Americans continued this drive through the 1990s, with successive “rounds” of multilateral tariff reductions and the North American Free Trade Agreement (NAFTA). 

Some of the economic and social dislocations of recent decades loosened the post-war consensus.  Republicans still clung to free trade as tightly as they once clung to high tariffs, while Democrats lost the enthusiasm for free trade that inspired them from Franklin D. Roosevelt through John F. Kennedy.  More recently, populist uprisings in both parties have disrupted the march toward a still more integrated world economy.  Senator Bernie Sanders attacked free trade in general and the Trans-Pacific Partnership (TPP) in particular during his run for the Democratic presidential nomination in 2016.  Rival Hillary Clinton soon moved from being a leading proponent of the TPP to having her doubts to opposing it.  Donald Trump seized the Republican nomination in part by dint of his scalding criticism of NAFTA and Chinese trade practices. 

Will policy now snap back to normal under Joe Biden or are we at the dawn of a new era of managed trade?  The ability to formulate policies that help those displaced may hold the key.         


[1] Douglas A. Irwin, Clashing Over Commerce: A History of US Trade Policy (2017).  Reviewed by George Melloan, WSJ, 29 November 2017. 

[2] Tax cuts as the solution to every problem has become a similar totem for Republicans since the Reagan presidency. 

[3] See: https://en.wikipedia.org/wiki/Availability_heuristic 

[4] The General Agreement on Tariffs and Trade (GATT), the World Bank and the International Monetary Fund (IMF), the Marshall Plan and support for European integration all were vital early contributions. 

American Divisions.

            In 2008, before the financial crisis and the subsequent “Great Recession,” the average real GDP of Democratic ($35.7 billion) and Republican ($33.3 billion) Congressional districts stood pretty close together.  Now, almost two thirds (63.6 percent) of the country’s GDP is produced in Congressional districts that vote Democratic; a little over one-third (36.4 percent) of the country’s GDP is produced in Congressional districts that vote Republican.  The average real GDP of Democratic Congressional districts has risen to $49.0 billion, while Republican districts have actually fallen slightly to $32.6 billion.[1]  That is, Democratic districts enjoy an average GDP that is fifty percent higher than Republican districts.  This is reflected in median household income.  In 2008, the median household income in Republican and Democratic Congressional districts was $53,000.  By 2017, the median household income in Republican districts had declined to $51,500, while in Democratic districts it had risen to $62,000. 

            Whether one looks at finance and insurance[2] or at the professions[3] or at the digital industries, Democratic districts represent about two-thirds (64.3-71.1 percent) of jobs.  Whether one looks at basic manufacturing or primary products, Republican districts represent more than half (56.4-60.5 percent) of the jobs. 

            Other measures mirror this economic divide.  In 2008, the median percent of adults with a BA or higher stood at 25 percent in Republican districts and 27 percent in Democratic districts.  By 2017, the medians had moved farther apart to 27 percent in Republican districts compared to 35 percent in Democratic districts.  In terms of location, in 2008 the median population density in Republican districts was 350 people per square mile, while the median population density in Democratic districts was 850 people per square mile.  By 2018, the rates stood at 200 people per square mile in Republican districts and 2,500 people per square mile in Democratic districts. 

            In the presidential election campaign of 2020, Joe Biden pulled in $486 million in campaign donations from ZIP codes where the median income was at least $100,000, while Donald Trump raised $167 million.[4]  Indeed, from households earning $75,000 a year to $150,000 a year, Biden out-raised Trump by $600 million to $300 million.  In contrast, Trump outraised Biden in ZIP codes below the 2019 national median income by $53.4 million.[5]  Among those earning up to $75,000 a year, Trump out-raised Biden by about $400 million to about $340 million.  

In ZIP codes where at least 65 percent of people had a BA or higher, Biden out-raised Trump $478 million to $104 million.  From among the ZIP codes were 40 percent or fewer of people had BA degrees, Trump out-raised Biden by about $400 million to about $350 million. 

            It looks like the Democrats are becoming the party of rich, educated people telling poor people what they need, while the Republicans are becoming the party of faux common men giving poor people what they want.  “Good and hard,” to quote Menken. 


[1] Aaron Zitner and Dante Chini, “America’s Political Polarization Is Almost Complete,” WSJ, 20 September 2020. 

[2] Basically moving around big pools of other people’s money. 

[3] Medicine, law, higher education, and scientific research. 

[4] Shane Goldmacher, Ella Koeze, and Rachel Shorey, “Map of Donors Reveals a Split On Class Lines,” NYT, 26 October 2020. 

[5] In 2019, median household income was $68,703.    

The Asian Century 14.

            The way it looks at the moment, the foreseeable future will be dominated by tiny things: deadly viruses and ultra-thin semi-conductors.  Controlling both holds the key to leadership (and possibly survival) in the Twenty-First Century.  Both come from Asia.  Of the two, computer chips may be the more pressing long-term concern.[1] 

            Inevitably, this begins as History.  The West pioneered industrialization, then moved up the ladder from making simple things to making more complicated and higher-value things.  From this they drew immense wealth.  Wealth converts into military power.  From the late Eighteenth Century onward, the West both shot ahead of the rest of the world and began to impose its rule on the rest of the world.[2] 

            Since the Second World War, many countries have wanted to follow the Western path.  For most of the imitators it meant beginning where the West had begun, with simple mass-produced goods that the West no longer cared to produce.  Textiles, then simple electronics, then motorbikes and automobiles.  They were filling global needs without competing head to head with the established economies. 

            Two countries—South Korea and Taiwan—went farther than making textiles, steel, and ships.  Taiwan’s strategy: invest heavily in research and development; build human capital through education and hold that capital in Taiwan; push rapid adaptation to changing markets in the West; encourage new businesses, rather than guard the established giants; and don’t put the hackles up on key Western manufacturers. 

            One of those start-ups was the Taiwan Semiconductor Manufacturing Company (TSMC).  The Taiwanese government chose Morris Chang, an American-educated Taiwanese, to begin creating a semi-conductor industry.  They didn’t set him to jumping too far by building an industry to use those chips in things like smartphones.  They set him to building the essential component of such devices.  He succeeded, but–true to the Taiwanese form—he didn’t rest on his laurels.  TSMC kept pushing up the ladder to chips until it became the leading producer of high-end semi-conductors.  What it did not do was to branch out into making the devices produced by powerful companies like Apple.  Both American and Chinese device manufacturers came to rely on abundant supplies of TSMC chips. 

            Now TSMC and Taiwan are becoming important “chips” in a different game.  The Trump Administration broke with previous American policy by taking seriously the profound Chinese-American rivalry.  Tariffs formed one part of its campaign, but so did a campaign to block the expansion outside China of the Huawei Company.  The American campaign against Huawei aimed, in part, to block the Chinese company’s access to TSMC chips.  The Trump Administration also encouraged TSMC to build a chip plant in the United States. 

            IF artificial intelligence and high-speed computing are going to be two corner stones of economic power and national prosperity, then high-end chips are an essential interest of both China and the United States.  Will the complicated Sino-American relationship on this issue and on so many others be resolved by diplomacy? 


[1] Ruchir Sharma, “It All Comes Down to Taiwan,” NYT, 15 December 2020. 

[2] David S. Landes, The Unbound Prometheus: Technological Innovation and Industrial Development in Western Europe from 1750 to the Present (1969). 

Climate of Fear XXII.

            The Paris Climate Accords, which the Obama administration helped negotiate in 2016, contained flaws as well as virtues.[1]  The virtues have been sufficiently broadcast, so it is worth looking at two flaws. 

First, the reductions in greenhouse gas emissions promised by other countries were purely voluntary.  No one except Morocco and Gambia has met their commitments.  This lack of enthusiasm about compliance with even voluntary targets provides ammunition to critics of the Accords.  If the threat is real, it could be argued, then counties would drive ahead regardless of American participation.  If the threat isn’t real, then is the climate crisis being over-hyped?  Is the United States being beset by a warming planet or by a combination of ivory tower zealots with rival foreign economies seeking a competitive advantage?[2] 

            Second, it is not a treaty.  It is an executive agreement.  Never ratified by the Senate, it never became legally binding on the United States.  Furthermore, it could be—and was—abandoned by the United States as soon as a president hostile to the agreement waved good-bye to the moving van that deposited his stuff in the White House.  In this sense, the Paris Accords resemble the Versailles Treaty ending the First World War with Germany.  Even if the Accords could be converted to a real treaty, it is unlikely that it could get the two-thirds vote needed for ratification.  In short, the Democrats need to win more than a simple majority in the Senate to get a legally-binding treaty in place.  Even passing the legislation to implement a revived executive agreement could be tricky.  This will leave the Biden administration with the same slog through executive orders and rule-writing in which the Obama administration engaged so much energy. 

            One possible lever on the economy for the Biden administration would be to define climate change as not just an “environmental threat” or as a “national security threat,” but also as a “financial stability threat.”  Both the Treasury Department and the Federal Reserve Bank offer means to impose government policies without new legislation.  Both possess robust regulatory powers that can lever corporate policies and investor behavior in new directions. 

            The Obama-Trump-Biden pattern of rule writing followed by re-writing followed by re-re-writing is dangerous.  It turns what should be a predictable framework for decision-making into a quadrennial football.  On the one hand, the financial services industry is a vital part of America’s domestic economy and of its international trade.  Is it a good idea to build-in systemic uncertainty? 

On the other hand, the whole enterprise of governing through rule-writing and executive orders is deeply undemocratic.  It further exalts the executive branch; it further diminishes the legislative branch; and it further politicizes the judicial branch. 

No matter how much they are loved by their beneficiaries, rapid globalization and the growth of the “administrative state” have not received a unanimous warm welcome.  “Brexit” is best understood as a revolt against the European Union.  Donald Trump’s election is best understood as a revolt against the dominant policy strand of recent decades.  There is no guarantee that the revolt will end if Biden goes back to the same old policies. 


[1] Walter Russell Mead, “Climate Finance May Foul the Economy,” WSJ, 8 December 2020. 

[2] That’s not what I believe (although both things could be true).  It may well make sense in coal country or the oil patch or the “Rust Belt.”    

The Asian Century 13.

            From the time of Queen Elizabeth I (1533-1603, r. 1558-1603), England had a special intelligence service dedicated to thwarting the schemes of foreign enemies.[1]  Other countries took longer to reach this institutional goal.  Many countries assigned this task to intelligence departments of the military, with military attaches in foreign countries operating as case officers for spies.[2]  Impressed by the achievements of the British in the Second World War, the United States soon created the Central Intelligence Agency.[3]  On the other hand, revolutionary movements caught up in the struggle for power have to improvise.  The Bolsheviks created the “Cheka” in 1917.[4]  Later it became the OGPU, then the KGB, and now the FSB.[5] 

            The intelligence service of Peoples’ Republic of China (PRC) followed a recognizable track in its own development.  It began as a branch of the Peoples’ Liberation Army in the era of the struggle against Chiang Kai-shek’s Kuomintang government.  It continued as such during the wars with Japan, with Kuomintang again, and then with the Americans in Korea from 1937 to 1953.[6]   The Ministry of Public Security handled the repression of domestic resistance. 

Military domination of intelligence-gathering matched poorly with Deng Xiaoping’s decision to dramatically reorient China after the death of Mao.  An opening to the West would involve allowing Westerners relatively unrestricted access to China.  This would pose a grave security threat.  However, an opening to the West would also permit greatly expanded espionage directed not only against foreign military power, but also against economic and technological targets.[7]  In 1983 Deng created the Ministry of State Security (MSS). 

In comparison to the Soviet Union, the PRC began at a disadvantage.  Many of the Westerners who spied for the Soviets were recruited during the “Devil’s Decades” of the 1920s and 1930s.  Social, political, and economic crises created large numbers of foreigners who were true believers in Communism.[8]  That intellectual commitment had died long before the MSS began its work.  Instead, it has relied upon a combination of lots of money to human agents and lots of technology to invade foreign computer systems. 

Has it worked?  Yes: spy scandals are becoming ever more common.  How much difference has it made?  It’s hard to tell because China’s astonishing ascent as a military and economic power has so many roots.  Still, in the judgement of experts, “China is today the greatest intelligence threat to U.S. interests.” 


[1] Now called MI-6, the Secret Intelligence Service.  Domestic counter-intelligence is the province of MI-5, the Security Service.  See: Christopher Andrew, Secret Service: The Making of the British Intelligence Community (1985). 

[2] See, for example, Peter Jackson, France and the Nazi Menace: Intelligence and Policy-Making, 1933-1939 (2000). 

[3] Unfortunately, one of the British advisors to the early CIA turned out to be the Soviet “mole” Kim Philby. 

[4] The All-Russian Extraordinary Commission for Combatting Counter-Revolution and Sabotage. 

[5] See Christopher Andrew, KGB (1990). 

[6] Peter Mattis and Matthew Brazil, Chinese Communist Espionage (2020), reviewed by Michael Auslin in WSJ, 2 March 2020.  . 

[7] Despite President Obama’s huffing and puffing, this was hardly a new approach to hurrying industrialization on the cheap.  See Doron Ben-Atar, Trade Secrets: Intellectual Piracy and the Origins of American Industrial Power (2004). 

[8] See, for examples, the Rosenberg spy ring in the United States, the “Cambridge Five” in Britain, and the “Red orchestra” in Germany and elsewhere. 

ChiMerica 3 14 July 2019.

In the late 1500s, Richard Hakluyt collected the stories and reports of the English mariners who had explored the Atlantic world.[1]  He wanted to celebrate these doughty adventurers, but also he hoped to encourage others to emulate them.[2]  Hakluyt’s basic approach became a staple of the reference shelves.

Now we have the equivalent for the entrepreneurs who have raised up China into the “second economy in the West.”[3]  Sort of.  A bunch of American business school professors interviewed Chinese executives to supplement their library research.

Deng Xiaoping’s reforms started everything, but Chinese entrepreneurs had to muscle through hordes of bureaucrats who failed to adjust their old thinking to new realities.  Thus, “If it were not from Deng Xiaoping’s reform and open door policy, none of us would be able to achieve much, regardless of how capable we are.”  At the same time, owing to deeply-ingrained anti-capitalist prejudice, “the lowest thing you could do in the early ‘80s, as a scientist, was to go into business.”  So, early Chinese entrepreneurs had to make it up as they went along.  Much like the industrialists of the American “Gilded Age.”  The Chinese adapted to prevailing conditions.

Some of them fell into error along the way, which is easy to do in China.  They over-promised and under-performed.  They aligned with the wrong factions and fell victim to Xi Jinping’s anti-corruption drives.  They just made bad decisions.

Chinese entrepreneurs take a long-term view.  Quarterly profits and share prices don’t mean much to them.  The pursue what some call a “lean architecture” that gives the companies nimbleness in responding to new situations.  American companies, in contrast, haven’t entirely reduced the massive bureaucratization of the 50s-70s.  However, Chinese government support for Chinese businesses in competition with American businesses plays an important role.  For example, Didi Chuxing Technologies, the Chinese Uber, spent like a drunken sailor in order to defeat the American Uber.  By 2016, Didi was drawing four times as many customers in China as was Uber.  This suggests that a.) Didi didn’t worry much about banks breathing down its neck, and b.) that the Trump administration may have to negotiate limits on non-tariff Chinese government support for industries.  Then, China’s systematized, even industrialized, theft of Western intellectual property play a large role in the success of Chinese industry.

One issue here is that systems reinforce what has worked in the past, rather than seeing each successive situation as new.  (That’s called a heuristic device.)  Will China’s previous success with state-sponsored business development lead the country to double-down in the future?  If so, then the potential for conflict between the United States and China will grow.

It is a little bit like many people didn’t want to “come out of the closet” about China’s abuse of its international trade relationships.  Now, that “that man in the White House” has done so, will more and more people fall into line?  Or will there be a counter-vailing swing in the next election cycle to return to the policies of yore?

[1] See: https://en.wikipedia.org/wiki/Richard_Hakluyt

[2] Extremely well educated, Hakluyt doubtless took as his model Plutarch’s Lives.

[3] Michael Useem, Harbir Singh, Liang Neng, and Peter Cappelli, Fortune Makers: The Leaders Creating China’s Great Global Companies (2017).