Enlisting the entire country in a great and peaceful power competition
Joe Biden won. On matters unrelated to personal events (getting married, the birth of my son, Alek) I haven’t felt a sense of calm and hope like this in years. But my elation will go away, and soon it will be time for us all to get work.
President-elect Biden repeatedly described the 2020 campaign as a fight between Park Avenue v. Scranton, Pa. Well, as it happens, I grew up about an hour from Scranton. “Scranton” isn’t just a political symbol. It’s a real place. And if during the next four years Scranton and places like it are integrated into a national value-creation chain, Joe Biden will put his administration among some of the most successful in American history.
Biden comes to office during a time of power competition with China, the most capable economic adversary the United States has confronted in nearly a century. At the height of the Cold War, the GDP of the Soviet Union was never more than about half that of the United States. In contrast, China will grow to the largest economy in the world within the next ten to twenty years.
And in this power competition, the United States continues to undermine itself by shortchanging public support for R&D, dropping enforcement of long-standing antitrust laws, allowing market manipulation that serves only financial firms and investors, and watching as our manufacturing base collapses. The product of this political economy has been unceasing movement of engineering talent into “superstar cities,” a decline of market competition that thwarts growth of new firms while removing incentives for incumbent firms to innovate, and a stagnation of America’s technology industry.
Google is not going to reassert American global leadership. Neither is Blackstone. But Joe Biden might.
Connecting Scranton to the Bay Area
There are already indications that, if the Republicans retain the Senate majority, Sen. Mitch McConnell would be interested in reaching a deal to fund major investments in rural broadband service.
Massive public investments in broadband service in rural and tribal areas could end the requirement that knowledge-based industries consolidate in cities. With investments in rural broadband, coupled with Zoom and our newfound ability to work remotely, rural areas may have just found new life.
The dots have long been arrayed on the map. Rural broadband access could connect the dots and, perhaps, upend years of economic agglomeration in the superstar cities.
Then we can start rethinking and redesigning regional economies.
Venture capital has consolidated in San Francisco, New York, and Boston, and I see no evidence that well-intentioned efforts to fund early-stage companies outside of coastal markets are succeeding in stemming economic agglomeration. They are not succeeding because they have they are addressing the challenge early enough in the value creation process.
Indeed, at the earliest stage of technology development — meaning basic and applied research — value creation is already happening outside the superstar cities. Only a few of the federally funded research and development centers (FFRDCs) reside in superstar cities; the rest are in places like Ames, Iowa, and Aiken, South Carolina.
The Biden Administration should make sure that federally funded research is commercialized in place. They should expand tech transfer support and programs that engineer collaborations between federal laboratories and local communities, like Sandia National Laboratory’s Entrepreneurial Separation to Technology Transfer program.
When that happens, we can call in the venture capitalists. And we can bring together more American talent — not talent sitting in the Bay Area and Boston, but everywhere — to build a technology economy that can keep pace with China.
Creating real value
Inflating asset bubbles does not serve to win a great power competition. Neither does killing off research projects to make room for stock buybacks.
Real value creation does. Long-term value creation, that is.
So one thing Biden should do is appoint a Securities and Exchange Commission chairperson committed to revising a rule that effectively permits stock buybacks, something that should be recognized for what it is: market manipulation. Rolling back Rule 10b-18, a policy that has been in place since the Reagan Administration, has served only to push profits to Wall Street that could instead be reinvested in workers and corporate R&D.
Limiting stock buybacks might begin to reduce overwhelming incentives for managers to maximize quarterly profits ahead of long-term competitiveness. It might even push more companies into Eric Ries’ Long-Term Stock Exchange, a stock market that is structured to broker financings between patient investors and companies that aren’t interested in quarterly capitalism either.
Former Biden National Security Advisor Jake Sullivan and the Roosevelt Institute’s Jennifer Harris, in a piece for Foreign Policy last February, called for foreign policy experts to drop pretenses that domestic economic concerns are divorced from national security imperatives, and more forcefully argue against “the prevailing neoliberal economic philosophy of the past 40 years”:
“(A)dvocating industrial policy (broadly speaking, government actions aimed at reshaping the economy) was once considered embarrassing — now it should be considered something close to obvious.”
If the United States is going to win a power competition with China, that will mean leading technological frontiers in artificial intelligence, new materials, biotechnology, quantum computing, and a host of other domains. We cannot spare pushing one dollar away from R&D and into the hands of Wall Street value takers.
Learn from China
There’s always, of course, another idea to make sure America doesn’t lose a power competition with China: Don’t have a power competition with China at all.
Instead of viewing China’s advancement as a threat, maybe we should learn a thing or two about their rise. They asserted technology leadership through their “Made in China 2025” plan; maybe the United States should issue it’s own ten-year plan, and actually follow through with investments needed to recapture our leadership position.
Instead of griping about Chinese subsidies of state-owned industries, maybe the United States could simply observe that we too subsidize private companies through the Small Business Innovation Research program and other public grant programs, and amend our innovation model to end our national reliance on private financiers.
Maybe instead of leaving international standard-setting organizations and blocking teenagers from recording their own music videos on TikTok, the United States can recognize and admire the technology economy China has built, and get to work recapturing the leadership we have lost.
— TD
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Supplementary reads:
“America Needs a New Economic Philosophy. Foreign Policy Experts Can Help” by Jennifer Harris and Jake Sullivan (Foreign Policy).
“A National Security Reckoning” by Hillary Clinton (Foreign Affairs).
“Forging an Alliance Innovation Base” by Daniel Kliman, Ben FitzGerald, Kristine Lee and Joshua Fitt (Center for a New American Security).
“Electrifying: How China built an EV industry in a decade” (MacroPolo).
“China Dominates Medical Supplies, in This Outbreak and the Next” by Keith Bradsher (New York Times).
“Financial Crises and Asset Bubbles” by Scott Galloway (The Prof G Show).
“Caught in an ‘Ideological Spiral,’ U.S. and China Drift Toward Cold War” by Steven Lee Myers and Paul Mozar (New York Times)
“Pentagon announces $600M in 5G experiments” by Andrew Eversden (C4ISRNET).
