Posted 02:27 PM, January 26, 2005
"It is difficult to get a man to understand something when his salary depends on his not understanding it." —Upton Sinclair
After years of having the massive transfer of U.S. and European intellectual property to China by multinational corporations glossed over with excuses about supposed free trade, candid discussion is finally beginning about the damage this is doing to Western economies.
Jeffrey E. Garten, dean of the Yale School of Management, writes about the impact in the January 31 issue of BusinessWeek. Multinationals such as Intel, IBM, Cisco, Microsoft, and G.E. are helping Chinese industry by sending it trade secrets, often developed with U.S. taxpayer money, he argues.
"I fear that the U.S. hasn't come to grips with the implications of corporations doing so much R&D in China. U.S. companies are understandably seeking the best talent and lowest cost of operations anywhere. But in the process they are sharing America's intellectual treasures with a foreign rival in unprecedented ways," Garten writes.
Garten gets more specific about how high-tech companies are bartering R&D that you and I paid for with tax dollars for their own sales: "Intel Corp. is illustrative. CEO Craig Barrett advocates more federally funded research, which would eventually benefit the country and the company. But Congress and the public have to wonder whether Intel should receive, in effect, subsidies if it then shares its know-how with Chinese partners. At the very least, a quid pro quo should be established. Intel's sharing of technology could enrich its shareholders, China's economy, and to some extent the U.S. But unlike in the past, its goals no longer center on creating industries and jobs in the U.S., which is what American taxpayers deservedly expect." (our emphasis)
I've argued in several blog entries about the damage multinationals are doing to America's future industrial base, and government policies that subsidize this behavior.
It's encouraging to finally see this dialog start at the levels government officials will see. Among sources raising the issue's visibility are: Ernest Preeg of the Manufacturers Alliance/MAPI; Kathleen Walsh of the Henry L. Stimson Center, who calls for Washington to "wake up to the economic and national security implications of China's growing R&D capabilities"; and the National Science Foundation, which is upset by the decline in research funding and scientific education in America.
China Rip-Offs Subsidize Economy
Everyone's heard of how IP created in the West is copied in China. Bill Clinton's autobiography was published in China, but that version was not only unauthorized and censored—it had whole sections that were made up.
Fake Microsoft software, complete with holograms, is cranked out from factories that run ostensibly without the Chinese government knowing about them.
Rip-offs are such a standardized business in China that Japanese companies have as standard products Video CDs, manufactured under Japanese brand names, which have low-quality copies of movies, sold without royalties.
But the extent to which IP theft fuels China's economy and is not merely overlooked, but an official part of government economic policy, is described in "Manufaketure" in the January 9 issue of The New York Times Magazine.
"Counterfeiting and pirating—that is, making knockoffs of what developed nations have created—are at the heart of the Chinese economic boom. As unethical or illegal as it might be, the Chinese government is not about to stop it," Ted C. Fishman writes.
Cumulative losses by European, U.S., and Japanese companies to illicit copies and distribution in China "approach $80 billion."
Moreover, "while losses to American and other advanced economies are high, China's appropriation and dissemination of the world's most valuable products and technologies, if they continue unabated, will ultimately mean more than dollars lost.
"China's pirating and counterfeiting could radically change the way entertainment, fashion, medicine, and services are created and sold," Fishman writes.
"The companies, big and small, that Americans work for could be weakened. Chinese practices might reduce the prices of ... drugs and computer software...
"... few American officials are willing to speak openly about sensitive issues relating to China ... (but one) told me: 'Nothing has a higher priority in our trade policy than the fight to protect American intellectual property. It is every bit as important an effort for us as the war against weapons of mass destruction.' "
But others simply don't get it and the apologists get ample media time. In a CNET streaming video, editor Dan Farber interviewed another CNET Editor, Esther Dyson (which is a uniquely solipsistic exercise in self-promotion), who railed against how unfair it is to complain about Western jobs being lost to competing Eastern companies. "It really bothers me that people who claim to care about jobs in the U.S. don't care about jobs in India and Russia." We need to see "a lot of readjustment" in pay scales for people who need health care, continued Dyson, who has promoted transfer of U.S. technology and jobs to Eastern Europe for 15 years.
It's astonishingly arrogant for Dyson to volunteer your jobs to be given to other counties to help improve their standard of living.
Free trade in jobs and services is in some ways similar to supposed free trade in goods. Trade is only free if the terms and conditions are equal on both sides, and is only fair if the party that is benefiting compensates society for the costs to society of its profit.
When an IT professional in the U.S. has to compete on the basis of wages with a programmer in Romania, while the U.S. programmer's payroll cost is burdened by taxes to pay for, as one example, a $300 billion war in Iraq, but the programmer in Romania is given tax-exempt status, that is no more free trade than a Brazilian automobile plant getting a subsidy, or Boeing getting R&D tax credits.
Free trade for large corporations exporting U.S. jobs and taxpayer-funded R&D is a hypocritical one-way ratchet. They want free trade, but don't want the same standards to be extended to their employees, and don't want to be held accountable for the substantial social costs of their actions.
