(What’s Left of) Our Economy: Will the Tech Competitiveness Bill Shaft American Tech Workers?

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China, competitiveness, Congress, Immigration, labor shortages, Lisa Irving, NumbersUSA, semiconductors, STEM, STEM workers, tariffs, tech workers, technology, Trade, visas, {What's Left of) Our Economy

In case you didn’t already think that the U.S. government has become a dysfunctional mess, the immigration realist group NumbersUSA has just highlighted a recent, thoroughly depressing example. It’s the decision of the Democratic-controlled House of Representatives to turn its version of a bill to boost American technological competitiveness (especially versus China) into a device to advance its Open Borders-friendly immigration agenda ever further – and at the expense in particular of native-born tech workers and tech worker hopefuls.

Not that the story of this competitiveness effort wasn’t a prime example of dysfunction already. As I’ve previously pointed out, both the House bill and its Senate counterpart were originally introduced in mid-2020, and these efforts still haven’t become law – even though concerns about China catching up to the United States technologically, and threatening both American national security and prosperity even more sharply, remain as strong and widespread as ever.

And not that the Democrats are solely responsible: As I’ve also noted, Senate Republicans have strongly supported provisions in their version of the legislation that would both greatly weaken a president’s authority to impose tariffs (including on China to offset the economic damage to U.S. industry from its predatory trade and broader economic practices), and reduce various existing tradei barriers to many imports (including from China).

But the immigration provisions of the House version could be just as damaging, and deserve at least as much attention. As explained by NumbersUSA analyst Lisa Irving, this legislation “allows for an unlimited number of green cards for citizens of foreign countries seeking permanent U.S. residency who hold a U.S. doctorate degree, or its equivalent from a foreign institution, in STEM [Science, Technology, Engineering,and Math fields].”

Adds Irving, “This provision would result in further limiting the job prospects and resources for highly qualified Americans in tech fields.” 

To add insult to injury, as Irving reminds, the measure is based on phony and thoroughly debunked claims, mainly propagated by the U.S. technology industry, that it’s facing a crippling labor and talent shortage. In fact, the tech sector’s prime objective is curbing wage and other compensation gains by opening the flood gates ever wider to foreign-born technologists willing to accept much lower pay.   

The best outcome for the cause of American competitiveness — and for its potential to benefit the existing American population economically — would be for the Congressional conference committee assigned with devising a final compromise version that President Biden can sign into law to strip the Senate version of its trade sections, and the House version of these immigration sections

But don’t expect any progress any time soon. Reuters reports that the committee will hold its first meeting next week – and will contain more than 100 House and Senate lawmakers. In other words, more than 100 cooks for this broth.

As a result, even though China continues massively subsidizing its own tech sector, and even though other countries have already responded with their own incentives aimed at attracting and maintaining their capabilities in semiconductors and other industries, “Congressional aides said it could still take months before a final agreement is reached.” In the ultimate sad commentary on American political dysfunction, given the glaring flaws of both bills, that could be a good thing. 

(What’s Left of) Our Economy: A U.S. Productivity Report with Something for Everyone

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CCP Virus, coronavirus, COVID 19, labor productivity, productivity, stay at home economy, technology, total factor productivity, Wuhan virus, {What's Left of) Our Economy

As known by RealityChek readers, I’m always hesitant to make too much of official U.S. productivity statistics because many economists believe that these various measures of efficiency are unusually hard to measure. (Google “productivity,” “data,” “measurement,” and “problems” and you’ll see what I mean.)

Moreover, I’ve been especially hesitant during the CCP Virus era, because the pandemic and related lockdowns and behavioral changes have been so unprecedented, and it’s still far from clear how lasting the effects will be.

Having said that, these data surely aren’t completely meaningless either, and a major finding of theirs has been so dramatic that it’s tough to dismiss: Both the relatively narrow measure of labor productivity, or the broader measure of total factor productivity show a big slowdown in productivity growth in recent decades.

For total factor productivity, here are the figures that compare the performance of non-farm businesses in percentage terms during the last three economic recoveries (i.e., using the best apples-to-apples data) before the CCP Virus-era bounceback that began in the third quarter of 2020:

1990s expansion (1991-2000): +10.34 percent

bubble decade expansion (02-07): +6.91 percent

post-Great Recession expansion (10-19): +4.88 percent

The main evidence for the slowdown is the fact that even though the latest expansion was the same length as that of the 1990s, its cumulative total factor productivity growth was less than half as strong.

In this context, it’s noteworthy today’s Labor Department release on total factor productivity (which, unlike labor productivity, tries to show business’ success in using a wide range of inputs – not just workers – to improve efficiency) has something for both optimists and pessimists.

Glass-half-full types will observe that, in 2021, total factor productivity grew by 3.17 percent – a record in a statistical series going back to 1987. The previous fastest annual pace was 1992’s 2.88 percent.

The glass-half-empty types, though, can argue that even this big advance won’t be enough to end the long-running slowdown. In the first place, the excellent 2020-21 impovement followed a 1.97 percent 2019-20 decrease that was the worst performance of all time. And in that vein, because solid total factor productivity increases are typical of early stages of an economic recovery, the 2021 year-on-year jump may only be a post-CCP Virus reversion to a dreary long-term mean.

The optimists can counter by claiming that pandemic-driven trends like severe labor shortages, consequently rising wages, and the advent of a work-at-home era in both the public and private sectors will push employers to invest more in labor-saving and communications technology in particular. The result will be a turning point in the recent crummy U.S. productivity story.

The only certainty I can see is that the virus is becoming endemic and that its economic growth-depressing effects will fade steadily (at least until the next pandemic). Other than that, I’ll simply say that the force of inertia alone indicates to me that the burden of proof for a durable productivity upswing – and for a needed U.S. transition from prosperity based on government stimulus to well-being with sturdier foundations – still lies with the optimists.

Our So-Called Foreign Policy: America’s Latest China Spy Conviction Might Not Even Be Tokenism

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aircraft, Aviation Industry Corporation of China, AVIC, avionics, China, Clyde V. Prestowitz, FBI, Gary Locke, GE, General Electric, Justice Department, manufacturing, Obama administration, Our So-Called Foreign Policy, spying, tech transfer, technology

Sorry, but I only gave a cheer or a cheer-and-a-half upon learning on Friday that a Chinese national was convicted in a federal court of trying to steal “trade secrets” relating to a key aviation technology from General Electric (GE).

Don’t get me wrong – it’s great that this spy was caught. But anyone knowing anything about the relationship between way too many other U.S.-owned advanced manufacturing and information technology companies and China would surely be asking why Beijing even bothered to send him into the field. Because the amount of sophisticated technology – and even clearly defense-related knowhow – that such companies have transferred to China voluntarily has clearly been more than enough to help the People’s Republic narrow the military gap with the United States substantially. (See, e.g., this piece I wrote for Bloomberg.com from 2013.) 

And even though the Justice Department says GE was working with the FBI to catch Yanjun Xu, it’s been a prime culprit. Notably, as recounted by long-time U.S. trade official and Asia watcher Clyde Prestowitz in his outstanding recent study of Sino-American relations The World Turned Upside Down, in November, 2009, the company announced the merger of its avionics division with China’s Aviationcons Industry Corporation (AVIC) and headquartering the new entity in Shanghai.

As Prestowitz explained, the deal was bad enough from a U.S. economic standpoint because standard commercial considerations had nothing to do with the resulting offshoring of high value manufacturing and employment. Instead, GE recognized that it wouldn’t be selling much in the way of avionics to China unless it made lots of them in China. In other words, it was victimized by extortion.

But the national security implications were even worse. For avionics are the electronics systems used in aircraft and missiles, and AVIC isn’t just another aerospace company, but an organization owned and controlled lock, stock, and barrel by the Chinese state, and one that has a “monopoly on military aircraft manufacturing and maintenance.” So it had to be clear from the get-go that any breakthroughs in avionics generated by GE would ultimately be available to AVIC and deployed in weapons that could well be used against American soldiers, sailors, and pilots in a future conflict between the two countries. Yet good luck trying to find any federal government opposition to the transaction. You won’t.

Indeed, when the new arrangement was formalized in 2011, the signing ceremony was attended by Gary Locke, former President Obama’s Commerce Secretary – who apparently didn’t even blink an eye when GE proudly declared that the new venture “will develop and market integrated, open architecture avionics systems to the global commercial aerospace industry for new aircraft platforms. This system will be the central information system and backbone of the airplane’s networks and electronics and will host the airplane’s avionics, maintenance and utility functions.”

And apparently Locke – and Obama – were just fine with GE’s avowed aim of developing with AVIC “a world-class engineering organization” with “the JV itself…creating new IP [intellectual property] and new technology.”

I guess they thought that the technology for developing civilian avionics and military avionics are fundamentally different, and that AVIC’s interests are purely commercial.

The technology that Yanjun Xu was seeking isn’t avionics-related. It has to do with engine parts made from composite materials – which the Justice Department says “no other company in the world has been able to duplicate.” And GE’s cooperation obviously means that the company wants to maintain ths monopoly over all actual and potential competitors, including from China.

But since it succumbed to blackmail over avionics, it’s far from a sure bet that it will keep drawing a line in the sand on composites – or anything else. Indeed, as the company boasts, its cooperation with AVIC on “technical training, manufacturing, spare parts distribution, and…maintenance and overhaul” for engines is already substantial. As a result, it’s equally unlikely that American regulators will be able to keep this knowhow in American hands.

The American journalist Michael Kinsley once famously wrote that “the scandal isn’t what’s illegal, the scandal is what’s legal.” You don’t need to look much further than GE’s deep, longstanding, and officially sanctioned ties with China’s state-run aerospace industry to see how right he was.

(What’s Left of) Our Economy: Why That China Competitiveness Bill Urgently Needs Trade Fixes

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China, competitiveness, consumers, health security, inflation, Robert E. Lighthizer, Section 301, Senate, supply chains, tariffs, technology, Trade, Trade Act of 1974, U.S. Innovation and Competition Act, World Trade Organization, WTO, {What's Left of) Our Economy

Nearly two months ago, I complained here on RealityChek that Congress was working way too slowly on legislation aimed at helping restore the U.S. competitiveness needed to reopen a wide lead over China in the dust in the race for future global technological competitiveness. Now I see that more time to pass the bill is needed after all – because the version approved by the Senate June 8 contains some fatal trade policy flaws that urgently need fixing.

Trade policy, as I’ve explained previously is a vital dimension of beating back the China challenge. But as reported yesterday in a New York Times article by former Trump chief trade official Robert E. Lighthizer, key amendments to the U.S. Innovation and Competition Act

“would harm U.S. interests in three important ways: It would cut tariffs on medical supplies needed in a pandemic; reauthorize the so-called Miscellaneous Tariff Bill to cut tariffs on Chinese and other imports; and amend our enforcement laws in a way that will make it more difficult to battle predatory trade practices by our foreign competitors.”

And if you read the (2,300-page) bill, you see that he’s right. For example, a section titled “Facilitating Trade in Essential Supplies” (beginning on p. 1588) refers to America’s need “to maintain readiness and to surge production of essential supplies in response to an emergency” in national security and public health and safety, or in the security and functioning of “critical infrastructure.”

But consistent with an approach taken to this challenge by President Biden, the act makes clear that achieving these goals includes developing “a whole-of-government strategy to ensure that the United States has reliable access to essential supplies from its trading partners….” In other words, it will be equally fine if the nation remains dependent on imports of such goods. These two objectives clash with each other directly and violently.

If Washington could count on lots of reliable trade partners out there to step in in a pinch and fill supply gaps, this strategy of defining “Made in America” as “Made Overseas, Too” would be defensible (if not, in my view, optimal). But although the legislation directs federal officials to “identify unreliable trading partners,” its authors seem oblivious to just how many foreign governments qualified for this label with their bans and other curbs on vital medical goods during the height of the pandemic. It was 80 according to no less than the World Trade Organization (WTO).

According to Lighthizer, the bill would also undercut American industry’s broader ability to compete with China by renewing a Miscellaneous Tariff Bill that would reduce duties on more than 900 goods produced and exported by the People’s Republic. The list – which also includes hundreds of other goods, begins on p. 1526 and goes on (in tiny type) for thirty pages.

And the text also supports Lighthizer’s claims that the bill would “gut a provision that President Trump used to impose tariffs on Chinese goods in 2018,” and “also effectively surrender sovereignty over our own trade policy to the World Trade Organization by permanently weakening Section 301 unless the United States first wins a multiyear litigation before that body.”

Possibly, the most disturbing feature of the bill’s treatment of these so-called “301 tariffs” (named after the section of the 1974 Trade Act that initially authorized suc measures is the measure that bars the imposition of these duties without an analysis of their impact “on United States entities, particularly small entities, and consumers in the United States” (p. 1607), and additionally of whether they would “unreasonably increase consumer prices for day-to-day items consumed by low- or middle-income families in the United States” (p. 1609).

Although numerous RealityChek posts have documented (see, e.g., here) that none of the 301 tariffs had lasting effects on U.S. retail or wholesale price levels (largely because importers absorbed the higher costs), there’s no guarantee that significant time frames would be examined. In addition, there’s never any shortage of businesses or business organizations in particular ready to predict disastrous price hikes from any tariff increases regardless of the historical record. So the most powerful tool possessed by Washington to enforce trade agreements and combat foreign protectionism could well be neutered unless changes are made.

Finally, Lighthizer’s contention about permanently weakening America’s Section 301 authority appears borne out by pp. 1610-1611, which states that the process for excluding certain goods from that measure’s tariffs “shall not apply” in cases under consideration by the “dispute resolution process under the World Trade Organization [WTO].” In other words, if such U.S. tariffs are challenged at the WTO, they can’t legally be imposed until the WTO decides they’re kosher.

There shouldn’t be any doubt in anyone’s mind that time is not on America’s side as it tries to raise its competitiveness game, both against the Chinese and in general. But it’s also true that haste makes waste — and even worse. And these trade policy flaws in this China competitiveness bill aren’t eliminated, Americans will see a crucial economic and national security opportunity squandered.     

(What’s Left of) Our Economy: Can the U.S. Really Eliminate All Its Lousy Jobs?

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automation, CCP Virus, coronavirus, COVID 19, Daniel Alpert, elder care, Ezra Klein, hospitality, hotels, Jobs, low-wage jobs, productivity, restaurants, seniors, technology, The New York Times, wages, workers, Wuhan virus, {What's Left of) Our Economy

Over the last month, two noted and anything-but-radical economics commentators have voiced an idea that’s really radical. How radical? It could produce much more fundamental change in the U.S. economy than any actual or even potential effects of the CCP Virus if its policy implications (which they may not be fully aware of) are acted on.

The idea is that the pre-virus economy (they didn’t specify for how long, but there’s no reason to believe the development began recently) was highly dependent on creating huge numbers of crappy, dead end, low-wage jobs, and that a combination of labor cost-boosting factors – like worker shortages created largely by sudden economic reopening, higher minimum wage requirements, and mandates for businesses to adopt more family-friendly practices – is bringing that era to an end.

The implications: Enormous numbers of the companies and even critical masses of entire industries relying on such jobs may go under, and that nothing should be done to restore the previous status quo because in economic terms (which are also reflecting the public’s non-economic preferences) those exploitative business models are simply becoming thoroughly uncompetitive.

In other words, especially in sectors like restaurants, retail, hospitality, and elder care, where the quality of personal service is valued by customers (not that they always get the quality they want), many and even most employers simply may find significantly higher labor costs unaffordable. And many may not be able to persuade enough customers to pay the higher prices they’d need to charge to stay afloat. So they wouldn’t – and good riddance.

The analyst who first led me to these thoughts was Daniel Alpert, a Cornell University Law School fellow, economist, and Wall Street investor. In a June 1 New York Times op-ed article, he argued that:

“The chronic problem we face as we put Covid-19 in the rearview mirror is that the U.S. economy before the pandemic was incredibly dependent on an abundance of low-wage, low-hours jobs. It was a combo that yielded low prices for comfortably middle-class and wealthier customers and low labor costs for bosses, but spectacularly low incomes for tens of millions of others.”

Less than two weeks later, The Times published another article, by columnist Ezra Klein, that similarly contended:

“The American economy runs on poverty, or at least the constant threat of it. Americans like their goods cheap and their services plentiful and the two of them, together, require a sprawling labor force willing to work tough jobs at crummy wages….We discuss the poor as a pity or a blight, but we rarely admit that America’s high rate of poverty is a policy choice, and there are reasons we choose it over and over again.”

Klein also wrote about some of the likely tradeoffs of mandates that created higher labor costs: “[S]ome small businesses would shutter if they had to pay their workers more. There are services many of us enjoy now that would become rarer or costlier if workers had more bargaining power.” But this prediction seems greatly to low ball the downsides and the collateral damage.

For example, according to this normally reliable source, the number of restaurants in the United States numbered about 660,000 in 2018. That’s more than 18 percent of all the 3,618,550 businesses with more than five employees that the Census Bureau says existed in the United States as of 2019 (the last pre-pandemic year). Since some dining establishments are very small and employ between one and five staff, the percentage of all U.S. businesses that are restaurants is probably somewhat lower. And surely not all of these would close their doors if labor costs rose meaningfully. But it should be obvious that lots of nationwide economic disruption would surely result.

As I’ve repeatedly written, (e.g., here) there’s an alternative to employers offsetting these higher labor costs. Rather than raise their prices significantly (a tactic that may not accomplish all or most of is goal), they could increase productivity. After all, many of these labor-intensive industries are labor-intensive because they’ve been such laggards on the productivity front. For example, between 1987 (the first year such data are available) and 2019 (the last pre-pandemic year), overall labor productivity in U.S. businesses outside the financial sector grew by 71.74 percent, in non-casino hotels and motels by just 51.33 percent, and in restaurants and other eating places, a mere 18.34 percent. And as known by RealityChek regulars, this period hasn’t exactly been a bang-up time for U.S. productivity growth.

There’s no doubt that more automation in particular would wind up displacing jobs – which certainly wouldn’t leave many workers better off on net. It’s entirely possible, though, that even greater net national employment opportunities could be created by these more efficient companies’ greater ability to service more customers affordably, thereby spurring the need to hire to staff expanded operations in other capacities. And in theory, anyway, more automation and use of new technologies could create entire new industries – and impressive employment opportunities. That’s certainly been the case with the internet. But there’s a big rub: Not all the displaced workers might possess the skills or other qualifications to handle any of these new positions.

Moreover, as suggested by my reference to the quality of service, for non-economic reasons, boosting productivity may not be enough to save many of these businesses. For many customers might be turned off by the prospect of dealing with machines rather than courteous and personable human beings, and decide not to patronize these businesses even if automation etc restored affordability.

And in fields such a elder care, it’s doubtful that machines could safely replace humans in quality terms for many years – and that seniors and their family members would find them acceptable on any grounds for many more years. Given America’s aging population, that of course portends a problem transcending economics. One way out: Much greater government subsidies for elder care businesses, or even outright nationalization of this sector. But don’t expect such proposals to uncontroversial.

Another possible way out of this dilemma for business owners generally in low-pay sectors where wages are surging is to accept much lower profits. But any industries that experience such a shift seem doomed to stagnation and even gradual extinction. For how many would want to invest their capital and effort in sectors where the best or even likeliest possible return is scraping by?

The cumulative effect of all these developments on society, as opposed to the economy, wouldn’t be trivial, either. For example, before the CCP Virus’ arrival, dining out and taking out in particular had surged in popularity in the United States for decades. One indication: “In 1955, 25 cents of every $1 spent on food went to restaurants. Today, it’s more than half.” One reason of course is the rise of the two-income household, and the resulting decrease in hours available for food preparation.

In addition, though, as more Americans patronized dine-in restaurants in particular, more surely came to value their particular pleasures. Could they find an adequate substitute if they needed to? And how would such a shift change the rest of their home and work lives? As for society itself, what would the impact be of the disappearance or great scaling back of one major form of communal activity?

The situation is potentially even more dire for the nation’s bars. Between 1987 and 2019, their labor productivity actually plunged by 14.50 percent. Will elevated labor costs spell the end, at least in America, of an institution that’s been around and central to human life for…how many centuries? Millennia? Or will customers get used to robot bar-tenders?

The answers to all the questions posed here are definitely above my pay grade. But something I do know: Despite the pressing need to improve the earnings and lives of low-wage workers, some significant and possibly unprecedented tradeoffs will emerge. And it will be far from easy to make sure that a genuinely New Normal is better on net for these workers and the country at large than the Old.

Im-Politic: The U.S. Still Isn’t Even Running in the Global Semiconductor Supremacy Race

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appropriations, authorization, Chuck Schumer, Congress, Defense Department, House of Representatives, Im-Politic, innovation, Intel, microchips, semiconductors, Senate, subsidies, Taiwan Semiconductor Manufacturing Company, technology, TSMC

In a week, the United States will mark an anniversary that no American should want to celebrate: It was last June 10 and 11 that companion bills were introduced in both the House and Senate to increase greatly the U.S. government’s support for domestic semiconductor manufacturing. Since I’m a strong backer of such efforts, why am I so downbeat? Because despite the importance of strengthening the American footprint in this sector for both national security and future prosperity, and despite seemingly strong bipartisan support for this effort (at least in principle) nearly a year later, not a single penny has been been spent.

It would actually be reasonable to argue that the federal government took way too long to take even that preliminary step. After all, as I documented in this article last October, America’s global leadership in producing (as opposed to designing) the microchips increasingly crucial to so many defense-related and civilian products and services – and indeed, entire industries – had been waning for decades, and was finally lost in 2017. That’s the year when U.S.-owned Intel became unable to keep up with Taiwan’s Taiwan Semiconductor Manufacturing Company in turning out semiconductors featuring the world’s smallest circuit sizes – the main indicator of a chip’s capabilities.

So it’s not terribly impressive that American political leaders took two years to begin responding in a serious way. (And P.S. – the executive branch, under President Trump, clearly wasn’t johnny-on-the-spot, either, in using the bully pulpit to sound the alarm and generate support for action.)

Still, the bipartisan nature of the legislative effort – at a time of heated partisanship on virtually every other national issue – seemed cause for encouragement. Even better: Just a month later, the House and Senate passed their respective semiconductor bills.

Since then, however, progress has been sluggish. The Representatives and Senators didn’t manage to get their acts together before that session of Congress ended in order to draft and pass the consensus bill needed to go to the President’s desk for signing. Therefore, the measures died, and work needed to begin all over again this past January, when the new Congress convened.

Semiconductor work was proceeding along another track in late 2020, and resulted in key provisions of the expired bill being incorporated into legislation authorizing the Defense Department’s levels and kinds of spending for this fiscal year. That bill became law this New Year’s Day (over a Trump veto for unrelated reasons), but according to Congress’ procedures, authorizing bills can’t trigger any spending. That requires an appropriations bill – which also must be passed in identical form by both chambers before enactment.

Six months later, there’s still no money flowing. The story is excrutiatingly difficult to follow, but it appears that Senate Majority Leader Chuck Schumer of New York tried to speed up the process in May with an emergency funding measure. Passage seemed likely at month’s end, before the Senate’s scheduled Memorial Day recess, but was stymied at the last minute by a sadly typical array of political shenanigans from both the minority Republicans (whose support was needed because of the Senate’s filibuster provision requiring super-majorities to pass most legislation) and Democrats. (See here and here for good accounts.)

Passage of a similar measure by the House looks to be easier, because of the Democrats’ slightly bigger majority. But there the process is less advanced, since the House Democrats’ own technological competitiveness proposals were only introduced in committee May 25.

It’s not like the U.S. private sector has been standing still. Intel, most significantly, seems determined to reemphasize manufacturing again, and has committed to put lots of money where it’s mouth is. But without a major helping hand from Washington, this campaign is sure to be swamped by the massive amounts of foreign government subsidies for promoting advanced semiconductor manufacturing that have been announced lately. (Here’s a useful summary.)

I’m generally a fan of the cautious approach to policymaking fostered by the U.S. Constitution’s separation of powers and checks and balances principles. And I wouldn’t be so fast, like so many Democrats, to junk the Senate’s filibuster rule (which is not found in the Constitution). Yet time is not America’s friend when it comes to regaining lost ground in a fast-moving industry like semiconductors, and if Washington continues its business-as-usual approach on this issue, history will likely conclude that the American political system failed a big test.

Full disclosure:  I own a not-trivial number of shares of TSMC common stock.

(What’s Left of) Our Economy: Is More Immigration Really the Key to America’s Tech Future?

Tags

Cato Institute, China, education, entrepreneurs, Germany, H-1B visa, immigrants, Immigration, India, innovation, Israel, Japan, skills, South Korea, start-ups, Taiwan, technology, Washington Post, Worldometers.info, {What's Left of) Our Economy

One of the most compelling – and most often made – arguments in favor of higher U.S. legal immigration levels has to do with innovation. Supposedly, without encouraging ever more foreign workers to move to America, the nation will never be able to maintain its global technology leadership, and ultimately an acceptable, much less improved, degree of prosperity. (See, e.g., here and here.)

Part of the rationale for a welcoming posture, as indicated above, has to do with policies toward highly skilled and educated immigrants in particular (like those admitted under the H-1B program), and the special visa quotas allotted to them. But as the Washington Post editorial board recently made clear, there’s a more general view that immigration is especially good at providing America with “a steady supply of working-age strivers” and that “This nation’s prosperity, pluck, ambition and effervescent character are the products of more than 100 million immigrants who have sought better lives in the United States since its founding.” In other words, immigrants are far more likely than the native-born population to possess the risk-taking and general entrepreneurial traits that lead to so much technological progress.

I’ve already debunked one aspect of these claims here, but because they keep popping up, I keep thinking more about them, and have come across more data that not only casts further doubt on the technology-related need for more immigrants, but that indicate that the immigration cheerleaders are putting the cart before the horse.

For instance, it’s widely agreed that the U.S. tech sector is considerably healthier than Germany’s. In this vein, a widely followed global innovation index issued each year by a United Nations agency ranks the former third in the world and the latter ninth. Ninth isn’t so bad, but it’s at the least curious in this regard that for decades at least, Germany has admitted many more immigrants as a share of total population than has the United States.

Indeed, in 1990 (a good starting point, since current Germany came into being with the reunification that year of the former Federal Republic that comprised the nation’s western part and the former Communist run east), Germany’s immigrant inflow of 1.256 million represented 1.59 percent of the new country’s 79.054 million inhabitants. The 1.536 million green cards awarded by the United States that year accounted for only 0.60 percent of its 252.120 million people. (My official sources for German and U.S. annual immigration totals are here and here, respectively. For population, I used the reliable Worldometers.info website.)

But maybe Germany has made up some ground on the United States during this nearly three-decade period? Not according to this study last year from the Cato Institute – one of America’s foremost supporters of much more lenient U.S. immigration policies. If you look at Figure 2, you see that in 2018, Germany was lagging the United States just about as badly in the number of patents it received in the United States (still the world’s most important market for technology) as it was in 1990.

There doesn’t seem to be much evidence that its relatively large immigration inflows have given Germany much of an edge in entrepreneurship, either. As of 2019, according to this source, Germany’s business start-up rate was less than half that of the United States.

This chart, moreover, makes clear that it’s not just the U.S.-Germany comparison that mucks up the ostensible relationship between tech prowess and entrepreneurship on the one hand, and immigration levels on the other. After all, in 2019, India’s start-up rate was also much higher than Germany’s – even though India is much better known for sending folks abroad than for attracting them. Foreigners aren’t exactly flocking to live in China, either, yet its start-up rate matches Germany’s.

That Cato Institute study provides more complicating international comparisons. That Figure 2 shows that as of 2018, Israel has forged into the lead as the country receiving the largest number of U.S. patents. And its performance started taking off in the mid-1990s. Yet in 1995, when Germany and Israel were roughly on a par in their ability to receive American patents, the 76,361 immigrants Israel admitted in 1995 equalled 1.36 percent of its population of 5.619 million – not far from relatively un-innovative Germany’s figures. By the time it became the international leader, Israel’s immigration rate had fallen to 0.32 percent of its 8.972 million population – much lower than that of Germany, which had become a clear als-ran on the U.S. patent scene – and roughly the same as the recent U.S. rate which has been decried as so woefully inadequate.

And look at the other top performers in Figure 2 other than the United States and Israel. Taiwan hasn’t been anything close to an immigration magnet, either, and ditto for South Korea. As for Japan, it’s long been known as one of the most xenophobic countries in the world (as noted in that Washington Post editorial).

What do the non-U.S. “patent tigers” identified by Cato have in common? As author Jonathan M. Barnett puts it:

“Short on consumers, resources, and labor (and saddled with geographic separation from key consumer markets), the patent tigers (especially Israel and Taiwan) were compelled to specialize in innovation-intensive segments of the global supply chain in which ingenuity, rather than labor or natural resources, conferred a competitive advantage.”

As a result, as widely agreed, they’ve worked hard to create top-notch educational systems for their own populations. German education is highly regarded, too, but it’s often observed that its history and culture in particular have discouraged self-starters.

The lessons for the United States seem pretty clear here.  On the one hand, it’s got lots of the overall population, raw materials and domestic markets that the patent tigers lack.  On the other, unlike Germany, it still enjoys an entrepreneur- and innovation-friendly culture.  If Americans did a much better job of educating their own people, especially in the math, science, and technology fields, they should be able to keep its global technology edge even while controlling immigration more tightly. 

If, however, the nation continues to coddle underperforming school systems, especially at the primary and secondary levels, the argument for relying on immigration to fill the tech gap will look all the stronger.  And in a supreme irony, the ready availability of highly skilled and educated immigrants will keep reducing national incentives to get the national education act together.      

(What’s Left of) Our Economy: “Joe Science” – Finally?

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Barack Obama, Biden, Bill Clinton, Congressional Research Service, defense, dual-use technologies, George W. Bush, infrastructure, National Science Foundation, research and development, science, scientists, technology, {What's Left of) Our Economy

President Biden is a champion of science – everyone knows this, right? He promises to follow it on major issues like the CCP Virus. He’s pledged to boost Washington’s funding of research and development. He’s blasted his predecessor for neglecting this responsibility. (See here for examples of the last two statements.)  And the scientific community the world over is brimming with confidence that greater respect from the White Houe and more resources are on the way.  (See, e.g., here and here.)

Judging from his remarks unveiling his big new infrastructure plans, it looks like Mr. Biden will indeed bolster the federal government’s support for science and technology. And that’s great news, because such efforts will be crucial to meeting any number of big public policy challenges and seizing equally important opportunities. Dealing with enviromental threats, beating back the China challenge, and boosting the nation’s productivity – its best hope for raising living standards on a sustainable basis – are just a few that come to mind.

And if you’re one of those who believe the Feds can’t do anything right, you need to learn some history. Washington has a formidable record both on the basic research and applied research sides. (Here’s an impressive list from America’s National Laboratories system, and it doesn’t even include major advances fostered by other agencies in medicine, agriculture, aerospace, and information technology – some of which are summarized here.)

Mr. Biden also is unmistakably right about America having fallen behind on these fronts. But what he hasn’t told you, and what his scientific backers seem to have forgotten, is that in the last roughly quarter century, federal science and technology spending in toto never stagnated as much as during the administration he served as Vice President.

The data below are calculated from the annual research and development budget requests made by U.S. Presidents going back to the Clinton years. (For the data from 1998 through 2015, see the National Science Foundation reports archived here.  For the later data years, see the annual Congressional Research Service reports here, here, here, here, here, and here.)

Since Congress has the authority to raise or lower these requests, these figures don’t measure actual federal research and development spending by year. But they do shed light on how much various Presidents sought to spend, and by extension how greatly they valued nurturing such activity, how much they believed they could convince Congress actually to appropriate – and, by implication, how hard they were willing to push to achieve these goals.

In this vein, during his second term, Bill Clinton’s overall annual federal research and development budget requests rose by a total of 15.54 percent.

During the eight years of George W. Bush’s presidency, such Executive Branch requests increased by 43.91 percent.

For the eight years of Barack Obama’s administration? These requests climbed by 6.56 percent.

And under supposed science denier Donald Trump? They were up 20.82 percent.

Some important qualifications need to be made here. The big Bush increases were driven by major new asks for defense-related R&D (think “September 11,” “Global War on Terror,” and “Iraq”). Indeed, during his administration, such spending grew from 52.47 percent of total federal research and development spending to 58.97 percent. And when you draw this distinction, the Obama (-Biden) record looks better if you value civilian research over military. Here’s how recent Presidential requests compare on that score.

Clinton civilian requests: +25.67 percent

Bush civilian requests: +24.24 percent

Obama civilian requests: +34.26 percent

Trump civilian requests: +19.07 percent

But the Obama-(Biden) record doesn’t look that much better, especially than the Trump record. After all, that 34.26 percent increase took place over eight years, not four. And the Obama-Bush comparison, and other Obama comparisons, need to take into account the ever-blurring line between defense and non-defense-related research and development, because so many new technologies can be used in both fields and spur progress in both. That is, advances in defense knowhow can and do produce spin-off effects in the civilian world, and vice versa.

It still remains to be seen how the Biden infrastructure plan translates into specific research and development budget requests. But for now at least, Americans can be grateful that the Joe Biden of 2021 seems to be much more of a science and tech enthusiast than the administration he worked for a decade ago. 

By the way, special thanks to Rafal Konapka, who first brought the recent federal research and development trends to my attention.

 

(What’s Left of) Our Economy: Why the U.S. Still Holds the Winning Economic Cards Versus China

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Biden, CCP, China, Chinese Communist Party, CNBC.com, consumers, consumption, demographics, Donald Trump, export-led growth, gross domestic product, IMF, International Monetary Fund, per capita GDP, population, technology, Trade, trade wars, workforce, {What's Left of) Our Economy

Since there seems to be no end in sight to the rise in U.S.-China tensions, it’s especially interesting that two analyses of the Chinese economy and its future that challenge some widely held views on the subject have just appeared. Also noteworthy: They matter greatly for America’s perceived prospects for success, and one of them comes from the Chinese Communist Party (CCP) itself.

More important still:  When you put them both together, the implications look positively startling – and encouraging – for America’s prospects in its economic and technological struggle with the People’s Republic.

The first apparently contrarian information comes from the International Monetary Fund in the form of this chart.

It shows recent and projected trends in U.S. and Chinese gross domestic product (GDP) per capita – that is, how much economic output each country turns out adjusted for population. This statistic is a valuable gauge of economic power and affluence because it reveals which national economies (or the economies of any other political unit) are a certain size simply because their populations are a certain size (big or small), and which economies are doing a particularly good or bad job generating goods and services given how many people are doing the producing.

For example: Let’s say you have one economy with a population of 100 and one with a population of 10,000, and the latter generates twice as much economic output than the former. The more populous country would have the larger economy in absolute terms, but its performance wouldn’t be seen as especially impressive because it took so many people to achieve this result – and indeed orders of magnitude more people than the smaller population economy.

Moreover, the latter economy would have much less wealth to distribute among its own people than the former, and therefore each of its citizens would be a good deal poorer than their counterparts in the smaller economy all else being equal.

But let’s not dismiss the bigger economy’s record altogether. For if the two ever fought a war – all else equal again – the bigger economy would have much more in the way of resources to build and equip a military, and keep it fighting, than the smaller.

Throughout modern history, the U.S. economy has greatly exceeded China’s by both measures, but because of the amazing progress made in recent decades by the People’s Republic and a slowdown in U.S. growth, China has been able to close the gap in terms of the size of the two economies. In fact, many forecasters (as made clear in the CNBC.com post containing the chart), believe that the Chinese will catch up before too long. As indicated above, the implications are sobering for Americans if the two countries come to blows, and by extension for any diplomatic jockeying they engage in – for relative military power always casts a political shadow.

China’s overall catch up has been so fast that you might think that the per capita GDP gap that’s been so large because China’s population has been so much bigger than America’s might start narrowing, too. But the chart makes clear that this hasn’t been the case at all. Indeed, the gap has continued to widen, and is projected to keep widening at least for the next four years.

And this finding and prediction suggests that the unquestionable surge in living standards that China has been able to foster due to its rapid growth – which has led so many U.S. and other non-Chinese businesses to pin their future hopes largely on selling to this huge and supposedly ever-burgeoning market – won’t even come close to American living standards for many years. So if the chart is right, the purchasing power growth of the typical Chinese will stall out at pretty low levels and disappoint many of these corporate hopes.

As a result, fears that a thorough “decoupling” of the two economies resulting mainly from U.S. concerns about over-dependence on an increasingly hostile country will kneecap many U.S.-based businesses and possibly the entire American economy could be seriously overblown, at least longer term. For if the chart is right, these expectations will be revealed as unrealistic no matter what course Washington follows – and even if China displayed any willingness (which it hasn’t) to permit foreign businesses to make any more inroads into its economy than are absolutely necessary.  (See here for the latest – and an unsually explicit – official Chinese designation of “complete” economic self-reliance as a goal.)  

All of which brings us to the second contrarian take on China that’s been expressed recently – and by the Communist Party. It’s a finding from the Deputy Director of a party-run research institute that the country’s “Consumption has already past the phase of rapid increase and will only rise slowly in the future.” And his opinion deserves big-time credibility because he clearly believed that he could express such a downbeat view without getting his head chopped off, or being sent for a few decades to a reeducation camp, or risking punishment for any immediate family and relatives.

In addition, however, Xu cited two specific, interlocking reasons for this judgement: an aging population and a shrinking workforce.  And although he seemingly didn’t mention this, if China will need to temper its plans to generate more economic growth through its own domestic consumption, it will need not only to rely more on the kinds of infrastructure investment he did cite.  It will also need to keep relying heavily on exports – which should ensure that the United States will retain plenty of leverage over the People’s Republic with its tariffs as long as the Biden administration decides to leave them in place. 

None of this means that former President Trump was right in claiming that trade wars are “easy to win,” or that maintaining satisfactory technological superiority will be a piece of cake, either, or that generally the United States can stop worrying so much about China threats on these scores.  But it does mean that if American leaders have the will to prevail – and to advance and safeguard U.S. interests adequately – they’ll have plenty of wallet to use.                                    

 

(What’s Left of) Our Economy: A Labor Shortage-Spurred Tech Revolution in Construction

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3D manufacturing, 3D printing, Biden, CNBC.com, construction, Diana Olick, Donald Trump, housing, illegal aliens, Immigration, labor shortages, Open Borders, productivity, technology, {What's Left of) Our Economy

As known by RealityChek regulars, there’s abundant evidence that behind most claims of lasting labor shortages by U.S. industries, and the resulting insistence tht more immigration is urgently needed, there’s an industry that’s done almost nothing to improve its productivity. (See, e.g., here.)

In other words, precisely because they’ve been able to rely for so long on an ever expanding supply of cheap labor, these industries have had precious little need to keep costs under control by improving productivity – either by developing labor-saving technologies, or adopting more efficient management practices, or some combination of the two. And the result hurts the entire U.S. economy by retarding progress and knee-capping its best chances of fostering lasting prosperity.

That’s why it was so exciting to read a CNBC.com post yesterday describing the beginnings of a possible productivity-improving technological response to labor shortages (and therefore rising labor costs), by one of the nation’s biggest slacker industries – construction.

Correspondent Diana Olick’s report faithfully presented the residential construction sector’s claim that housing has performed well during the CCP Virus period, but that its potential to keep supporting bady needed growth was endangered by constantly rising costs. And she added that, in addition to building materials becoming ever more expensive, so were workers.

What Olick failed to mention was that housing was a quintessential industry that has long enjoyed the option of compensating by becoming more innovative, but gone down the cheap labor road instead. Indeed, an outsized share of its workforce consists of not only immigrant workers, but illegal aliens. And its labor productivity levels are actually down since 1968 – which is no coincidence.

But the Trump administration’s restrictive immigration policies may finally be forcing home-builders and other construction companies to start using their collective noggins to control costs. As Olick reports, the industry is starting to use 3-D printing technology “in a big way.” According to executives whose companies are using the new technology, it can cut costs by between 10 percent to 40 percent. And one big reason, in Olick’s words, is that “3D-printed homes require very few workers, as the printer does the bulk of the construction.”

Her post also mentions that 3-D-built homes promise to be sturdier and more energy-efficient than their conventional counterparts, and generate less construction waste, too. And business has been so good that one executive told her “The biggest challenge…is we are supply constrained. We have more people asking for us to build houses than we know what to do with now. Every construction system we have is booked up for the next 24 months.”

In fact, from an economy-wide perspective, the biggest, darkest cloud on the horizon is that President Biden’s Open Borders-friendly immigration policies will flood the labor market with low-skill workers again and take the pressure off the construction industry – and other productivity laggards. That result would richly deserve to be called “Build Back Worse.”