Did you know Silicon Valley's best export is American jobs? That China has a new policy which is a bigger threat to the U.S. economy and jobs than direct offshore outsourcing has been?
The U.S.-China Economic and Security Review Commission held a hearing, China’s Five Year Plan, Indigenous Innovation, and Outsourcing and contained within are more damning facts about China running amok in terms of capturing U.S. industry for themselves.
China lays out economic strategies by five year detailed plans. The latest calls for Chinese investments, that's government investment, of up to $1.5 trillion to develop alternative energy, biotechnology, information technology, advanced equipment manufacturing, alternative fuel autos and other energy saving, environmental technologies.
China's indigenous innovation policy means corporations are forced to technology transfer to China their intellectual know-how, advanced technologies in order to even do business in China and certain to obtain Chinese government contracts.
Supposedly the WTO has made forced technologies transfers illegal, yet nothing is done, not even a limited case has been filed by the U.S. Literally our free trade happy international trade commission estimated up to 2.1 million new direct private-sector jobs would be created in the U.S. if China raised its intellectual property protection , that's patents, trademarks and copyrights, to U.S. levels. How many U.S. Citizen jobs are lost due to forced technology transfer is yet to be seen, but estimates say the losses will be more than the direct offshore outsourcing job slaughter that has been going on for the past 15 years.
One of the hearing witnesses, Dr. Adam Segal, lays out an example of China's forced technology transfer, which amounts to China demanding encryption codes. Encryption, folks, is a method to make systems secure. It's like asking for the keys to your car in order for you to drive on their roads.
In 2009, for example , the Chinese government announced that companies that wanted to be included as recognized vendo rs in the government’s product procurement catalog would have to demonstrate that their products included indigenous innovation and were completely free of foreign intellectual property. Yet, since research and development is a global, collaborative process, no individual high-tech product is completely independent of technology from outside of China. As a result, in April 2010, China ordered several high-tech companies to turn over the encryption codes to their smart cards, Internet routers, and other technology products if they wanted to be listed in the procurement catalog.
Dr. Segal went further. China is busy filing a massive amount of patents, most of them utility patents, which are a kind of boilerplate in the intellectual property world, all to use later to sue a foreign company trying to enter China's markets.
These filings have very little to do with innovation and are about positioning Chinese companies to sue foreign firms as they enter local markets for alleged patent infringement.
If you're wondering why Google left China, now you know. The country is so controlling, who can deal with these demands?
Segal also gives this astute conclusion, take one leg out of the innovation development chain in one country, literally it's like cutting the leg off of that nation's economy. In other words, advanced R&D cannot exist without manufacturing and vice-versa.
Remove any one component, manufacturing or R&D, from the system and you risk destabilizing the complex interactions between firms that drive technological discovery in the United States. The shift of corporate R&D to China, whether because firms need to be closer to final customers or they are responding to pressure from Chinese policy makers, could destabilize the interaction of all the other parts of the innovation ecosystem. The real impact of indigenous innovation policies may not be in raising Chinese capabilities, but in throttling American ones.
America on Sale
Professor Willy C. Shih, amplified how the never ending increasing trade deficit actually causes U.S. businesses to be acquired by China. Shih also notes how successful past China five year plans have been:
The 1994 Automotive Industrial Policy, part of the ninth five-year plan, is a good role model. That plan sought to force increasingly complete transfers of automotive technology and know-how to China. The plan has had considerable success, with China now equipped with modern production plants and the management capability for running them. As most of us know, today the Chinese auto market is the largest in the world. It is also the most profitable in the world, and it is driven by domestic consumption, not export. But it has also laid the institutional foundation for another large export industry – vehicles and vehicle components.
Literally we are outsourcing our national defense with our bad policies and refusal to recognize China as the economic and security threat she is:
The U.S. must prepare for the eventuality that we will have to source critical military technology abroad as more of our domestic capabilities wither away.
Professor Ralph Gomory also notes we literally are selling America down the river.
If we look more closely at the development of China we can see what U.S. corporations contribute. We see U.S. corporations, either alone or in joint enterprises with Chinese corporations, building plants in China that enhance both that country’s’ productive abilities and its technical know how. We have seen the goods imported from these enterprises contribute largely to the enormous imbalance of trade since these imports are not balanced by a sufficient counter-flow of exports from this country. We see that today this has resulted in 2 to 3 trillion dollars at the disposal of the Chinese government for the purchase of more treasury notes etc. as in the past, or, as is more likely in the future, for the acquisition of companies and their technology.
In addition, we see U.S. corporations increasingly locating their research and development in China. This is a further and very direct way for China to acquire the necessary know how.
Gomory also amplifies the short term thinking inside U.S. corporations, based on quarterly profits and huge executive bonuses tied to those profits, which has led U.S. corporations off the short term thinking cliff. These same corporations simply deny what offshore outsourcing is doing long term to the future of America. In other words, U.S. multinational corporations are simply not American, thinking about the consequences for the United States or even for their own survival.
New America Foundation's Mr. Leo Hindery, Jr. said China's requirement U.S. Corporations technology transfer out of the U.S. and to China is literally a bigger threat than the direct offshore outsourcing of U.S. jobs which has been going on en masse for the last 15 years.
China‟s "Indigenous Innovation Production Accreditation Program", about which you have heard much testimony, and its unceasing demands that U.S. and other developed countries seeking to do business in China make massive transfers to it of their intellectual property. These latter transfers, which is one of today‟s major topics, will, because of their significant ripple effects throughout our economy, ultimately be an even bigger „drain‟ on our economy than the direct offshoring of millions of American jobs over the last 15 years.
Hindery gives us a concrete example, Boeing. Literally since 2000, Boeing has offshore outsourced 20,000 out of 50,000 unionized jobs in Everett, Washington.
Here is the money shot from Hindery's testimony and frankly you should pay strict attention to these statistics, especially when you hear claims of a worker shortage.
Silicon Valley is mostly a jobs-exporting juggernaut and not a jobs-creating one and the recent conclusion by its own BLS that U.S. employment in “information technology” will actually be lower in 2018 than it was as far back as 1998, the administration is playing into, and not addressing, the trend that now has half of the revenue of the Standard & Poor's 500 largest publicly traded U.S. companies coming from overseas and saw, from 2002 to 2008, overseas employment by U.S. multinationals increase 23% while their employment here at home increased by less than 5%, in each case heavily China-driven.
Hindery also notes the U.S alone, out of all of the G-20 member countries, does not have a U.S. manufacturing policy. We need U.S. manufacturing to be about 20-25% of GDP, not the paltry 11.2% it is now.
The hearing also has a host of policy recommendations, which no doubt will be ignored by Congress in spite of this commission being set up for Congress to monitor the economic and security relationship with China.