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Affluent Christian Investor | August 19, 2019

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Conservative Arguments Against Huawei Contradict What Conservatives Used To Believe

Huawei Mate 10 Pro smartphone (CC BY 2.0)

“Fail often to succeed faster” is accepted wisdom in Silicon Valley. Failure is the path to success simply because it produces the information that makes success possible. At Valley movie eminence Pixar, they rush to their problems. Basically they frontload recessions, which are nothing more than healing periods during which individuals and businesses fix what they were doing wrong. Politicians fight recessions at their peril.

Much the same, they subsidize businesses at their peril. Subsidies free businesses from having to realize their errors quickly. Subsidies enable avoidance, they allow businesses to not come to terms with what’s not working. Subsidies logically weaken businesses precisely because they slow down the failing without which there can be no progress.

The Wall Street Journal’s Holman Jenkins knows all of this well, and that’s why it’s so puzzling that the author of arguably the most read and admired business column in the world (it’s titled Business World, and it’s excellent) would presume that the Chinese are somehow different. When it comes to the Chinese, it’s as though Jenkins suspends basic business truths about delayed failure miring individuals and businesses in perpetual stagnation. Instead, he writes as though the Chinese are unique, that they’re not harmed when the state aims to subsidize and guide their business activities.

Writing about Huawei, a telecommunications and smartphone maker so successful that it prospers in 177 countries around the world, Jenkins suggests its dominance is to some degree an effect of the Chinese government having “slather[ed] it with subsidies and favors in pursuit of geopolitical advantage.” Jenkins overstates his case.

The more reasonable way to look at Huawei is that assuming it’s awash in subsidies and favors, the help is burdening the global behemoth. The previous point is an understatement. It is when it’s remembered why Silicon Valley is the most prosperous region in the world with the most dynamic businesses. The Valley isn’t inundated with investment because all of its businesses succeed; rather it’s showered with capital precisely because the vast majority of them fail.

The mantra that informs Valley business practices is not rhetoric. It’s instead the source of staggering wealth there. The failures come so quick that the successes arrive more quickly too. In short, if Huawei owes its dominance to the state as Jenkins alludes, then he needn’t worry about any “country or telecom carrier” being put “in a position of dependency on a single hardware or software supplier” like Huawei. If Huawei is truly slippery due to all the alleged subsidies slathered on it, its dominance will be short lived.

All of which raises a basic question about what what conservatives are so afraid of? Seemingly overnight they’ve revealed a paranoia about China that resembles all the handwringing about Japan from the 1980s. Back then the Journal editorial page where Jenkins writes today calmed its readers with correct reminders that the “industrial policy” practiced by Japan whereby the government was said to be championing certain industries all the while “slathering them with subsidies and favors” was doomed to fail. Well, of course it wouldn’t work. Businesses forced to operate with government signals as their guide instead of market signals are going to fall hopelessly behind. Translated, the subsidies that Japanese companies enjoyed logically weakened them. Unless conservatives are willing to say the Chinese are somehow different, that basic market truths don’t apply to them, then it’s safe to say that the subsidies that worry Jenkins and so many other conservatives will similarly weaken Chinese businesses.

Jenkins writes that the “best argument for the Trump administration’s on-again, off-again blacklist of Huawei is to throw business to suppliers we trust more, and to keep a variety of suppliers active in the market” Ok, but who is “we”? It’s unknown, but given Jenkins’s willingness to excuse the Trump administration’s meddling in the workings of the markets, it seems one of the foremost voices in favor of free markets is calling for a much more muscular government role in the shaping of the commercial future. What else could Jenkins mean by his assertion that “we” should “throw business to suppliers we trust more.” Sorry, but the Trump administration can’t do what Jenkins wants it to do. Not even close. And it doesn’t take excessive devotion to free markets to understand the previous truth. Government can’t allocate resources, it can’t pick winners, and it can’t reliably see into the future. Period.

Which is where failure yet again comes in. Precisely because the future is unknowable, the existence of companies not “slathered with subsidies and favors,” and that “fail often to succeed faster” is essential to future economic progress. For all we know, 5G won’t be the earth-shattering technological event that so many think it will be, and that the future of communications will arrive from unexpected places. That’s why it was so surprising to read Jenkins’s assertion that “Seven years ago, the right move would have been to impose stringent terms for Huawei’s participation in U.S. markets.” Jenkins surely knows better.

As his column has made plain for so very long, one year – let alone seven years – is an eternity in business. If allegedly wise government officials could predict seven years ahead of time what businesses will matter, then it’s safe to say they wouldn’t toil in government.

Still, the “seven years ago” means something for it if nothing else reminding us how very few prominent conservatives made the alleged Chinese threat a regular feature of their columns in 2012. China only became a story when a long-time protectionist (and former Japan paranoid) entered the White House, followed by other protectionists. What’s most disturbing of all about overnight China paranoia among conservatives is the man – and the advisers – who seemingly unearthed it in them.

 

 

This article originally appeared on RealClearMarkets.

 

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