I agree. That was a great presentation you gave. I can give you a little supportive history as I lived through the loss of our entrepreneurial culture. In 1970, I bootstrapped the manufacturing company that introduced the first commercial computer display terminal - see https://localwiki.org/ann-arbor/Ann_Arbor_Terminaals. I wrapped that down in the late '80s by choice. In the mid-70s I set up a interactive website (TENonline.org) helping many entrepreneurs around the country bootstrap their own business. I watched that entrepreneurial zeal decay through the '80s & '90s, where by the early '00s, all I was being asked by US entrepreneurs was "Where do I find venture capital?". Foreigners continued to be active, especially young Chinese entrepreneurs - their interest & enthusiasm took me back to the '70s & made the effort fun again.
This country lost so much during the '80s & '90s. We lost the whole entrepreneurial spirit. During the '70s & early '80s we weren't starting businesses simply to make money. We started them because there was something we wanted to do, to try. Making money was a necessity for us to survive, but we were doing it for the challenge & the fun. The venture capital game is a no-win for the young entrepreneur. Since the VC's first objective is to make money, the first time the founding entrepreneur(s) falters, they're replaced with an established businessperson & relegated to a backroom. They're not given the time or chance to learn to become a good businessperson & all that potential is just thrown out.
The inductive thinkers - the creators - don't have a place in today's industry. A few (like my ex-partner) can make it via the patent route, but that requires the determination, patience & intelligence to learn patent law almost to the equivalent of the attorney, & few meet that bar.
So keep up the good work. We need to enforce anti-trust law, we need to bring patent law back under control, but we also need to clamp down on the whole financial sector to bring it back from the giant gambling casino it's become.
I work at a small US manufacturing company and try, whenever possible, to purchase US made components. I'm seeing a shift where there are two versions of a thing, one is extraordinarily expensive and marketed for Defense or Aerospace while the second version is ridiculously cheap and imported from China. There is no middle ground. Either you are forced to buy the expensive one or you ask, why would I not buy the cheap one? The piece I just purchased was so cheap I couldn't even buy the raw materials to make it myself let alone the labor.
A lot of engine components are like this. There are two tiers of manufacturers, those who can meet the OEM specifications and those who can meet the aftermarket requirements. Difference in price is at least a factor of 10, if not more. But when you can buy an OEM part for $9 or an aftermarket for $0.65 you'd have to think hard on why you wouldn't purchase the cheaper one.
Even more glaring is when a corporation has the component made in China but sticks with the $9 price. Then the knock-offs emerge where that same Chinese company counterfeits it, changes the color and label, and sells it for $1 on AliExpress. Then you realize how incredibly bad you're getting screwed by the original designer.
Given the choice I'd prefer to buy industrial components that are fairly priced from a US company but when the price is either Aerospace at $4000 or Chinese at $40, I have to go the Chinese route. I know we once made stuff like this, I still see the old Thomas Register catalogs that list the hundreds of machine shops that made stuff but most are gone now or consolidated.
It's just difficult to see a path where you encourage a US company to get back in the business and not have them screwed by an importer with no skin in the game.
Great recap of history. Classic Lee Raymond quote.
And now we see big corporations complaining about the deals they made - moving factories to China knowing full well the IP, supply chain, and 'signature' risks.
Almost amusing in the last week when then administration floated the idea of prohibiting tech transfers - to see industry recoil because they need that market (or 40% cost reduction).
It would be interesting to make it human - to see the CEOs & Directors who made these choices. Puts their legacies in a different light.
I was looking for a bike trainer (a device allowing a cyclist to ride in place). Hardly any are available. A cursory inquiry found that it's a supply chain issue. Presumably, parts of the trainer are sourced in China or some other Asian country.
Matt - just wanted to say, excellent newsletter and spot-on analysis, keep 'em coming. We do need to fight off China's plutoklatura, a horrifying monster of revanchism, but so much of the American crisis is just plain plutocratic looting. I'm not an economics expert, but it sounds like we're experiencing "death by toll booth". Since 1973, slick grifters carved up a once-productive economy, paid the regulators and the political elites of both parties to look the other way, and created toll booths. Disney: copyright toll booth. Boeing: flying toll booth. Big Military: weapons toll booth. Big Pharma: patent toll booth. Big Tech: platform toll booth. Big Hospital: medical toll tooth. Big Media: streaming toll booth. Big Hydrocarbon: carbon emission toll booth. And on, and on, and on. We're all going to have to pitch in and help soon-to-be-President Bernie unleash the legislative satellite pulse weapons on the plutocracy.
A little late but..China outspends us 5:1 on R&D. We can discuss the second-order effects of that until the cows come home but, until we get back to the basics of generating new technologies and products, national champions won't last long.
I've summarized the problem in this chart. Read the (tiny) explanations bottom left and right:
I don’t really see how a return to dispersal of innovation and r&d spending is supposed to help the United States against China. It’s just another way for the US to pay for China’s gains. In case you haven’t paid attention to the Huawei case, you may have forgotten that Huawei is built on stolen US intellectual property. It’s routers instructions manuals have had the same spelling mistakes as the Cisco models they cloned. Huawei is now at the forefront of telecom innovation but they got into this orbit using a boost from stolen American intellectual property. The biggest change that China is forcing on the United States is a closing of America. When our openness is abused by the Chinese our country must change. But how will we change, and what does that mean?
'China’s goal is to concentrate power, both within China and over the American and European industrial commons.'
Bullshit. Acquiring, concentrating, and exercising power are part of our Roman DNA, not China's Confucian DNA.
China's goal is to concentrate influence through virtuous example and so gain leadership (not hegemony) of the world.
“If you rule with regulations and use laws to bring order, the people will avoid punishment but never develop a sense of shame. If you lead them by virtuous example and bring order by assigning appropriate responsibilities then, in addition to developing a sense of shame, they will order themselves harmoniously because human affairs only prosper in harmony with the moral nature of the cosmos. Superiors and inferiors relate to each other like wind and grass: grass must bend when wind blows over it”. Confucius. Analects
The Microsoft story rings true to me, based on my own observation back then. Today's analysts might not know this, but Microsoft was very late to the Internet party. Yet, we never heard of anyone's head rolling over the strategic blunder. I assumed that meant the direction came from the very top, Gates or another C-suiter. Someone with both the ego and permission to try wishing away the external innovation. Props to Microsoft for catching up, but according to your story, that meant finally letting go of their cash cow(s).
A very significant factor leading to the hollowing out of industry in the US is under and mal-investment in public education. The grossly unequal distribution of funds for primary school education and high costs of college lead to a situation where the US workforce is in many cases not skilled enough to work in a setting requiring higher level reasoning, math, or language skills. This situation is extremely difficult to fix at the federal level.
I agree. That was a great presentation you gave. I can give you a little supportive history as I lived through the loss of our entrepreneurial culture. In 1970, I bootstrapped the manufacturing company that introduced the first commercial computer display terminal - see https://localwiki.org/ann-arbor/Ann_Arbor_Terminaals. I wrapped that down in the late '80s by choice. In the mid-70s I set up a interactive website (TENonline.org) helping many entrepreneurs around the country bootstrap their own business. I watched that entrepreneurial zeal decay through the '80s & '90s, where by the early '00s, all I was being asked by US entrepreneurs was "Where do I find venture capital?". Foreigners continued to be active, especially young Chinese entrepreneurs - their interest & enthusiasm took me back to the '70s & made the effort fun again.
This country lost so much during the '80s & '90s. We lost the whole entrepreneurial spirit. During the '70s & early '80s we weren't starting businesses simply to make money. We started them because there was something we wanted to do, to try. Making money was a necessity for us to survive, but we were doing it for the challenge & the fun. The venture capital game is a no-win for the young entrepreneur. Since the VC's first objective is to make money, the first time the founding entrepreneur(s) falters, they're replaced with an established businessperson & relegated to a backroom. They're not given the time or chance to learn to become a good businessperson & all that potential is just thrown out.
The inductive thinkers - the creators - don't have a place in today's industry. A few (like my ex-partner) can make it via the patent route, but that requires the determination, patience & intelligence to learn patent law almost to the equivalent of the attorney, & few meet that bar.
So keep up the good work. We need to enforce anti-trust law, we need to bring patent law back under control, but we also need to clamp down on the whole financial sector to bring it back from the giant gambling casino it's become.
I work at a small US manufacturing company and try, whenever possible, to purchase US made components. I'm seeing a shift where there are two versions of a thing, one is extraordinarily expensive and marketed for Defense or Aerospace while the second version is ridiculously cheap and imported from China. There is no middle ground. Either you are forced to buy the expensive one or you ask, why would I not buy the cheap one? The piece I just purchased was so cheap I couldn't even buy the raw materials to make it myself let alone the labor.
A lot of engine components are like this. There are two tiers of manufacturers, those who can meet the OEM specifications and those who can meet the aftermarket requirements. Difference in price is at least a factor of 10, if not more. But when you can buy an OEM part for $9 or an aftermarket for $0.65 you'd have to think hard on why you wouldn't purchase the cheaper one.
Even more glaring is when a corporation has the component made in China but sticks with the $9 price. Then the knock-offs emerge where that same Chinese company counterfeits it, changes the color and label, and sells it for $1 on AliExpress. Then you realize how incredibly bad you're getting screwed by the original designer.
Given the choice I'd prefer to buy industrial components that are fairly priced from a US company but when the price is either Aerospace at $4000 or Chinese at $40, I have to go the Chinese route. I know we once made stuff like this, I still see the old Thomas Register catalogs that list the hundreds of machine shops that made stuff but most are gone now or consolidated.
It's just difficult to see a path where you encourage a US company to get back in the business and not have them screwed by an importer with no skin in the game.
Matt,
Thanks for this newsletter. It’s one of a handful that I eagerly await each month.
- B
Great recap of history. Classic Lee Raymond quote.
And now we see big corporations complaining about the deals they made - moving factories to China knowing full well the IP, supply chain, and 'signature' risks.
Almost amusing in the last week when then administration floated the idea of prohibiting tech transfers - to see industry recoil because they need that market (or 40% cost reduction).
It would be interesting to make it human - to see the CEOs & Directors who made these choices. Puts their legacies in a different light.
I was looking for a bike trainer (a device allowing a cyclist to ride in place). Hardly any are available. A cursory inquiry found that it's a supply chain issue. Presumably, parts of the trainer are sourced in China or some other Asian country.
Matt - just wanted to say, excellent newsletter and spot-on analysis, keep 'em coming. We do need to fight off China's plutoklatura, a horrifying monster of revanchism, but so much of the American crisis is just plain plutocratic looting. I'm not an economics expert, but it sounds like we're experiencing "death by toll booth". Since 1973, slick grifters carved up a once-productive economy, paid the regulators and the political elites of both parties to look the other way, and created toll booths. Disney: copyright toll booth. Boeing: flying toll booth. Big Military: weapons toll booth. Big Pharma: patent toll booth. Big Tech: platform toll booth. Big Hospital: medical toll tooth. Big Media: streaming toll booth. Big Hydrocarbon: carbon emission toll booth. And on, and on, and on. We're all going to have to pitch in and help soon-to-be-President Bernie unleash the legislative satellite pulse weapons on the plutocracy.
A little late but..China outspends us 5:1 on R&D. We can discuss the second-order effects of that until the cows come home but, until we get back to the basics of generating new technologies and products, national champions won't last long.
I've summarized the problem in this chart. Read the (tiny) explanations bottom left and right:
https://i.imgur.com/FRb0Lgk.jpg
I don’t really see how a return to dispersal of innovation and r&d spending is supposed to help the United States against China. It’s just another way for the US to pay for China’s gains. In case you haven’t paid attention to the Huawei case, you may have forgotten that Huawei is built on stolen US intellectual property. It’s routers instructions manuals have had the same spelling mistakes as the Cisco models they cloned. Huawei is now at the forefront of telecom innovation but they got into this orbit using a boost from stolen American intellectual property. The biggest change that China is forcing on the United States is a closing of America. When our openness is abused by the Chinese our country must change. But how will we change, and what does that mean?
'China’s goal is to concentrate power, both within China and over the American and European industrial commons.'
Bullshit. Acquiring, concentrating, and exercising power are part of our Roman DNA, not China's Confucian DNA.
China's goal is to concentrate influence through virtuous example and so gain leadership (not hegemony) of the world.
“If you rule with regulations and use laws to bring order, the people will avoid punishment but never develop a sense of shame. If you lead them by virtuous example and bring order by assigning appropriate responsibilities then, in addition to developing a sense of shame, they will order themselves harmoniously because human affairs only prosper in harmony with the moral nature of the cosmos. Superiors and inferiors relate to each other like wind and grass: grass must bend when wind blows over it”. Confucius. Analects
The Microsoft story rings true to me, based on my own observation back then. Today's analysts might not know this, but Microsoft was very late to the Internet party. Yet, we never heard of anyone's head rolling over the strategic blunder. I assumed that meant the direction came from the very top, Gates or another C-suiter. Someone with both the ego and permission to try wishing away the external innovation. Props to Microsoft for catching up, but according to your story, that meant finally letting go of their cash cow(s).
Mr Stoller,
A very significant factor leading to the hollowing out of industry in the US is under and mal-investment in public education. The grossly unequal distribution of funds for primary school education and high costs of college lead to a situation where the US workforce is in many cases not skilled enough to work in a setting requiring higher level reasoning, math, or language skills. This situation is extremely difficult to fix at the federal level.
Kill me. Great statement, not that the business puppets that make up nearly all of Congress care, let alone will do anything.
Hello Matt. What email address should we use to contact you with ideas?
Thanks for the work you do.
What was the opposing view from Mr. Atkinson? Can you post his remarks?