Innovation and Education Won’t Save Our Economy

That’s the name of the article which appears in New America web site. It charges that American companies are often forced to move to China by bribes and threats. In the first part, the author challenges the idea that a lack of innovation is why jobs ae moving overseas.

U.S.-based multinationals are not transferring production to China and other countries because those nations surpass the U.S. in innovation. The U.S. remains the leader in global innovation, with a sophisticated system of creative interaction among universities, business, venture capitalists and government. Other countries are trying to catch up, but that is nothing new. China recently alarmed many Americans with its policy of “indigenizing” innovation. But ever since the 1970s East Asian and European countries have been trying to create their own artificial “Silicon Valleys,” usually with limited success despite huge investments.

Here is where, the author, Michael Lind, makes the shocking charge that China gets American companies to build factories there through bribes and intimidation.

American multinationals are not shutting factories in the U.S. and transferring production to China because of China’s superior innovation culture or superior educational achievements. Nor are low Chinese wages the major factor. For the most part, multinationals are pressured or bribed by the Chinese dictatorship into producing in China. In some cases, U.S. multinationals are told they must produce inside China in order to have access to China’s large and growing consumer market. In other cases, multinationals are bribed to relocate production to China by enormous subsidies from the Chinese government.

According to one trade expert in Washington, who spoke to me on condition of anonymity, Chinese government subsidies to individual American companies can amount to as much as 70 percent of the cost of a product. China’s artificially undervalued currency amounts to a government subsidy to Chinese-based manufacturers of around 30 percent. On top of the currency subsidy, the Chinese dictatorship often offers financial subsidies and gifts of free land and facilities that can amount to as much as 40 percent. China can afford to spend money on this lavish scale because it deliberately suppresses the consumption of its underpaid and unfree workers and controls investment decisions by its banking sector, while accumulating enormous surpluses from its artificially maintained trade deficit with the U.S. In other words, China recycles money spent on imports by American consumers to poach the factories of American producers.

I am familiar with the Chinese offering no taxation zones in coastal cities to attract American companies to move, but I have never heard these kind of charges before. Certainly many of the incentives offered to move plants to that country have the look and sound of bribery, nevertheless, the money advantages do not seem to rise to the definition of bribes. However, the Chinese government’s actions of international threats does give a certain credence to the charges.

I will see if I can find out more.

James Pilant