Or Why You Need More Than Tariffs To Win Zero-Sum Games On The Global Stage. Global supply chains build to the spec of the pickiest buyer. Europe could’ve used that power to defend its industry—instead, it fed China’s. Why tariffs are a political placebo, why VC ghosts hardware, and how the service economy annihilates the middle class.
Yeah I mean I have some hypotheses, some gestured at in various places in the essay, but who knows for sure:
> "I assume this is downstream of needing to shape domestic policy in response to democratic pressures. Voters everywhere in the West hate cronyism and explicit pro-Capital incentives. So Mr. BMW gets the stick and new entrepreneurs move to America. Or perhaps it’s just culture."
> "iii) siding exclusively with labor over capital in industrial disputes
iv) large tax burdens on business & small biz
v) overreliance on external labor sources, either offshored or imported
vi) as the above & more destroyed ability for british industry to be globally competitive, relied increasingly on financial services to generate national wealth"
> all of footnote "[99] On the Role of Democracy In Accelerating Or Retarding Industrial Growth"
I wonder if there’s a simple framing in terms of public goods: even if they’re technically profitable, hardware and industrial manufacturing aren’t the highest margin uses for capital - but they have such positive effects on the country’s economic and demographic ecosystem that they should be treated as public goods the way we do with basic research.
I suspect that, if you take that logic properly to its logical conclusion, you'll find that all profitable enterprise has the same characteristic, to some degree or another!
But yes, it is much more true in value-added-manufacturing profits than service job profits -- because in a globalized market system, the profits you "bring in" to your local region do not require you to co-locate next door to your customers (thereby bidding up local real estate).
"a wise government official" - aka "the man in Whitehall really does know best" as they used to lie. Of course, an elected government official might have more wisdom if he was up for election and his donors were not leaning on him to send more jobs and arms abroad. An unelected one - the ones running most economies unaccountably and unsupervised - does not give a damn, as they get paid top dollar plus bens and index-linked pension guaranteed.
Thanks for the comment & reading! I don't mind at all if you drop multiple!
In the spirit of charitable engagement, and meant in good faith -- this line of critique, or a related version of it, is something I've seen pop up a few times here or on twitter. But I think it generally leans on "common forms" of anti-bureaucratic argument without really paying attention to the specifics.
It's why I wrote Footnote [99], at least in part.
The idea that subjecting a given bureaucrat to an election would suddenly transform them into "a wise government official", as opposed to a weathervane blowing whichever way campaign finance funds are blowing, is not one that I think really stands up to reality when you look at satisfaction with current elected officials at any level, from the regional to the national.
It's why I think the China-Europe comparison is so interesting. The European bureaucrats are sort of (in)famously unelected by the standards of modern populists. And yet their Chinese equivalents are EVEN LESS elected. And yet.
The phrase "fiduciary duty" popped up a few times, and it's interesting to interpret the essay through this lens. Fiduciary responsibility is the essential principle above all particular principles; living in a high-fidelity society is the essential prosperity above particular prosperities. Mr. Guo clearly groks it; European policymakers clearly do not. It is harder to answer whether it is the insane American capitalist or the sane American capitalists who grok the concept.
One might also argue that it was a fatal mistake to believe that the "end of history" was democratic capitalism, instead of fiduciary duty. Note 0 illustrates how capitalism can sometimes retard industrialism, while Note 99 illustrates how democracy can sometimes retard industrialism. But the West assumed that we were guaranteed to win, so long as we adhered to the forms of democracy and capitalism, while being less rigorous about the animating spirit of fiduciary duty.
Thanks Calvin. I really like this comment a lot because it speaks to the underlying philosophy of what I was trying to get at, and you connect it exactly to the specifics that I was pointing to, and then point out an even better version than what I was able to say:
> Note 0 illustrates how capitalism can sometimes retard industrialism, while Note 99 illustrates how democracy can sometimes retard industrialism.
It's really nice. I wish I'd thought of this line. You encapsulate exactly why I felt Note 0 had to remain, even though I couldn't figure out why before hitting publish.
You wrote a lot of words. They were worth reading.
My take (that is to say what I already believed and now see reinforced in near everything I read): too much liberalism (focus on individual rights), time to try more socialism (focus on benefiting the group as a whole).
More liberalism was the right call in the 1970s, now we need to shift the balance back. China has the opposite problem: too much authoritarianism and group focus.
As you say: do what works. Not what we wish would work.
As always, I agree with the substance. Unfortunately, I completely agree with the tone.
"Sometimes you can actually end up with more in the future by paying for it upfront."
It is worth remembering that everyone deep down knows this, that lots of people are actually willing to pay up front, and that there are concerted campaigns to convince you other people don't know this. We're not alone. There are dozens of us! Dozens!
> "Unfortunately, I completely agree with the tone."
LOL. Thanks (I think).
I am simultaneously optimistic and pessimistic. Cynical & idealistic. The magical la-la-land where we successfully achieve on some of these things looks like either (i) FDR-tier or greater levels of centralized executive power exercised over an unwilling domestic elite, or (ii) some magical preference cascade among said elite back towards valuing some of the things discussed in this essay.
The first feels more likely in some way, but upsets my "Principles". The latter feels culturally impossible in this moment. But if it were possible to increase your "dozens" to "the couple hundred bipartisan elites who matter" and whose opinions cause preference cascades, mayhaps.
And if not? Hey. At least we're not Europe. There's a hell of a lot more ruin left in our nation than theirs'.
Sir Issac Newton may have failed to capture the value of what he created, but he captured something far more valuable. To escape the plague, Newton retreated to the family farm and isolated himself for a period of time in a small workhouse. He emerged with calculus, laws of universal gravitation, and pioneering work with color and optics.
What did Peter Thiel do during the pandemic or any other year of his life? Who is likely to be remembered and valued centuries hence? Newton or Thiel? The irony is Thiel and other billionaire tech titans are searching for physical immortality. Newton has something better: spiritual immortality. I’d prefer the value Newton captured.
“Putting additional friction between you and your customers is a bad strategic decision for anyone who wants to continue serving those customers (and all their friends) for the longterm. That friction exposes you to a greater risk of technology-driven disruption and the threat of a networked unraveling of your whole monopoly.”
Indeed, like Deere suing its customers (farmers) for hacking software on the combines for which they paid $500,000.00, because it stems from generations of farmers who work on their equipment. It’s Deere seeking rents versus traditional agriCulture (Capital C culture).
I read all the way to the end and just want to say, I appreciate your special interest. As someone working in a VC backed hardware company HQd in the US with engineering and production in Germany, I read this with interest. Three reactions:
-1. Our business is in aerospace/defense which feels like an example of the USG not stopping halfway with policy tools. The sector had a ton of problems, but they at least seem solvable in the current policy regime. This approach won’t work for most products without making us much poorer.
0. One thing I have learned though is the power of design for manufacturing. If we are to bring more industry back into the US, all or nothing is probably not the right way to do it. Batteries and solar panels are all pretty standardized which makes production in China the logical outcome. Goods that have a lot to gain from making trades at the system level, rather than just individual components, might have the best chance. I don’t know what this looks like yet, but it’s something I’ve been thinking about.
1. Your point about the tyranny of the hurdle rate rang true. This is what a lot of people who talk about reindustrializing miss. “Labor cost is super high in the US, but you can overcome that through automation.” Automation just substitutes capital for labor and the return on your huge capital investment project is going to return less money over a longer time horizon than a software business.
> "Automation just substitutes capital for labor and the return on your huge capital investment project is going to return less money over a longer time horizon than a software business."
I learned a lot from this, thank you for writing!
Any thoughts on *why* European governments are all stick and no carrot?
Yeah I mean I have some hypotheses, some gestured at in various places in the essay, but who knows for sure:
> "I assume this is downstream of needing to shape domestic policy in response to democratic pressures. Voters everywhere in the West hate cronyism and explicit pro-Capital incentives. So Mr. BMW gets the stick and new entrepreneurs move to America. Or perhaps it’s just culture."
> "iii) siding exclusively with labor over capital in industrial disputes
iv) large tax burdens on business & small biz
v) overreliance on external labor sources, either offshored or imported
vi) as the above & more destroyed ability for british industry to be globally competitive, relied increasingly on financial services to generate national wealth"
> all of footnote "[99] On the Role of Democracy In Accelerating Or Retarding Industrial Growth"
I wonder if there’s a simple framing in terms of public goods: even if they’re technically profitable, hardware and industrial manufacturing aren’t the highest margin uses for capital - but they have such positive effects on the country’s economic and demographic ecosystem that they should be treated as public goods the way we do with basic research.
I suspect that, if you take that logic properly to its logical conclusion, you'll find that all profitable enterprise has the same characteristic, to some degree or another!
But yes, it is much more true in value-added-manufacturing profits than service job profits -- because in a globalized market system, the profits you "bring in" to your local region do not require you to co-locate next door to your customers (thereby bidding up local real estate).
Super essay - mind if I comment as I read?
"a wise government official" - aka "the man in Whitehall really does know best" as they used to lie. Of course, an elected government official might have more wisdom if he was up for election and his donors were not leaning on him to send more jobs and arms abroad. An unelected one - the ones running most economies unaccountably and unsupervised - does not give a damn, as they get paid top dollar plus bens and index-linked pension guaranteed.
Thanks for the comment & reading! I don't mind at all if you drop multiple!
In the spirit of charitable engagement, and meant in good faith -- this line of critique, or a related version of it, is something I've seen pop up a few times here or on twitter. But I think it generally leans on "common forms" of anti-bureaucratic argument without really paying attention to the specifics.
It's why I wrote Footnote [99], at least in part.
The idea that subjecting a given bureaucrat to an election would suddenly transform them into "a wise government official", as opposed to a weathervane blowing whichever way campaign finance funds are blowing, is not one that I think really stands up to reality when you look at satisfaction with current elected officials at any level, from the regional to the national.
It's why I think the China-Europe comparison is so interesting. The European bureaucrats are sort of (in)famously unelected by the standards of modern populists. And yet their Chinese equivalents are EVEN LESS elected. And yet.
The phrase "fiduciary duty" popped up a few times, and it's interesting to interpret the essay through this lens. Fiduciary responsibility is the essential principle above all particular principles; living in a high-fidelity society is the essential prosperity above particular prosperities. Mr. Guo clearly groks it; European policymakers clearly do not. It is harder to answer whether it is the insane American capitalist or the sane American capitalists who grok the concept.
One might also argue that it was a fatal mistake to believe that the "end of history" was democratic capitalism, instead of fiduciary duty. Note 0 illustrates how capitalism can sometimes retard industrialism, while Note 99 illustrates how democracy can sometimes retard industrialism. But the West assumed that we were guaranteed to win, so long as we adhered to the forms of democracy and capitalism, while being less rigorous about the animating spirit of fiduciary duty.
Thanks Calvin. I really like this comment a lot because it speaks to the underlying philosophy of what I was trying to get at, and you connect it exactly to the specifics that I was pointing to, and then point out an even better version than what I was able to say:
> Note 0 illustrates how capitalism can sometimes retard industrialism, while Note 99 illustrates how democracy can sometimes retard industrialism.
It's really nice. I wish I'd thought of this line. You encapsulate exactly why I felt Note 0 had to remain, even though I couldn't figure out why before hitting publish.
If we (USA) put a total trade embargo on China...?
You wrote a lot of words. They were worth reading.
My take (that is to say what I already believed and now see reinforced in near everything I read): too much liberalism (focus on individual rights), time to try more socialism (focus on benefiting the group as a whole).
More liberalism was the right call in the 1970s, now we need to shift the balance back. China has the opposite problem: too much authoritarianism and group focus.
As you say: do what works. Not what we wish would work.
As always, I agree with the substance. Unfortunately, I completely agree with the tone.
"Sometimes you can actually end up with more in the future by paying for it upfront."
It is worth remembering that everyone deep down knows this, that lots of people are actually willing to pay up front, and that there are concerted campaigns to convince you other people don't know this. We're not alone. There are dozens of us! Dozens!
(I'm a paid sub on a different account or something I promise lol)
> "Unfortunately, I completely agree with the tone."
LOL. Thanks (I think).
I am simultaneously optimistic and pessimistic. Cynical & idealistic. The magical la-la-land where we successfully achieve on some of these things looks like either (i) FDR-tier or greater levels of centralized executive power exercised over an unwilling domestic elite, or (ii) some magical preference cascade among said elite back towards valuing some of the things discussed in this essay.
The first feels more likely in some way, but upsets my "Principles". The latter feels culturally impossible in this moment. But if it were possible to increase your "dozens" to "the couple hundred bipartisan elites who matter" and whose opinions cause preference cascades, mayhaps.
And if not? Hey. At least we're not Europe. There's a hell of a lot more ruin left in our nation than theirs'.
Total Blackpilling: "We're Europe"
Pragmatic: "We're not Europe"
Whitepilling when someone else blackpills: "Hey, China had it way worse!"
Simply, thanks for writing and sharing this.
Thank you for reading it all!
In re “Monopolization & Monopolies”:
Sir Issac Newton may have failed to capture the value of what he created, but he captured something far more valuable. To escape the plague, Newton retreated to the family farm and isolated himself for a period of time in a small workhouse. He emerged with calculus, laws of universal gravitation, and pioneering work with color and optics.
What did Peter Thiel do during the pandemic or any other year of his life? Who is likely to be remembered and valued centuries hence? Newton or Thiel? The irony is Thiel and other billionaire tech titans are searching for physical immortality. Newton has something better: spiritual immortality. I’d prefer the value Newton captured.
“Putting additional friction between you and your customers is a bad strategic decision for anyone who wants to continue serving those customers (and all their friends) for the longterm. That friction exposes you to a greater risk of technology-driven disruption and the threat of a networked unraveling of your whole monopoly.”
Indeed, like Deere suing its customers (farmers) for hacking software on the combines for which they paid $500,000.00, because it stems from generations of farmers who work on their equipment. It’s Deere seeking rents versus traditional agriCulture (Capital C culture).
I read all the way to the end and just want to say, I appreciate your special interest. As someone working in a VC backed hardware company HQd in the US with engineering and production in Germany, I read this with interest. Three reactions:
-1. Our business is in aerospace/defense which feels like an example of the USG not stopping halfway with policy tools. The sector had a ton of problems, but they at least seem solvable in the current policy regime. This approach won’t work for most products without making us much poorer.
0. One thing I have learned though is the power of design for manufacturing. If we are to bring more industry back into the US, all or nothing is probably not the right way to do it. Batteries and solar panels are all pretty standardized which makes production in China the logical outcome. Goods that have a lot to gain from making trades at the system level, rather than just individual components, might have the best chance. I don’t know what this looks like yet, but it’s something I’ve been thinking about.
1. Your point about the tyranny of the hurdle rate rang true. This is what a lot of people who talk about reindustrializing miss. “Labor cost is super high in the US, but you can overcome that through automation.” Automation just substitutes capital for labor and the return on your huge capital investment project is going to return less money over a longer time horizon than a software business.
> "Automation just substitutes capital for labor and the return on your huge capital investment project is going to return less money over a longer time horizon than a software business."
Exactly so (said with a tone of sadness)