EATING YOUR SEED CORN

Eating your seed corn.  It’s an antique expression from a more basic, agrarian time. It conjures up images of a family, trying to make it through the winter, reduced to eating their seed corn to survive.  It will get them through a few more weeks, but it will only postpone the inevitable.  Spring will come.  Planting time will arrive.  They will have nothing to plant, and the inevitable, starvation, will follow.

That’s what we’re doing right now with China, eating our seed corn.  And, if you want to see a graphic example of what I mean, you need look no further than General Electric’s (GE) recent decision to hand over its sophisticated synthetic vision technology to the Chinese state-owned Aviation Industry Corporation  (AVIC).

Synthetic vision is a state of the art technology.  It produces an articial view of the outside world and projects it on a video screen inside the cockpit of an aircraft.  Terrain features, mountains, obstacles and runways all appear along with indicators for heading, altitude and airspeed.  This allows pilots to continue to fly “visually” even when weather conditions outside reduce visibility to zero.  Using synthetic vision instrument flying may actually become easier and safer than flying visually.

It’s a huge leap forward, a prime example of the kind of high technology that the United States can still develop better and more rapidly than anyone else.  It’s the kind of thing that gives us hope that we can still turn this economy around, regain our competitive edge and rebuild our manufacturing base.

And we just agreed to give it to the Chinese.

We talk a great deal these days about our trade imbalance with China and the necessity for our businesses to adapt, embrace the era of free trade and figure out how to compete.  The situation is complex.  There are any number of angles to it.  But, here’s one thing that is very simple and very straightforward.

The Chinese do not believe in free trade.

The Chinese have a very clear, very deliberate mercantilist economic policy.  That means they have put in place a whole series of measures, which are explicitly designed to promote their exports and to limit foreign imports.  The most commonly mentioned is their continued manipulation of their currency, making their exports cheaper than they would otherwise be and simultaneously raising the cost of imports from other countries.  But, there are many other measures utilized by the Chinese as well.

One of these is the Chinese requirement that foreign companies doing business in China agree to transfer to Chinese companies sensitive technologies.  In the case of General Electric, for example, the synthetic vision technology, which will be used on a Chinese airliner, will be transferred to AVIC.  Having spent decades developing the technology at huge cost, General Electric will now be required to hand over that technology to the Chinese in order to be allowed to conduct business in China.

General Electric has defended its decision on two levels. First, it has emphasized that, whatever the cost, the Chinese market is too big to pass up.   Second, it has claimed that there are “robust” protections for their technology in the joint venture, including measures they believe will prevent the Chinese military or national security apparatus from getting access to the technology.

China is a Communist nation.  Its industries are largely under state control.  Its people are subject to brutal repression, and domestic surveillance of dissident activities is intense.  To suggest that inside such a nation technology given to a Chinese, state-owned, enterprise will not rapidly find itself into government hands is laughable.  That said, frankly, the Chinese military getting its hands on the synthetic vision technology is probably the least of our worries.

Our real concern should be for the inevitable economic fallout from the long term application of the Chinese policy of requiring foreign firms to hand over their most sensitive technological secrets in return for the “privilege” of doing business in China.  Bit by bit, one invention at a time, the Chinese are catching up, closing the gap and positioning themselves to shift from a country that has made its progress to date on the backs of cheap labor to one which can hold its own with the most advanced economies on earth.  Our technological edge, the one key advantage we still hold, is slowly but surely eroding.

The day may soon come when we no longer have anything to give away and no way to compete.   We will no longer be the ones on the cutting edge, creating new industries and leading the world in new directions.  We will have eaten our seed corn, and we, like the farmer, will face the inevitable consequences.  .

 

 

 

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1 Comment

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One response to “EATING YOUR SEED CORN

  1. Something we can agree on. GE will not do business without a Chinese partner.It is usually the case that when the Chinese partner in joint ventures has bled the partner of everything they want, the foreign partner is eased out.
    The recent launching of a Chinese aircraft carrier, even if it is on a Russian hull, will give pause to its neighbors, and we may see the US Navy back in Cam Rahn for more than fleet visits.

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