In a front page headline today, the New York Times comes to the rescue of Gamesa, a Spanish company producing wind turbines in the nefarious Middle Kingdom:
Gamesa has learned the hard way, as other foreign manufacturers have, that competing for China’s lucrative business means playing by strict house rules that are often stacked in Beijing’ favor.
…The story of Gamesa in China follows an industrial arc traced in other businesses, like desktop computers and solar panels. Chinese companies acquire the latest Western technology by various means and then take advantage of government policies to become the world’s dominant, low-cost suppliers.
State subsidies and policies to foster infant industries at the expense of foreign competitors. This sounds almost like the dark and nefarious practices followed by… Spain.
Personally I see nothing dark or nefarious here. This is good old fashioned industrial policy at work. How else do we expect poorer countries to converge to riches? Innovate on the frontier? I am an amateur economic historian at best, but here’s my opinion: almost never been done.
China’s story today sounds a lot like continental Europe in the early 19th century, Japan after the Meiji Restoration, and the Asian Tigers in the 20th. Go back two hundred years and you can find the British press enraged with the same complaints as they lose their textile industry to that backwards backwater, France.
Technology is the fundamental driver of growth. And poorer countries don’t get rich by innovating on the frontier, they get rich through the diffusion and adaptation of technique and knowledge. Once rich, the innovation begins.
Now, it’s quite possible that China is violating trade agreements and treaties left and right. The meddlesome fact not highlighted by the Times: competing in international trade means playing by strict house rules that are often stacked in the US and Europe’s favor.
The global system of rules that protect free trade and intellectual property do a great many wonderful things, and I don’t advocate elimination of either, but nor should we forget that these rules are written, stacked and now enforced by rich countries who developed through the same process they are trying to contain.
Are they even protecting their interests? A quote, from the same article, that did not make the lede:
Although [Gamesa’s] market share in China has atrophied, the country’s wind turbine market has grown so big, so fast that Gamesa now sells more than twice as many turbines in China as it did when it was the market leader five years ago.
Good grief. This is not a zero sum game, folks.
I welcome words from people who (unlike me) have actual expertise in trade, industrial policy, and history.