June 10, 2019
TO THE EDITOR:
Recently with the American/Chinese trade war, it has come into question if China will move ahead of the U.S. as a world power. This should cause people in government (state and federal) and business to take an “objective” look at what worked for America to rise to its world power position. An objective evaluation of what is working for China should also be considered.
As a retired engineer who worked in telecommunications through the U.S. boom years of the ’70s, ’80s, and early ’90s, I witnessed the tactics of Chinese companies such as Huawei. I am in complete agreement on penalizing China and leveling the playing field. However, it will take more than tariffs and trade blocks to compete with China in the future.
Huawei is a fine example of what we should be doing. They have a reputation for intellectual property theft, but in the case of 5G (next generation internet) they are leading the U.S. by possibly two years. One reason is their investment in R/D (Research/Development).
Huawei invests 14% of their revenue into R/D and 45% of their staff works in R/D. Relative to overall revenue, Huawei is actually spending more on R&D (14.2% of revenue) than Microsoft (12%) and Amazon (10.4%), and isn’t far behind Google (14.9%). There are only a few U.S. companies that make this level of investment in R/D, and Huawei is the biggest R/D investor in telecommunications.
When I was a young engineer working for ITT through the ’70s and ’80s, we had a similar R/D commitment with a 5-to-10-year R/D plan. This all started to decline in the early ’90s and continued an ongoing decline. Strategies moved in the direction of buying technology (acquiring startups, etc.) and only a one-year plan with the primary focus on the company’s stock prices.
Over this time frame we lost customers to competitors like Huawei as well as our technical lead. Stock value fell from around $200/share to $15/share. Acquired companies with new technology failed when the staff of the companies moved on with the big money from their stock options. The lesson here should have been obvious — invest heavily in internal R/D, have a long term plan and acquisitions doesn’t always replace invention.
China is a world leader in solar power even though the U.S. created the photo voltaic cell (Bell Labs in the ’50s) and had the potential to be the leader. As recently as 2012 an American solar energy company named Solyndra went bankrupt and defaulted on a $500M R/D loan. The media and politicians focused on the default versus the fact that China (government) had invested over 10 times that sum in R/D and won the whole market. Same lesson, invest heavily in R/D and have a long term plan but also be objective and leave politics out of the decision making process.
Another issue that seems to be overlooked is investment in higher education. It is sad that 70% of American higher education graduates leave with student debt. As a Vietnam veteran, I managed to get through college via the G.I. Bill, though I still had to work part time. I am certain that I have paid back much more in taxes than was paid to me via the GI Bill. Also, back then the cost of higher education was relatively lower than today. The government funded the G.I. Bill, instituted following World War II, probably contributing more than realized to our rise to a technical lead in the world during the ’50s and ’60s.
China is focused on education. In 2010 costs in China for a college degree were $400 to $2,200 per year which included books, room/board and meals. In the U.S. for a college degree, costs average around $35,000 per year for private institutions and $10,000 for state institutions ($26,000 out of state students). The U.S. costs do not include books, room/board, and meals. Germany’s higher education is free and they are one of the most productive countries of the EU.
College degrees aren’t the only investment in higher education that the government can make. Vocational education is obviously in demand by the building industry which repeatedly stated they cannot get the carpenters, plumbers and electricians needed. Even in the world of automation there is an unsatisfied demand for trained technicians to service the machines and computers used in today’s industries.
Countries like China and Germany, with both government and business sectors working together, have been investing in both vocational and college educations for years.
The point is that government funded higher education (vocational and college) is an investment in the future with a payback (paid taxes, innovation, job creation, productivity, etc.) that far exceeds the expense for higher education. Comparing this to payback on the current U.S. student loan program is a no brainer.