Features
02.12.2020
11 minutes

Building state capacity isn’t an ism.

Senator Rubio is right to raise the alarm about U.S. policymakers’ torpidity in the face of China’s growing global influence. Likewise, he’s right to call out fundamentalism on the political right—with all of its armchair expertise and shallow moralizing—for aiding the erosion of America’s cultural and economic power.

Rather than building state capacity to take on this and other challenges, the right has spent much of its energy indiscriminately trying to tear down American institutions. As Yuval Levin put it, we’ve come to be “overrun with demolition crews of various sorts.” After all, if you’re convinced “taxation is theft” and the state is illegitimate, you’re probably not that invested in the success of the American system of government.

The right needs to give up fanciful ideas of returning to a pastoral Jeffersonian Shangri-La. While a night watchman state may have been viable in the 18th century, it’s not going to resist China’s growing influence. Nor will it ensure our long term security and prosperity in the modern global economy. That’s not to say we shouldn’t rein in major parts of our federal bureaucracy. But we should give up the sledgehammer for a scalpel, and learn a thing or two about the surgeon’s trade before using it.

Don’t Sell China—or America—Short

There’s a certain hubris on the right about the inferiority of communism to the capitalist system (nevermind that illiberal authoritarian capitalism might be a possibility). This has taken form in the idea that China “can’t innovate, and can only copy.” Meanwhile, last year China outpaced the U.S. in number of unicorns—firms with $1 billion or more valuation—and essentially closed the gap on R&D funding. It has also undertaken ambitious infrastructure projects like the Three Gorges Dam and Belt and Road.

If we want to be more competitive, first we should understand what makes American innovation successful. Rubio is right that the story of Silicon Valley’s success isn’t just about Ayn Rand protagonists creating companies in their garage. While he notes that many innovations got their start with a little help from Uncle Sam, he also underplays it.

Google, which has a market cap of nearly $1 trillion, got its start through grants from the National Science Foundation and DARPA. They’re not alone. Many of the core technologies that make Apple’s iPhone successful have similar origins. GPS came out of the NAVSTAR program in DoD. Siri, Apple’s ubiquitous AI assistant, was built on top of DARPA’s PAL program. And the multi-touch displays that nearly put BlackBerry out of business were developed through an NSF grant that become the company FingerWorks, later acquired by Apple. There are many such examples for different technologies, even going back to Silicon Valley’s early history.

This isn’t to suggest the federal government should cut out the middleman and set up shop in Menlo Park. Entrepreneurs, competing in the market, will always do a better job adapting, improving, and commercializing these technologies. But there’s an important role for government in fostering innovation. Once we accept this reality, we can turn our attention to optimizing it for the future.

I.P.: Why?

In his response to Rubio, New America Foundation co-founder Michael Lind makes the case that if we really want to out-innovate China, we need to focus on intellectual property and limited liability laws, two things which he thinks libertarians hate. Setting aside the question of whether these are really the two things most responsible for Silicon Valley’s success, the latter largely makes sense. Beyond Lind’s obvious example of corporations, laws like Sec. 230 of the Communications Decency Act and the Digital Millennium Copyright Act were instrumental in creating the modern Internet ecosystem. Of course, the folks at the Cato Institute and other libertarian institutions generally like these.

The former is more questionable. While there are some libertarian I.P. skeptics, the majority of libertarian legal scholars I know take a first-principles-based view that I.P. needs to be stronger and treated like a natural right. Even Ayn Rand thought so, describing I.P. as: “a man’s right to the product of his mind.” So much for taking down “big libertarianism.”

But Lind’s call for an industrial policy framing of I.P. could actually be a good thing. Under this view, I.P. is only good insofar as it creates an incentive for innovation or creative works that ultimately serve the public good. This raises the question, are copyright and patent terms (and remedies for their violation) calibrated correctly? They’re certainly calibrated to capture rents, such as through numerous retroactive copyright term extensions. Unfortunately, granting Mickey Mouse more protection decades after Walt Disney’s death didn’t do much to incentivize his creative outputs, and reduced the scope of the public domain (including opportunities to iterate on his ideas).

With respect to high tech manufacturing, it turns out patents held back the development of 3D printing technology for several decades. In other areas, patent thickets also increase transaction costs and make it hard for new entrants to innovate and compete. And a glut of dubious software patents has gotten in the way of innovation. Markets, it turns out, often serve the public good better than protectionism. Even if there are exceptions.

So, maybe the Founders had it calibrated right the first time around in the Copyright Act of 1790, which provided for a once-renewable term of 14 years. Contrast that with our current system of life plus 70 years for individuals, or 95-120 years for corporations. Both patents and copyrights also used to have a much more limited scope than today. Luckily, under an industrial policy view, the scope and length of I.P. is an empirical question. Not one of natural rights (which is often used to justify corporate rent-seeking in I.P. policy debates).

Proponents of stronger I.P. also need to be careful about confusing innovation with increasing the number of patents (forgetting that they vary in quality), and falling into the trap of thinking that America will win if only the other side doesn’t cheat. The reality is that I.P. is a double-edged sword. And it’s a weapon that China has already shown it knows how to use against us (it’s even awarding protection to A.I.-generated content). For instance, Huawei has over 80,000 patents, and has brought multiple infringement allegations against Verizon. Elsewhere, Rubio is already trying to circumvent China’s clever leveraging of I.P.:

While China is often slammed for I.P. theft and weak enforcement, in some ways its legal environment appears to be improving for rightsholders. While damages awarded in patent litigation in China are typically much lower than the US, injunctions are much more common. And overall litigation costs are much lower. Contrary to what you might expect, foreign plaintiffs also prevail more often. Meanwhile in the U.S., patent litigation abuse is still a big problem–particularly for innovative startups.

Beyond Protectionism

The world is complicated, and we should be wary of armchair pronouncements from any group (not just libertarians). Particularly where dramatic government interventions are concerned, an abundance of caution is warranted.

As other commentators have argued, the broader debate about industrial policy is not a choice between absolutes. The U.S. already has industrial policies in place that are unlikely to go away. While I remain a skeptic of our ability to execute big new protectionist interventions, I think it’s a worthwhile project to try to move more of the Right to think seriously about building state capacity to support American innovation and global competitiveness, rather than dismissing it from first principles. To that end, we might take a lesson from Deng Xiaoping: “It doesn’t matter if a cat is black or white so long as it catches mice.”

is head of policy at Lincoln Network and a visiting fellow at the National Security Institute at George Mason University’s Antonin Scalia Law School.

Origin of this feature

Origin

Rubio Takes the Lead

But the right’s full reckoning on economics awaits.