“Over the next few years, all those heavily subsidised plants in the US, Germany and France are going to come on stream, selling chips into a global market where there are too many of them and prices are tumbling. The losses could be vast. Taxpayer money will have been put to terrible use and, in the UK, Treasury officials will perhaps be quietly breathing a sigh of relief that we were too hopelessly disorganised. There is a lesson to be taken, not least at a time when when `industrial strategies’ are more popular than ever. Just because a product is important it does not mean any particular country has to produce it. And if demand is growing, it is safe to assume private companies will be capable of meeting that need without help from the state. Too often, governments end up subsidising the wrong industries at the wrong time. They have a poor record of picking winners, and should instead set low and fair taxes, lower tariffs, keep competition open, and break up any cartels. Once they have done all that, the market can decide which are the industries of the future.”
– Matthew Lynn, Daily Telegraph (£).
My only quibble with the quote from this excellent article is that his support for trust-busting activity needs to be qualified with the point that a lot of anti-monopoly activities by governments are often based on a misunderstanding of competition as a static game, not a dynamic process through time. We see this regularly in the recent wailing about Big Tech. (See an article here.)
According to media reports, reports I hope are NOT true, President Macron of France has a different policy – crawling to the People’s Republic of China, letting the Communist Party Dictatorship have Taiwan – in the hope that the chips, and other goods, keep rolling.
Although why the People’s Republic of Chin should sell valuable goods for “money” which is just lights on computer screens, lights which (as we know from what was done to Russia) can be turned off at the whims of Washington, is not explained. China sold silk to Europe for centuries – but in return for gold and silver, not lights on computer screens that can be turned off at any time.
Meanwhile these Western government subsidies may not be producing what was hoped.
Senator Manchen of West Virginia, a life long Democrat and someone who voted for the subsidies, has noted that the government machine is “interpreting” the law in such a way that the subsidies are ending up in China (yes – China, the Communist Party Dictatorship having paid the Biden family for many years) and that American manufacturing will NOT be restored by the massive subsidies that he, Senator Manchen,
voted for.
Senator Manchen still believes that government interventionism can work (he is a Democrat), but I think even he is starting to see that it can not possibly work under the present bureaucracy that controls the United States.
My own view is that even the Arch Angel Gabriel was in charge of the government – subsidies would still fail, but certainly the present bureaucratic government system in the United States and Europe is just awful.
All governments have administrators – but the administrators should be under the control of the leadership (as they are in China and other lands) – but in modern Western countries the administrators (the bureaucracy) is at least semi independent, strangling everything in its counter productive Red Tape – perhaps this is due to the influence of the philosopher Hegel who took the old view that the King was sacred, and transformed it into a view that the bureaucracy was sacred.
Even if Western lands had good leadership (which the United States most certainly does NOT) it might not matter – as the administrators (the bureaucracy) can de facto refuse to carry out the policies of the leadership, instead just carrying on with their own bureaucratic agendas.
Why do a handful of Corporations have a stranglehold on Western economies and will “Trust Busting” help?
Partly tax law and regulations help the Corporations against possible competitors, large Corporations can cope with (indeed shape – via their influence in the bureaucracy) regulations – for example American “public health” agencies are still pushing Covid “vaccines” they know very well are toxic, because these American government agencies serve the interests of a few large Corporations (or rather the government agencies and corporations are part of the same agenda) and could not give a damn about human life.
Tax law also favours Corporations – with individuals being taxed more highly (the idea that Corporations are responsible to individual shareholders is a myth – these days the vast majority of shares are controlled by institutions – again partly due to regulations and tax law).
However….
More important both than the regulations and the tax laws is the Credit Money system which, via the Cantillon Effect, concentrates wealth in the hands of a few special interests – making it a terrible error to describe the present Western economic system as in any sense Free Enterprise.
The present Western economic system is not Free Enterprise – and it is not “Capitalism” for, if that word means anything, it means a system based on Capital, Real Savings – the actual sacrifice of consumption, and that is exactly what the present Western system is not based upon.
“So will trust busting help?” – of course not, “Anti Trust” policy is just a diversion to distract attention from the real problems.
Which is pretty much media bullshit, that’s really not what he said.
Regardless of any intent of M. Macron, the risk that chip supplies from Taiwan get disrupted due to Chinese action is far from a small one. If the PRC decides to move against Taiwan, these subsidised efforts to ensure that European and US chip demand can be supplied from elsewhere may seem prescient rather than just another case of “government picking winners”. There’s always a case, surely, for governments ensuring critical supply chains for national defence are secure?
Thank you Perry – that is a relief.
anon – yes such things should, logically, be made locally.
But I think that subsidies are a distraction from the real problems.
Why did Western manufacturing (relatively) decline in the first place?
The “Progressive” education system, and the endless government spending and taxes, regulations and high energy costs, all need to be reversed.
To add intervention on deal with the consequences of earlier interventions, is not the right approach.
Reverse the previous interventions – restore traditional education, radically reduce government spending and taxes, scrap the endless regulations, and radically reduced energy costs, and the problem will take care of itself – without any need to subsidise manufacturing in the West.
Reverse the previous interventions – do not add new ones on top.
Not that I am a fan of government subsidies, but something I’d be interested to hear views on. Over the pandemic one thing that was made very clear is that the USA depended on China for a LOT of crucial things such as drugs, electronics, raw materials and so forth.
This makes sense from a comparative advantage point of view. But in the real world there is a risk associated with it if China is a belligerent nation.
We could no doubt build our aircraft carriers and cruise missiles in China much cheaper, but we don’t, for obvious reasons.
So is there an argument for subsidizing these things from a defense spending point of view?
There is a business analog of supply chain diversification. You don’t want to be 100% dependent on one supplier for a product, you need multiple sources as a safety measure, and often are willing to spend more than the lowest cost to ensure continuity of supply.
I’m not sure what the best approach here is, I doubt it is government, but was interesting what you all thought.
Fraser Orr: Isn’t it all just a variation on the theme that governments are justified in fudging on personal liberty in times of war?
Granted, we’re not in a war, but we seem to be in the run-up to one, maybe.
But I think it’s the exception that swallows the rule. Where we draw that line is the issue – and we usually judge that effort in hindsight. We always seem to be in a run-up to a war. Sometimes the wars happen. Sometimes not. But the run-up can be a convenient thing for big-staters.
Siemens opened up a chip fabrication plant on Tyneside and it attracted a lot of Government subsidy. It was located there due to the abundant water from Kielder Reservoir which in turn was built to to supply water for the proposed steel plants needed by the UK to be built in and around the North East. The steel plants were never built due to the Government agreeing to the EU proposal that all steel was to be produced in a few areas. It is the biggest man made lake in the UK and a marvellous leisure facility … quite an expensive one, at that.
The Tyneside chip factory was better than the corresponding Siemens plants in Germany – the potential “yield” from a silicon wafer is never “100%” of the potentially useable surface due to manufacturing problems, contamination and other errors. The Tyneside plant was producing at over 100% (from memory, 115% – i.e. they were producing 15% more chips from a wafer than expected). When the recession came, Siemens closed the Tyneside plant even though the German plants were producing at about 97% to 98%. For the slower members of the class, Siemens is a German company and they protected their own country and industry. I know, a shocking concept, eh?
Now, you cannot simply buy up a factory, give it a fresh coat of paint, install the equipment and call it a chip fabrication plant. The cleanliness needed and the scrupulous attention to preventing contamination is not something that can be achieved by Sadie the cleaning lady with her mop and bucket. Also, the trained personnel needed to operate the equipment isn’t something that can be ordered from the local DHSS dole office. It is acknowledged in the industry that it will take about 10 years to bring a fabrication plant up to full working efficiency. So the idiots in parliament decreeing that they want a chip fabrication plant by this time next year are living in a dream world. Hence China and/or Taiwan has about 10 years to make their mind up to do something if they want to retain their advantage.
China, unfortunately, thanks to the short sighted policies of western governments and offshoring jobs and technology for cheaper products are entirely to blame for this situation. I know that Ford USA have thousands of vehicles parked up outside of their factories waiting for engine management chips needed to complete the vehicles. Where are they sourced from? Guess.
I know that thanks to America supplying Ukraine with Javelin anti tank missiles, stinger shoulder launched anti aircraft missiles etc. that they now have such low stocks that it will take the manufacturers 13 years to replenish the javelin, 5 years to replenish the stingers. Plus they have supplied over 1 million rounds of 155mm ammunition. Guess what both the javelin and stinger rely on to function? Yep – computer chips which are supplied nowadays by China and while you are in a guessing mood, guess who is nowadays bosom buddy pals with China? Ask yourselves if it is likely that China will supply their enemies with this technology.
The fuckwittery of the politicians throughout the west for not being able to see or predict this is nothing short of criminal. I note that here on Samizdata that the overwhelming opinion is that we should support Ukraine (not my circus, not my monkeys) but if Putin wants to defang NATO, all he needs to do is keep feeding obsolete 70 year old tanks into Ukraine while the latest high tech NATO kit is used to destroy them without even bothering to use his latest tanks etc. If he wants to invade Western Europe and reincorporate the Eastern Bloc countries into Russia again, then NATO will have so little kit to oppose him that the only option NATO will have is to use their nuclear weapons because they will have nothing left to oppose him.
As Obama said, elections have consequences.
So is there an argument for subsidizing these things from a defense spending point of view?
Provided it is explained, funded and narrowly confined to such purposes. But as you know, that’s not what happens, if ever.
Subsidising these things misses the point – and, as even Joe Manchin now admits, the subsidies that were supposed to fight China are ending up in…. CHINA
(well of course they are – with the systematically corrupt American government, who could really have expected anything else).
Why did American, and general Western, manufacturing become uncompetitive in the first place? Because of Progressive education, vast government spending, high taxes and high energy costs.
Reverse the Progressive education (restore traditional education – junk the ideas of John Dewey which are really the ideas of Rousseau), roll back the vast government spending, massively cut the high taxes, and end the “Net Zero” agenda on energy costs – and American and general Western manufacturing will be restored.
As for the role of the American government in all this – the American government is rotten to the core, it may well be past the point of any realistic reform.
Perhaps two thirds of the States need to call for a Constitutional Convention (which they can do without the permission of the Congress – let alone the permission of Mr Biden), and create a new and more limited government.
Revisions to the Constitution of the United States need not be very large – just get rid of the words “general welfare” and “regulate interstate commerce” and most of the problems would be solved.
We have over two centuries experience with the current text – so we know what words have been plucked out of their context and used for evil purposes. Remove-those-words-from-the-text.