For decades, the Republican economic creed has revolved around low taxes and free markets. The sacred dual directives had to be vigorously defended and market regulations of any kind aggressively parried. Free-market prophets such as Milton Friedman suggested a society’s “belief in freedom itself” might be measured by its commitment to deregulation. But quietly, in the past few months, there have been signs of a shift away from the faith, triggered by a most unlikely model for conservatives: communist China.
In February, the U.S. Senate Committee on Small Business and Entrepreneurship, chaired by prominent Republican Marco Rubio, released a report on “Made in China 2025,” Beijing’s mercantilist plan to dominate high-tech industries in the coming years. The report credited the Chinese Communist Party’s (CCP) interventionist policies for China’s meteoric economic development and technological advances. As angry libertarians quickly noted, it was a striking betrayal of free-market orthodoxy, concluding that the United States must adopt some measure of state planning in order to keep pace with China, which is fast catching up in artificial intelligence (AI), robotics, and biotech, among other emerging technologies.
Piggybacking on that apparent free-market blasphemy, Intel in early March released a white paper calling for a comprehensive national strategy to bolster U.S. AI capabilities. Through increased regulation and the liberation of vast reserves of government data, it argued, the United States would be able to stave off China’s rising technological threat and foster innovation. The paper also highlighted the threat posed by Beijing’s growing lead in government-directed AI startup funding.
Something about China’s technological prowess has spooked America’s traditional free market apostles, both in the public and private sectors. Communal faith in unfettered capitalism is hitting a wall as Beijing announces itself—through increased military spending, South China Sea initiatives, and more—as the United States’ chief geopolitical rival. While our much ballyhooed economic system has led to wage stagnation and widespread deindustrialization, a growing group of China-admirers point out, China’s state-planned economy has lifted hundreds of millions out of poverty over the past forty years, and Beijing now plays host to more billionaires than New York. Although this view ignores China’s current economic slowdown, massive debt burden, and among other economic imbalances competing experts point to as sources of a potential crash, such caveats have not done much to dim the new enthusiasm for the Chinese model.
The report is particularly puzzling. While Marco Rubio, the chairman of the Committee, has in the past labeled himself a staunch supporter of the free market, his report admits that China’s anti-capitalist approach has worked. Throughout the report, the authors alternate between lambasting China’s economic system while also crediting it with facilitating impressive technological gains: Chinese economic policies are at the same time doomed to fail and destined to triumph.
China paranoia aside, part of this shift may be an understandable reaction to the unusual challenges of the AI revolution, one that promises to remake the global economy. Whereas previous innovations, such as the Internet and automobiles, decentralized information and transportation, AI is a fundamentally centralizing technology. In order for an AI algorithm to improve, it must be fed massive amounts of data, and right now only tech giants like Google, Tencent, Amazon, and Alibaba have enough data to create good AI algorithms. This kind of centralization might indeed require a stronger central regulator, to protect against abuses, for example.
The Intel paper, of course, favors regulation just to the point where it helps its business, and while its call for a national AI strategy is fundamentally anti-free market, its main aim is to unlock vast stores of U.S. government data for private companies. As a Financial Times headline three years ago said, data is the new oil, a potential driver (if the ravages associated with the “old” oil can be managed) of post-industrial economies. The country that secures the most data will have the best shot at designing revolutionary technologies that will lead to economic dominance in the 21st century.
At the moment, China has vastly more data at its disposal than the United States does, due both to its massive population and Internet ecosystem. This advantage is one of the reasons former Google executive Kai-Fu Lee believes that China will overtake the West in AI and other emerging technologies.
One massive issue in this new arms race is privacy. The authors of the Intel paper are essentially asking for public data for private gain, moving the U.S. away from Europe’s strict data protections in the name of potential economic gains, toward a Chinese model frequently criticized as Big Brotherish.
The United States’ bipartisan China engagement strategy, implemented even before China began opening itself to the global economy, has not worked as intended. Since the early 1970s, the American party line on engagement with China has derived from the theory that, as China develops and grows wealthier, average citizens will demand greater political freedoms, and the country will begin to more closely resemble the West in terms of human rights protections and liberal values. For the past several decades, American China-hands have assumed that as the country becomes wealthier, it must begin an inevitable transformation into a democracy.
In fact, the opposite has been true, the CCP has managed the economic and political sphere with remarkable effectiveness, clamping down on dissent and controlling the Internet in a fashion once thought to be impossible. At the same time, Western companies have capitulated to the whims of the CCP in order to enter China’s market, sacrificing so-called American values in order to profit from the Chinese market cornucopia.
The list of capitulating companies is long and sordid. Apple has removed VPNs and certain apps from its China store and has agreed to keep the data of domestic iPhone users in China on the servers of a state-run telecom company. United, American, and Delta airlines bowed to pressure from the CCP to refer to Taiwan as part of China. Only after intense backlash did Google recently cancel its project to create a censored, government-approved search engine that would link users’ search history to their phone numbers.
More and more American corporations have shown themselves happy to forgo liberal values in exchange for market access. With the call for a China-like economic policy issued by Intel, we could soon see changes in U.S. data protections leading to further erosions of privacy.
For years, Washington has coaxed Beijing to change. Now, some seem inclined to change tune. Though China is indeed the United States’ most potent geopolitical rival, reactions to rivalry can sometimes pose a bigger threat than the rival itself.