There was an interesting story in today's New York Times entitled China Again Hopes to Drive U.S. Rail Construction
Nearly 150 years after American railroads brought in thousands of Chinese laborers to build rail lines across the West, China is poised once again to play a role in American rail construction. But this time, it would be an entirely different role: supplying the technology, equipment and engineers to build high-speed rail lines.
Specifically, Chinese companies have signed an agreement with California and GE to build the system using Chinese technology and Chinese banks would finance it.
This raises the question if the United States is smart enough to learn from the Chinese -- both on technology and economic policy. The US has not been in the high-speed rail industry for years. The fact that GE is a partner in this may make it possible to get back in the game. As the story points out:
The railways ministry has concluded a framework agreement to license its technology to G.E., which is a world leader in diesel locomotives but has little experience with the electric locomotives needed for high speeds.
According to G.E., the agreement calls for at least 80 percent of the components of any locomotives and system control gear to come from American suppliers, and labor-intensive final assembly would be done in the United States for the American market. China would license its technology and supply engineers as well as up to 20 percent of the components.
This sound similar to the type of agreements that US companies sign in China. The Chinese have successfully used this policy of importing technology for decades. As a recent "Schumpeter" column in the Economist notes:
The [ruling Communist] party regards foreign investment as a mechanism for acquiring foreign know-how rather than just jobs and capital; hence the insistence on joint ventures.
In other words, the Chinese have based their economic policy on fostering their intangibles assets - not simply neo-classical theories of consumer welfare.
So, can we do the same? The conditions set down in the deal are important: technology transfer to US companies; use of US labor; and use of US suppliers. They need to be looked at very carefully before the deal is signed. Are they really structured in a way to promote the growth of an American-based industry in this field? Or are they structured in a way that simply give the US the low value-added part of the project - with no future benefit? In addition, any other potential supplier mentioned in the story -- Japan, Germany, South Korea, Spain, France and Italy -- should be subject to the same analysis: who will give us the best deal for building up the industrial and technological base here at home.
The US has the opportunity to act strategically in its technology policy -- the way China and other countries have been doing for years. Let's hope the policymakers in California and elsewhere are smart enough to recognize the opportunity.
To read the full, original article click on this link: Learning from China - The Intangible Economy
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