Last Friday, Michael Auslin, a former AEI colleague, wrote a timely opinion piece in Financial Times in which he urgently called for a latter-day financial or tech giant to “step into [JP] Morgan’s shoes.” Warning correctly that “historical analogies are tricky,” Auslin recounts the 1907 Wall Street financial crisis during which Morgan put his own fortune at risk and led other financiers and federal officials to stem the panic, thus heading off “damage to the US economy [that] might have been catastrophic.” The theme of the piece: “Without a modern-day Morgan to take charge, a poor response to 5G may well permanently weaken the American economy.”
Auslin is on solid ground in describing the potentially revolutionary impact of fully developed 5G networks: “When combined with more sophisticated artificial intelligence programmes, 5G could revolutionise medicine, manufacturing, finance, commerce and basic science.” And he is right to warn of the dire consequences that would flow from the current dominance of Huawei in the rollout of 5G networks: “If Huawei dominates the world’s 5G systems, it will set digital standards for decades and put Chinese companies in pole position in fintech, telemedicine, manufacturing and autonomous systems.”
But the theme of Auslin’s new book, titled “Asia’s New Geopolitics,” highlights the ultimate limitations of “self-interested patriotism” and leadership by a company such as Cisco or a financier such as Warren Buffett. During the 1907 panic, Morgan’s intervention stemmed from a wholly domestic financial crisis. The 5G technological upheaval implicates not only economic policy challenges but also deep technological, strategic, and security decisions.
While Auslin is dead right that the US government should not “own” the 5G network or even be the “primary funder,” the complex trade-offs will demand public leadership, starting with the White House. Further, only the US government can create international alliances to ensure that the future of 5G-based technology does not fall prey to an authoritarian global regime.
Finally, only with the creation of a comprehensive national 5G rollout plan can we expect the US private sector to “put aside short-term profit considerations” and invest long term in technologies that will “eventually pay off as domestic 5G networks revitalise and refit the economy, and are sold to other countries.” Such a plan — something that is notably missing from the Trump administration thus far — would have to include public-private partnerships, possible interim US funding to counter Beijing’s subsidies for Huawei, and a credible plan for a transition to virtual or software-based alternatives to Huawei technology.
Chinese state-controlled “capitalism” can be outmatched on 5G, but it will take strong, technologically informed national leadership, in partnership with a secure, forward-looking private sector to stay the course. Whatever the internal dynamics of the US 5G rollout, Michael Auslin has put forward a warning to be heeded.
Historical footnote: The 1907 financial crisis was not the first time JP Morgan had interacted with the federal government — namely President Theodore Roosevelt. In an episode that has overtones for the current debate over Big Tech, Roosevelt and Morgan met famously after Roosevelt brought an antitrust suit against Morgan’s Northern Securities Company. Morgan was offended but wanted an amicable settlement — so he suggested to Roosevelt (paraphrasing), “Why don’t you have your man come over and meet with my man and we can reach some agreement.” Roosevelt’s “man” was the attorney general of the United States. Roosevelt declined to send his man, and the suit went forward.
Actually, the real lesson does not further the picture of Roosevelt as a “trust buster.” Unlike Woodrow Wilson and Louis Brandeis after him, Roosevelt did not fear bigness, per se. He just wanted to establish that the federal government was more powerful, and that public officials had the final word on competition policy: His public “man” was not at the beck and call of the “malefactors of great wealth,” as he once called them.
This article by Claude Barfield first appeared in AEIdeas on August 11, 2020.