Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: If I oversimplify this to the US is the leader in 0 to 1 and China's leader in 1 to n scale-up in manufacturing, which would be harder for the other to get? Would it be harder for the U.S. to get really good at the scale-up in manufacturing or harder for China to get good at the 0 to 1? Based on everything you know about both, what's more likely?
· Dan Wang
[00:00:00] S1: I think that it is harder for the U.S. The task is comparatively simpler for China, and China has already gotten significantly better at a lot of these scientific projects that used to be only the preserve of American universities and a few other places. By most metrics that we can identify, Chinese scientists are producing better qualities of work, not just quantity. If we take a look at the top 1% cited scientific papers, Chinese researchers are producing an increasing share of many of these top papers. We can see that China has produced a lot of really good scientific projects, to say nothing of the moon missions. I think there's a pretty strong sense now that China will get to the moon by the end of the 2020s and America might not be able to get back to the moon, that it has forgotten a lot of these skills, that China has invested a huge amount in trying to improve its universities. We can see that a lot of American researchers, often American researchers of Chinese descent, have decided to move to China because there's better funding, there's more grad students they can work with, there's a more stable environment for them to do their science. And conversely, I think we have not seen that the US is really learning the hard parts of manufacturing really well. I think there are some successes. We can see that the TSMC FAB in Arizona is actually doing fairly well now, according to the latest reporting. But if we take a look at many of America's apex manufacturers, companies like Boeing making aviation, Intel making chips, Detroit and Tesla making vehicles mostly, that's been going downhill. The US isn't making a huge number of iPhones, it's barely making a huge number of Apple's desktop computer. And so I feel the Chinese are learning at a much faster rate to patch up their deficiencies than the Americans have.
· Patrick O'Shaughnessy
[00:00:00] S0: What should the US do that it's not doing? If you were the dictator of the US economy and your goal was to make it catch up in this regard as much as possible, because it seems like the consensus is, wouldn't it be great? And there's some people that are trying to do this in small ways so far. If we had manufacturing excellence back here again and controlled vertically our whole destiny, we have the spark covered. What would you do if you were fully in control?
· Dan Wang
[00:00:00] S1: I am against fully in control. I want no dictator in China, and so therefore I renounce being dictator of the US. I think what I am really thinking about for this particular book project, as well as my broader writing over the past 10 years on China, is to be less focused on policy prescriptions, fixing statutes, fixing regulations. What I really want to do is to inspire Americans to treat technology as a political project as well as an aesthetic project. I think this is one of the things that China really does well is that it takes manufacturing super seriously, and the US has not taken it super seriously since various points in the 1980s. I'm fond of quoting a former chairman of the economic advisors who said in the 1990s in this glib quip, which is quite funny, but computer chips, potato chips, what's the difference? As if these things could all be fungibly measured in quantities of dollars. And I think there is something qualitatively different between high-end semiconductors as well as a spud. So I think that various parts of the American elite have decided that manufacturing is not so important. We don't need to manufacture socks and T-shirts, fine. We don't need to manufacture televisions. And here’s where I start getting a little bit nervous. We don’t need to start manufacturing iPhones or munitions or all sorts of other goods, and that is where I get really nervous. What I really want is for Americans to feel the importance of having a robust manufacturing base—to feel the need to try to recover some of that and err more on the side of doing more manufacturing rather than less. And so again, I have those great policy prescriptions. I am critical of some of the policies of the present administration. But I think that if we are all much more committed to just building out and recognizing some of these problems that we have, and recognizing China’s trends, then I think the conversation flows much more naturally about what we need to do and which statutes and regulations we need to fix.
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: Can you imagine that happening without some sort of visceral crisis? Can that happen slowly and organically? [00:00:00] S1: In the 1950s—I think it was in 1957—there was the Sputnik moment which is— [00:00:00] S0: Exactly what I’m thinking of.
· Dan Wang
[00:00:00] S1: A toy satellite emerged from the Soviet Union, and essentially, over the last 15 years, the number of politicians citing whatever new breakthrough as a “Sputnik moment” for the U.S.—I once cataloged this. I found a half dozen instances of major figures that included Barack Obama to various other U.S. senators who have cited this thing or that as a Sputnik moment. I think Obama cited high-speed rail in China as the Sputnik moment. Some other senators cited Huawei’s lead in 5G telecommunications equipment. Just two weeks ago, there was a Harvard professor, Stephen Greenblatt, who wrote in The New York Times that Chinese universities are really rising in global rankings, in part because they’re doing better and better science. I am quoting him, essentially: “If that’s not a Sputnik moment, I don’t know what will be.” And what I’m actually kind of afraid of is that the more we use this term “Sputnik moment,” which Americans are using quite often, and the less that it is actually accompanied by real action—as the original moment in the 1950s was—the more that this term is just bandied about. It’s the boy who cried wolf, glibly crying wolf about this or that, and actually there’s no fundamental action. What I’m often really surprised about is just the lack of real sense of crisis among a lot of Americans with the rusting manufacturing base. We’re chatting together in New York City. The Second Avenue subway extension costs about $2 billion per mile. Almost everything in the U.S., in terms of major infrastructure—especially in big cities—ends up being over budget and over time. Voters originally approved the California high-speed rail by referendum in 2008. I think they said this must be finished by 2020. Right now, we’re in 2025. How many people have actually ridden California high-speed rail? The answer is zero, because the first segment is supposed to start operating between 2030 and 2033, between Bakersfield and Merced. So there are just these rampant failures all the time in America, and somehow I don’t really see many heads rolling—from the heads of agencies or U.S. senators stepping down because they failed at a transportation project. That’s something that is more common in Asia. So why is there no sense of crisis? Patrick, riddle me this.