Category Archives: Science

China’s Coming Upheaval

Competition, the Coronavirus, and the Weakness of Xi Jinping
By Minxin Pei – Over the past few years, the United States’ approach to China has taken a hard-line turn, with the balance between cooperation and competition in the U.S.-Chinese relationship tilting sharply toward the latter. Most American policymakers and commentators consider this confrontational new strategy a response to China’s growing assertiveness, embodied especially in the controversial figure of Chinese President Xi Jinping. But ultimately, this ongoing tension—particularly with the added pressures of the new coronavirus outbreak and an economic downturn—is likely to expose the brittleness and insecurity that lie beneath the surface of Xi’s, and Beijing’s, assertions of solidity and strength.

The United States has limited means of influencing China’s closed political system, but the diplomatic, economic, and military pressure that Washington can bring to bear on Beijing will put Xi and the Chinese Communist Party (CCP) he leads under enormous strain. Indeed, a prolonged period of strategic confrontation with the United States, such as the one China is currently experiencing, will create conditions that are conducive to dramatic changes.

As tension between the United States and China has grown, there has been vociferous debate about the similarities and, perhaps more important, the differences between U.S.-Chinese competition now and U.S.-Soviet competition during the Cold War. Whatever the limitations of the analogy, Chinese leaders have put considerable thought into the lessons of the Cold War and of the Soviet collapse. Ironically, Beijing may nevertheless be repeating some of the most consequential mistakes of the Soviet regime.

During the multidecade competition of the Cold War, the rigidity of the Soviet regime and its leaders proved to be the United States’ most valuable asset. The Kremlin doubled down on failed strategies—sticking with a moribund economic system, continuing a ruinous arms race, and maintaining an unaffordable global empire—rather than accept the losses that thoroughgoing reforms might have entailed. Chinese leaders are similarly constrained by the rigidities of their own system and therefore limited in their ability to correct policy mistakes. In 2018, Xi decided to abolish presidential term limits, signaling his intention to stay in power indefinitely. He has indulged in heavy-handed purges, ousting prominent party officials under the guise of an anticorruption drive. What is more, Xi has suppressed protests in Hong Kong, arrested hundreds of human rights lawyers and activists, and imposed the tightest media censorship of the post-Mao era. His government has constructed “reeducation” camps in Xinjiang, where it has incarcerated more than a million Uighurs, Kazakhs, and other Muslim minorities. And it has centralized economic and political decision-making, pouring government resources into state-owned enterprises and honing its surveillance technologies. Yet all together, these measures have made the CCP weaker: the growth of state-owned enterprises distorts the economy, and surveillance fuels resistance. The spread of the novel coronavirus has only deepened the Chinese people’s dissatisfaction with their government.

The economic tensions and political critiques stemming from U.S.-Chinese competition may ultimately prove to be the straws that broke this camel’s back. If Xi continues on this trajectory, eroding the foundations of China’s economic and political power and monopolizing responsibility and control, he will expose the CCP to cataclysmic change.

Since taking power in 2012, Xi has replaced collective leadership with strongman rule. Before Xi, the regime consistently displayed a high degree of ideological flexibility and political pragmatism. It avoided errors by relying on a consensus-based decision-making process that incorporated views from rival factions and accommodated their dueling interests. The CCP also avoided conflicts abroad by staying out of contentious disputes, such as those in the Middle East, and refraining from activities that could encroach on the United States’ vital national interests. At home, China’s ruling elites maintained peace by sharing the spoils of governance. Such a regime was by no means perfect. Corruption was pervasive, and the government often delayed critical decisions and missed valuable opportunities. But the regime that preceded Xi’s centralization had one distinct advantage: a built-in propensity for pragmatism and caution.

In the last seven years, that system has been dismantled and replaced by a qualitatively different regime—one marked by a high degree of ideological rigidity, punitive policies toward ethnic minorities and political dissenters at home, and an impulsive foreign policy embodied by the Belt and Road Initiative (BRI), a trillion-dollar infrastructure program with dubious economic potential that has aroused intense suspicion in the West. The centralization of power under Xi has created new fragilities and has exposed the party to greater risks. If the upside of strongman rule is the ability to make difficult decisions quickly, the downside is that it greatly raises the odds of making costly blunders. The consensus-based decision-making of the earlier era might have been slow and inefficient, but it prevented radical or risky ideas from becoming policy.

Under Xi, correcting policy mistakes has proved to be difficult, since reversing decisions made personally by the strongman would undercut his image of infallibility. (It is easier politically to reverse bad decisions made under collective leadership, because a group, not an individual, takes the blame.) Xi’s demand for loyalty has also stifled debate and deterred dissent within the CCP. For these reasons, the party lacks the flexibility needed to avoid and reverse future missteps in its confrontation with the United States. The result is likely to be growing disunity within the regime. Some party leaders will no doubt recognize the risks and grow increasingly alarmed that Xi has needlessly endangered the party’s standing. The damage to Xi’s authority caused by further missteps would also embolden his rivals, especially Premier Li Keqiang and the Politburo members Wang Yang and Hu Chunhua, all of whom have close ties to former President Hu Jintao. Of course, it is nearly impossible to remove a strongman in a one-party regime because of his tight control over the military and the security forces. But creeping discord would at the very least feed Xi’s insecurity and paranoia, further eroding his ability to chart a steady course.

A strongman who has suffered setbacks—as Mao Zedong did after the Great Leap Forward, a modernization program that centralized food production, leading to some 30 million deaths by famine in the early 1960s—naturally fears that his rivals will seize the opportunity to conspire against him. To preempt such threats, the strongman typically resorts to purges, which Mao did four years after the end of the Great Leap Forward by launching the Cultural Revolution, a movement intended to eliminate “bourgeois elements” in society and in the government. In the years ahead, Xi may come to rely on purges more than he already does, further heightening tensions and distrust among the ruling elites.

A key component of Washington’s strategic confrontation with Beijing is economic “decoupling,” a significant reduction of the extensive commercial ties that the United States and China have built over the last four decades. Those advocating decoupling—such as U.S. President Donald Trump, who launched a trade war with China in 2018—believe that by cutting China off from the United States’ vast market and sophisticated technology, Washington can greatly reduce the potential growth of China’s power. In spite of the truce in the trade war following the interim deal that Trump struck with Xi in January 2020, U.S.-Chinese economic decoupling is almost certain to continue in the coming years regardless of who is in the White House, because reducing the United States’ economic dependence on China and constraining the growth of China’s power are now bipartisan aims.

As the economy weakens, the CCP may have to contend with the erosion of popular support resulting from a falling or stagnant standard of living. In the post-Mao era, the CCP has relied heavily on economic overperformance to sustain its legitimacy. Indeed, the generations born after the Cultural Revolution have experienced steadily rising living standards. A prolonged period of mediocre economic performance—say, a few years in which the growth rate hovers around three or four percent, the historical mean for developing countries—could severely reduce the level of popular support for the CCP, as ordinary Chinese grapple with rising unemployment and an inadequate social safety net.

In such an adverse economic environment, signs of social unrest, such as riots, mass protests, and strikes, will become more common. The deepest threat to the regime’s stability will come from the Chinese middle class. Well-educated and ambitious college graduates will find it difficult to obtain desirable jobs in the coming years because of China’s anemic economic performance. As their standard of living stalls, middle-class Chinese may turn against the party. This won’t be obvious at first: the Chinese middle class has traditionally shied away from politics. But even if members of the middle class do not participate in anti-regime protests, they may well express their discontent indirectly, in demonstrations over such issues as environmental protection, public health, education, and food safety. The Chinese middle class could also vote with its feet by emigrating abroad in large numbers.

An economic slowdown would also disrupt the CCP’s patronage structure, the perks and favors that the government provides to cronies and collaborators. In the recent past, a booming economy provided the government with abundant revenue—total revenue in absolute terms tripled between 2008 and 2018—providing the resources the CCP needed to secure the loyalty of midlevel apparatchiks, senior provincial leaders, and the managers of state-owned enterprises. As the Chinese economic miracle falters, the party will find it harder to provide the privileges and material comforts that such officials have come to expect. Party elites will also need to compete harder among themselves to get approval and funding for their pet projects. Dissatisfaction among the elites may spiral if Xi’s prized priorities, such as the BRI, continue to receive preferential treatment and everyone else must economize.

Finally, in the event of a dramatic slowdown, the Chinese government will most likely find itself confronting greater resistance in the country’s restive periphery, especially in Tibet and Xinjiang, which contain China’s most vocal ethnic minorities, and in Hong Kong, which was British territory until 1997 and retains a different system of governance with far more civil liberties. To be sure, escalating tensions in China’s periphery will not bring the CCP down. But they can be costly distractions. Should the party resort to overly harsh responses to assert its control, as is likely to be the case, the country will incur international criticism and harsh new sanctions. The escalation of human rights violations in China would also help push Europe closer to the United States, thus facilitating the formation of a broad anti-China coalition, which Beijing has been desperately trying to prevent.

Although middle-class discontent, ethnic resistance, and pro-democracy protests won’t force Xi out of power, such pervasive malaise would undoubtedly further erode his authority and cast doubts on his capacity to govern effectively. Economic weakness and elite demoralization could then push Beijing over the edge, leading the CCP toward calamity.

The events of the past few months have shown that CCP rule is far more brittle than many believed. This bolsters the case for a U.S. strategy of sustained pressure to induce political change. Washington should stay the course; its chances of success are only getting better and better. more>

Supersonic Flight is Back

The 1970s Concord supersonic transport has been re-imaged by Boom Technology with an eye for the modern business traveler.
By John Blyler – The supersonic phoenix is rising again. The latest incarnation of faster-than-sound flight for the commercial market is being created by Boom Supersonic, the aerospace startup company. Boom recently announced that its supersonic demonstrator, XB-1, will roll out on October 7, 2020.  XB-1 is an independently developed supersonic jet and that will demonstrate key technologies for Overture, Boom’s commercial airliner, such as advanced carbon fiber composite construction, computer-optimized high-efficiency aerodynamics, and an efficient supersonic propulsion system.

Boom Technology’s co-founder and then VP of Technology, Joshua Krall, was a keynote speaker at Dassault Systemes’s annual 3DExperience Forum in 2019.

“Our goal is to make high-speed travel available to everyone – not just the thrill seekers or rich travelers,” explained Krall at the forum. “It not so much about time saved but about life gained back from faster air travel.”

For all but the wealthiest travelers, the promise of a supersonic adventure never arrived. The last supersonic aircrafty was the British-French turbojet powered Concorde which operated from 1974 until 2003. It had a maximum speed over twice the speed of sound, at Mach 2.04 (1,354 mph or 2,180 km/h at cruise altitude). Most of today’s commercial jet aircraft reach around 400 – 500 knots (460 – 575 mph) or roughly 0.6 mach. The mach number is simply a percentage of the speed of sound. At sea level with an air temperature of 15 degrees Celsius, the speed of sound is 761 mph.

There are zero scientific barriers to supersonic flights, said Krall. However, there are cost barriers. Boom hopes to bring the reduce the cost barrier for supersonic flight. It plans to do so with Overture, the first Boom aircraft for commercial use. Overture will travel at mach 2.2 or approximately 2.6 times faster than existing commercial jet aircraft. It will cruise at 60K feet, about twice as high as commercial aircraft. more>

Is this Last Mile for the Million-Mile Battery?

Announcements from Tesla and CATL show that a long-lived, cobalt-free and competitively price EV and grid/home batteries may finally have arrived.
By John Blyler – The much discussed 1 million-mile (1.6 million kilometers) battery may now be a reality. As the name suggests, these batteries would last for 1 million miles without breaking down. Tesla, along with China-based Contemporary Amperex Technology (CATL), have announced such a battery that not only lasts longer but also costs less than $100/kWh and uses cobalt-free materials. Why are these two features important?

It has long been a metric for the success of electronic vehicles (EV) that their battery energy density be on parity with traditional gasoline-powered engines. Such a condition would allow EVs to compete with gasoline vehicles on both weight and range – especially the latter. This means that, if gasoline is 100 times more energy-dense than a battery, that a vehicle would need 100 lbs of battery to go as far as 1-lb of gasoline.

But past studies by the Argonne National Labs have shown that system efficiency is another key consideration when comparing EV and gasoline energy densities. The research lab noted that electric powertrains are far more efficient than powertrains powered by gasoline. In many cases, less than 20% of the energy contained in a gallon of gas actually gets converted to forward motion. After that power has been transmitted through a transmission and differential to the wheels, it would have suffered significantly more mechanical losses.

By contrast, an electric powertrain can be more than 90% efficient. This would suggest that the energy density of an EV battery could be far less than equivalent to a gasoline-powered vehicle and still come out ahead. more>

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FBI director: China is the “greatest long-term threat” to the US

New Europe – New Europe has, in the past, sounded the alarm on multiple occasions in an effort to caution the public about China’s flagship projects, including its Belt and Road initiative, as well as its numerous financial and technological investments around the world, all of which are aimed at ensuring that the Chinese Communists’ vital interests become so irreversibly intertwined with the order of business in the community that they guarantee that Beijing replaces the United States and its allies to become the arbiter of a new, Chinese-model, world order.

While speaking to the Hudson Institute in Washington on July 7, FBI Director Christopher Wray confirmed what New Europe has been concerned about, saying that acts of espionage and theft by China’s government pose the “greatest long-term threat” to the future of the United States.

As National Security Advisor O’Brien said in his recent remarks, we cannot close our eyes and ears to what China is doing—and today, in light of the importance of this threat, I will provide more detail on the Chinese threat than the FBI has ever presented in an open forum. This threat is so significant that the attorney general and secretary of state will also be addressing a lot of these issues in the next few weeks. But if you think these issues are just an intelligence issue, or a government problem, or a nuisance largely just for big corporations who can take care of themselves—you could not be more wrong.

It’s the people of the United States who are the victims of what amounts to Chinese theft on a scale so massive that it represents one of the largest transfers of wealth in human history.

In 2017, the Chinese military conspired to hack Equifax and made off with the sensitive personal information of 150 million Americans—we’re talking nearly half of the American population and most American adults—and as I’ll discuss in a few moments, this was hardly a standalone incident.

Our data isn’t the only thing at stake here—so are our health, our livelihoods, and our security.

We’ve now reached the point where the FBI is opening a new China-related counterintelligence case about every 10 hours. Of the nearly 5,000 active FBI counterintelligence cases currently underway across the country, almost half are related to China. And at this very moment, China is working to compromise American health care organizations, pharmaceutical companies, and academic institutions conducting essential COVID-19 research.

To understand this threat and how we must act to respond to it, the American people should remember three things.

First: We need to be clear-eyed about the scope of the Chinese government’s ambition. China—the Chinese Communist Party—believes it is in a generational fight to surpass our country in economic and technological leadership.

That is sobering enough. But it’s waging this fight not through legitimate innovation, not through fair and lawful competition, and not by giving their citizens the freedom of thought and speech and creativity that we treasure here in the United States. Instead, China is engaged in a whole-of-state effort to become the world’s only superpower by any means necessary.

The second thing the American people need to understand is that China uses a diverse range of sophisticated techniques—everything from cyber intrusions to corrupting trusted insiders. They’ve even engaged in outright physical theft. And they’ve pioneered an expansive approach to stealing innovation through a wide range of actors—including not just Chinese intelligence services but state-owned enterprises, ostensibly private companies, certain kinds of graduate students and researchers, and a whole variety of other actors working on their behalf.

To achieve its goals and surpass America, China recognizes it needs to make leaps in cutting-edge technologies. But the sad fact is that instead of engaging in the hard slog of innovation, China often steals American intellectual property and then uses it to compete against the very American companies it victimized—in effect, cheating twice over. They’re targeting research on everything from military equipment to wind turbines to rice and corn seeds.

Through its talent recruitment programs, like the so-called Thousand Talents Program, the Chinese government tries to entice scientists to secretly bring our knowledge and innovation back to China—even if that means stealing proprietary information or violating our export controls and conflict-of-interest rules. more>

There’s a hidden economic trendline that is shattering the global trade system

By Marshall Auerback and Jan Ritch-Frel – Former U.S. Treasury Secretary Lawrence Summers has recently conceded: “In general, economic thinking has privileged efficiency over resilience, and it has been insufficiently concerned with the big downsides of efficiency.” Policy across the globe is, therefore, moving in a more overtly nationalistic direction to rectify this shortcoming.

COVID-19 has accelerated a process that was well underway before it, spreading beyond U.S.-China-EU trade negotiations and into the world’s 50 largest economies. As much as many defenders of the old order lament this trend, it is as significant a shift as the dawn of the World Trade Organization global trade era.

Economists, politicians, and leading pundits are often tempted to see new economic patterns through the prisms of the past; we are therefore likely to hear that we’re back in an era of 19th-century mercantilism, or 1970s-style stagflation. But that misses the moment—the motives are different, and so are the outcomes.

What we are experiencing is the realisation by state planners of developed countries that new technologies enable a rapid ability to expand or initiate new and profitable production capacity closer to or inside their own markets. The cost savings in transport, packaging and security and benefits to regional neighbours and these countries’ domestic workforces will increasingly compete with the price of goods produced through the current internationalized trade system. U.S. national politicians from President Donald Trump to Senator Elizabeth Warren will be joined by a growing chorus who see the long-term domestic political benefit of supporting this transition.

The combination of high-speed communication, advances in automated manufacturing and computing combined with widespread access to the blueprints and information necessary to kick-start new production capacity increasingly makes the current international network of supply chains resemble a Rube Goldberg contraption, and it lightens the currency outflow challenge that many economies have had to deal with for the past seven decades.

Growing political will to restore manufacturing capacity in the national interest will have a shattering effect on countries that built up their economies through a labour price advantage over the past 40 years. No amount of currency depreciation or product dumping can overcome the reality of a country’s foreign customer base suddenly opting to produce and buy their own goods at competitive prices.

Taken in sum, the transformation underway isn’t just Donald Trump demanding less dependency on China’s production capacity—it’s a global process. It’s also India signalling it’s going to try to strike its own technological path away from China.

The rationales provided by governments to escape the strictures of the existing trade arrangements and into the new era are fairly easy: a mix of opportunism and need, tied to the exigencies of the moment, such as the current pandemic, and long-term national security, which of course can ultimately amount to any economic activity of scope. Senator Elizabeth Warren’s introduction in July of her sweeping Pharmaceutical Supply Chain Defense and Enhancement Act demonstrates that the U.S. power establishment is beginning to reach a consensus on this issue—no longer the sole province of Trump-era nationalism. “To defeat the current COVID-19 crisis and better equip the United States against future pandemics, we must boost our country’s manufacturing capacity,” Warren said, recasting the consequences of decades of policy to offshore our economic production as an “overreliance on foreign countries.” Likewise, Senator Tom Cotton has introduced a new bill focusing on domestic production of semiconductors, titled the “American Foundries Act of 2020,” which aims to rebuild the country’s semiconductor capacity. This bill too has significant bipartisan backing.

The government of Japan’s newly defined restrictions on foreign investment as reported by the Financial Times of around a dozen sectors including “power generation, military equipment, [computer] software [and technology]” in effect prioritize the claims of domestic manufacturers on national security grounds.

The government of Australia has likewise outlined new powers to scrutinize new overseas investment, as well as forcing foreign companies to sell their assets if they pose a national security threat. The proposals come in the wake of an intensifying trade war between the governments of Beijing and Canberra, alongside “a dramatic increase in the number of foreign investment bids probed by Australia’s spy agency ASIO, over fears that China was spying on sensitive health data,” according to news.com.au. This is happening at the same time that there has been an overhaul of thought with regard to manufacturing, something Australia hasn’t typically done much of. The headlines from Australia are beginning to look a lot like the Area Development stories in the United States.

The Canadian government has also announced plans to enhance foreign investment scrutiny “related to public health or critical supply chains during the pandemic, as well as any investment by state-owned companies or by investors with close ties to foreign governments,” according to the Globe and Mail. This attempt to disaggregate beneficial foreign investment flows from those deemed contrary to the national interest used to be a common feature of government policy in the post-World War II period. Canada established the Foreign Investment Review Agency in 1973 as a result of mounting concerns about rising overseas investment, notably the domination of U.S. multinationals, in the Canadian economy. Its provisions were repeatedly downgraded as globaliaation pressures intensified, but its value is now being reassessed for compatibility with national health policy and resiliency in manufacturing chains. Predictably, pharmaceutical independence is high on the list.

Taiwan, “a net importer of surgical masks before the pandemic, [has] created an onshore mask-manufacturing industry in just a month after registering its first infections in January,” reports the Financial Times. “Taiwan’s President Tsai Ing-wen… said Taipei would repeat that approach to foster other new industries.” And world economists have noted that Taiwan and Vietnam lead the world in growth of global market share in exports, at the expense of larger economies like China.

In Europe, the EU leadership is publicly indicating a policy of subsidy and state investment in companies to prevent Chinese buyouts or “undercutting… prices.” This was supposed to represent a cross-European effort, but the coronavirus policy response is increasingly driven at the national level. Consequently, it is starting to fracture the EU’s single market, which has long been constructed on an intricate network of cross-border supply chains and strict rules preventing state subsidies to national champions.

Even Germany, with a vibrant export sector that has long made it a beneficiary of globalization, has also signaled a move toward greater economic nationalism.

Economic nationalist considerations are also driving a shift in Britain’s negotiating stance in the current Brexit trade negotiations with the EU, with the UK clearly prioritizing national sovereignty over frictionless free trade with its former single-market partners, even if that means a so-called “Hard Brexit.” The EU’s single-market rules specifically preclude state aid to specific industries if it undermines the operation of the single market. But the UK’s chief negotiating officer, David Frost, has made it clear that the ability to break free from the EU’s rulebook was essential to the purpose of Brexit, even if that meant reverting to the less favorable WTO trade relationship that exists for other non-EU countries.

Over the past 40 years, this kind of overt economic nationalism, especially as it has pertained to domestic manufacturing capabilities, has generally been eschewed by the United States, at least until the ascension of Donald Trump to the White House. In part, this is a product of the fact that as global hegemon, the United States used to be able to dominate global institutions (such as the International Monetary Fund and the WTO) and shape them toward U.S. national interests. But when necessary, national security considerations have intervened.

More recently, national security considerations in the semiconductor industry have again revived in the wake of the Trump administration’s growing dispute with Chinese 5G telecommunications equipment maker Huawei. The U.S. Commerce Department has now mandated that all semiconductor chip manufacturers using U.S. equipment, IP, or design software will require a license before shipping to Huawei. This decision has forced the world’s biggest chipmaker—Taiwan Semiconductor Manufacturing Company (TSMC)—to stop taking fresh orders from Huawei, as it uses U.S. equipment in its own manufacturing processes. Paradoxically, then, the Trump administration has exploited pre-existing global supply linkages in the furtherance of a more robust form of economic nationalism. The same policy attitude is now visible with regard to pharmaceuticals (as it is in other parts of the world, to the likely detriment of China and India).

A shift like this will have a knock-on effect that will reverberate to the other parts of the world that for centuries have been forcibly limited—by arms and finance—to being sources of raw material export, refined if they were lucky. They will watch closely what happens with Australia, which for the majority of the past 150 years has been an exporter of food and minerals, but is now jumping on the project to establish a national manufacturing base.

As dozens of countries build their own manufacturing base—something only a handful of countries controlled for most of modern history—big questions will emerge about geopolitical stabilization and the classical tools of foreign influence. The world today in some respects resembles the 19th century’s balance-of-power politics, even as the majority of countries understand that some minimal level of state collaboration is essential to combat shared challenges. China is party to a growing number of global disputes, as emerging great powers typically experience: the U.S. vs. China, China vs. IndiaJapan vs. ChinaChina vs. Australia, and the EU vs. China. But hot wars are unlikely to feature as prominently as they did two centuries ago.

Expect to see Cold War-style conflict intensify, however, albeit in new forms. Instead of the old geopolitical arenas including access to vital commodities or stable petroleum markets, the new forms of the competition will put greater weight on access to advanced research and technologies, such as the collection, transfer and storage of data and the quantum computing power to process it.

The speed at which global supply chains can potentially shift to accommodate the rise in economic nationalism is considerable. The success with which we manage the transition will largely settle the debate as to whether it is, in fact, the better path to greater prosperity and global stability. more>

No more free-lunch bailouts

With governments spending on a massive scale to mitigate the economic fallout from Covid-19, they should be positioning their economies for a more sustainable future.
By Mariana Mazzucato and Andreo Andreoni – The Covid-19 crisis and recession provides a unique opportunity to rethink the role of the state, particularly its relationship with business. The long-held assumption that government is a burden on the market economy has been debunked. Rediscovering the state’s traditional role as an ‘investor of first resort’—rather than just as a lender of last resort—has become a precondition for effective policy-making in the post-Covid era.

Fortunately, public investment has picked up. While the United States has adopted a $3 trillion stimulus and rescue package, the European Union has introduced a €750 billion ($850 billion) recovery plan [albeit still under deliberation], and Japan has marshaled an additional $1 trillion in assistance for households and businesses.

However, in order for investment to lead to a healthier, more resilient and productive economy, money is not enough. Governments also must restore the capacity to design, implement and enforce conditionality on recipients, so that the private sector operates in a manner that is more conducive to inclusive, sustainable growth.

Government support for corporations takes many forms, including direct cash grants, tax breaks and loans issued on favorable terms or government guarantees—not to mention the expansive role played by central banks, which have purchased corporate bonds on a massive scale. This assistance should come with strings attached, such as requiring firms to adopt emissions-reduction targets and to treat their employees with dignity (in terms of both pay and workplace conditions). Thankfully, with even the business community rediscovering the merits of conditional assistance—through the pages of the Financial Times, for example —this form of state intervention is no longer taboo.

And there are some good examples. Both Denmark and France are denying state aid to any company domiciled in an EU-designated tax haven and barring large recipients from paying dividends or buying back their own shares until 2021. Similarly, in the US, the Massachusetts senator Elizabeth Warren has called for strict bailout conditions, including higher minimum wages, worker representation on corporate boards and enduring restrictions on dividends, stock buybacks and executive bonuses. And in the United Kingdom, the Bank of England has pressed for a temporary moratorium on dividends and buybacks. more>

Updates from McKinsey

Taking supplier collaboration to the next level
Closer relationships between buyers and suppliers could create significant value and help supply chains become more resilient. New research sheds light on the ingredients for success.
By Agustin Gutierrez, Ashish Kothari, Carolina Mazuera, and Tobias Schoenherr – Companies with advanced procurement functions know that there are limits to the value they can generate by focusing purely on the price of the products and services they buy. These organizations understand that when buyers and suppliers are willing and able to cooperate, they can often find ways to unlock significant new sources of value that benefit them both

Buyers and suppliers can work together to develop innovative new products, for example, boosting revenues and profits for both parties. They can take an integrated approach to supply-chain optimization, redesigning their processes together to reduce waste and redundant effort, or jointly purchasing raw materials. Or they can collaborate in forecasting, planning, and capacity management—thereby improving service levels, mitigating risks, and strengthening the combined supply chain.

Earlier work has shown that supplier collaboration really does move the needle for companies that do it well. In one McKinsey survey of more than 100 large organizations in multiple sectors, companies that regularly collaborated with suppliers demonstrated higher growth, lower operating costs, and greater profitability than their industry peers.

Despite the value at stake, however, the benefits of supplier collaboration have proved difficult to access. While many companies can point to individual examples of successful collaborations with suppliers, executives often tell us that they have struggled to integrate the approach into their overall procurement and supply-chain strategies.

Several factors make supplier collaboration challenging. Projects may require significant time and management effort before they generate value, leading companies to prioritize simpler, faster initiatives, even if they are worth less. Collaboration requires a change in mind-sets among buyers and suppliers, who may be used to more transactional or even adversarial relationships. And most collaborative efforts need intensive, cross-functional involvement from both sides, a marked change to the normal working methods at many companies. This change from a cost-based to a value-based way of thinking requires a paradigm shift that is often difficult to come by. more>

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New US Semi Fab: Reality or Illusion?

Official talks on construction and operation of a new TSMC semiconductor chip manufacturing fab the in U.S. is promising but riddled with political and technical intrigue.
By John Blyler – Will the news of a new semiconductor fab on U.S. soil be a boost to the economy and technological stability or is it merely a fanciful political scheme? To answer that question, let’s start with the news that has created so much discussion in the electronics space.

Recently, the Taiwan Semiconductor Manufacturing Company (TSMC) announced its intention to build and operate an advanced 5nm semiconductor fab in the U.S. state of Arizona. TSMC, headquartered in Taiwan, is the largest chip manufacturer in the world. The company currently operates a fab in Camas, Washington and design centers in both Austin, Texas and San Jose, California. The Arizona facility would be TSMC’s second manufacturing site in the United States.

The new manufacturing plant would be supported with funds from Arizona and the U.S. government. The fab will have a 20,000 wafer-per-month capacity, create over 1,600 jobs directly and thousands more indirectly, explained the company in a press statement.

This by TSMC is welcomed in the U.S. but not without controversy. Shortly after the announcement of the new fab, the U.S. Department of Commerce announced new restrictions on TSMC’s second-largest customer, HiSilicon of China – which is fully owned by Huawei. Some industry experts feel that the two events are related to the issue of U.S. export control.

Here’s where the political side of the TSMC fab announcement begins to emerge. Huawei, already part of the US trade war with China, was recently placed under new and more stringent export control. On May 19, the Commerce Department issued new rules to more fully close off Huawei’s access to the semiconductor chips it needs to build cellphones and 5G infrastructure. This could conceivably block China’s big telecommunications company from entering the much desired global 5G mobile network space. more>

‘Shareholder value’ versus the public good: the case of Germany

Support for companies amid the pandemic must come with social and ecological strings attached.
By Emre Gömec and Mustafa Erdem Sakinç – With uncertainty around the world about how and when the coronavirus outbreak will decelerate, whole business sectors have been affected by lockdowns and are facing ruin. In Germany, more than 750,000 companies have put over 12 million employees on reduced working hours (Kurzarbeit), dwarfing the 3 million hit by the 2008 crisis.

Society’s loss goes beyond the toll on employment. As the crisis lengthens, innovative capabilities accumulated over years and even decades may atrophy and disappear, making it far more difficult to emerge from the pandemic with a healthy economy.

This ‘innovation drain’ can be avoided if, and only if, corporations devote every available resource to retaining, and reinvesting, in productive capacity. Implementation of the rescue packages adopted in Germany in March and June must thus fundamentally address future practices of corporate resource allocation.

Making government support conditional on replacing value-extractive practices, such as excessive dividend payments and executive compensation, is the most effective way to block damaging business decisions which undermine investment in productive capabilities and secure employment.

Germany’s case was, it’s true, not as dramatic as that of the US, where S&P 500 companies, having fallen victim to the American disease of corporate financialization, distributed 92 per cent of their net income between 2009 and 2018 in stock buybacks and dividends. Still, in the decade from 2010 to 2019, 65 German companies in the DAX 30 and MDAX 60 indices paid out a total of €338.8 billion, or 46 per cent of their combined profits, in dividends, in addition to €35.3 billion, or 5 per cent of profits, in stock buybacks. more>

Updates from Ciena

How governments can solve layer 3 network complexity
What if government agencies could monitor and analyze their IP networks to ensure peak efficiency and service continuity—all while trying to modernize the network, balance cost, performance, and resiliency? Jim Westdorp, Ciena Government Solutions’ Chief Technologist, explains how this is possible.
By Jim Westdorp – The dynamic nature of IP networking makes it virtually impossible to know at any point in time how traffic is traversing your networks. Troubleshooting problems by issuing pings and router CLI commands, scanning log files, and manually correlating the results is imprecise and inefficient. Many government networks disable services like Internet Control Message Protocol (ICMP), which makes these inefficient tasks impossible. The results can impact service delivery, the agility of the network, and mission.

Traditional management tools have several limitations. For example, they can’t:

  • Provide real-time visibility into routing paths across the network
  • Provide unique alerts for Layer 3 technologies related to: state changes, pathing, performance, and the availability of the network elements to route packets
  • Show and model how routing errors and changes impact service delivery
  • Understand the resiliency of the network
  • Correlate routing events with performance metrics of network services to assure service performance
  • Compute and provision transport paths to deploy new services
  • Provide unified visibility and analysis for multi-vendor, multi-layer networks

Think about all the things you’d like to be able to do with your network, and ask yourself a few questions:

  • What if you could get a graphical view of all the IP flows in your network and gain deeper insights into traffic patterns, flows, and congestion?
  • What if you could drill deep into specific flows to understand the detailed route and particular pieces of network equipment those flows traversed?
  • What if you could troubleshoot your network using DVR-like functionality to see the exact state of the network at the time of an event, even if it was days in the past?
  • What if you had automated analytics to help identify the best paths to route traffic through your network?
  • What if your cyber team could utilize the same platform to be alerted to conditions indicative of external interference with a government?

Often, “what-ifs” are hypotheticals. Not in this case, with Blue Planet’s Route Optimization and Analysis (ROA).  This technology has been field-proven for more than a decade with government entities that have strategic imperatives to monitor and analyze their IP Networks to ensure peak efficiency and service continuity—all while trying to modernize the network, balance cost, performance, and resiliency. more>

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