Op-Eds & Articles

America’s Monopoly Crisis Hits the Military

Open Markets Senior Fellow Matthew Stoller and Lucas Kunce published a feature on The American Conservative exposing the devastating history of military monopolization in America. They describe how Wall Street has given foreign rivals such as China growing leverage over our defense industry by usurping what used to be American manufacturing, not only in telecommunications but in various sectors which are key to our national security.

June 27, 2019  |  by Matt Stoller
Read on The American Conservative

by Matt Stoller and Lucas Kunce

Early this year, U.S. authorities filed criminal charges—including bank fraud, obstruction of justice, and theft of technology—against the largest maker of telecommunications equipment in the world, a Chinese giant named Huawei. Chinese dominance in telecom equipment has created a crisis among Western espionage agencies, who, fearful of Chinese spying, are attempting to prevent the spread of Huawei equipment worldwide, especially
in the critical 5G next-generation mobile networking space.

In response to the campaign to block the purchase of Huawei equipment, the company has engaged in a public relations offensive. The company’s CEO, Ren Zhengfei, portrayed Western fears as an advertisement for its products, which are, he said, “so good that the U.S. government is scared.” There’s little question the Chinese government is interested in using equipment to spy. What is surprising is Zhengfei is right about the products. Huawei, a relatively new company in the telecom equipment space, has amassed top market share because its equipment—espionage vulnerabilities aside—is the best value on the market.

In historical terms, this is a shocking turnaround. Americans invented the telephone business and until recently dominated production and research. But in the last 20 years, every single American producer of key telecommunication equipment sectors is gone. Today, only two European makers—Ericsson and Nokia—are left to compete with Huawei and another Chinese competitor, ZTE.

This story of lost American leadership and production is not unique. In fact, the destruction of America’s once vibrant military and commercial industrial capacity in many sectors has become the single biggest unacknowledged threat to our national security. Because of public policies focused on finance instead of production, the United States increasingly cannot produce or maintain vital systems upon which our economy, our military, and our allies rely. Huawei is just a particularly prominent example.

When national security specialists consider preparedness, they usually think in terms of the amount of money spent on the Pentagon. One of President Donald Trump’s key campaign promises was to aggressively raise the military budget, which he, along with Congress, started doing in 2017. The reaction was instant. “I’m heartened that Congress recognizes the sobering effect of budgetary uncertainty on America’s military and on the men and women who provide for our nation’s defense,” then-defense secretary Jim Mattis said. Budgets have gone up every year since.

Higher budgets would seem to make sense. According to the 2018 National Defense Strategy, the United States is shifting away from armed conflicts in the Middle East to “great power” competition with China and Russia, which have technological parity in many areas with the United States. As part of his case for higher budgets, Mattis told Congress that “our military remains capable, but our competitive edge has eroded in every domain of warfare—air, land, sea, space, and cyber.”

In some cases, our competitive edge has not just been eroded, but is at risk of being—or already is—surpassed. The Chinese surge in 5G telecom equipment, which has dual civilian and military uses, is one example. China is making key investments in artificial intelligence, another area of competition. They even seem to be able to mount a rail gun on a naval ship, an important next generation weapons technology that the U.S. Navy has yet to incorporate.

And yet, the U.S. military budget, even at stalled levels, is still larger than the next nine countries’ budgets combined. So there’s a second natural follow-up question: is the defense budget the primary reason our military advantage is slipping away, or is it something deeper?

Read the full article on The American Conservative. 

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In America today, wealth and political power are more concentrated than at any point in our country’s history.

The Open Markets Institute, formerly the Open Markets program at New America, was founded to protect liberty and democracy from these extreme -- and growing -- concentrations of private power.

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