In Playing Our Game, political scientist Edward Steinfeld lucidly describes how offshoring was a two-way street. One of his central observations is that “in the networked world of global production, there inevitably arise lead firms and follower firms, rule makers and rule takers.” In short, multinationals were the rule makers and Chinese firms were, by and large, the rule takers. While multinational firms offshored elements of production to their Chinese counterparts, the Chinese in effect offshored governance of the production process to foreigners—a marked departure from the autarkic ethic of Maoism.
How did offshoring work in practice? Whereas a factory in the U.S. or Germany might have built products using a similar mix of labor and capital, factories in low-wage countries, China very much included, would have done things quite differently. Milton Ezrati offers a useful illustration in his book Thirty Tomorrows. Say a piece of production equipment has been shipped from Germany to China to be used in a Chinese factory. Once assembled in China, the equipment would be “de-engineered” in various ways to disable some of its higher-end automated functions, because an abundance of low-wage labor meant that you could do more things by hand, and to make it easier to use, because low-skill workers would generally be better suited to using a simpler process.
Unlike the world-class Japanese companies that duked it out with American corporate dinosaurs in the 1970s and ‘80s, Chinese companies didn’t really compete with U.S. companies, or not until recently. They’ve been more like sidekicks that help U.S. companies earn higher profits by lowering their costs. By liberating U.S. companies willing to offshore their production from their near-total dependence on the U.S. workforce, Chinese workers helped supercharge the growth of U.S. multinationals, sending their value skyrocketing. Though the U.S. represents a shrinking share of global GDP, globalization has helped U.S. multinationals grow even more dominant than in decades past.
At the same time, however, the Chinese have sought to rise from their subordinate position, and to foster formidable multinationals of their own, with increasing success. The fruit of these efforts can be seen in the rise of China’s consumer internet giants, which have flourished behind the country’s so-called “Great Firewall,” an instrument of mass surveillance and repression that has also proven an effective tool of industrial policy. It has become routine for U.S. technology firms to cede the Chinese market outright to local firms, so cognizant are they of the unlevel playing field. Viewed from Beijing’s perspective, however, allowing the Alphabets and the Facebooks of the world to operate without constraint would be sheer madness: They’d expose their citizenry to external influences, which in turn would threaten the stability of the regime. Having closely studied the collapse of the Soviet bloc, and of various other one-party states around the world, the Chinese government has no intention of surrendering control. Thus far, expectations that rising affluence would lead to calls for liberalization, let alone competitive multiparty politics, have not been borne out, to the surprise and dismay of the U.S. foreign-policy community. Even if the Chinese government were to become more responsive to the mass public, it is not at all obvious that this would entail dismantling its distinctive brand of innovation mercantilism: Indeed, it might lead to its reinforcement, as ordinary Chinese citizens rally around the flag.