Why America was the China of the 19th century.
- By Charles R. Morris<p> Charles R. Morris is author of The Tycoons, The Trillion Dollar Meltdown, winner of the Loeb award as the "Best Business Book of 2008." This article is drawn from his recent book The Dawn of Innovation: The First American Industrial Revolution. </p>
The ship carrying Francis Cabot Lowell and his family home from England in the summer of 1812 was intercepted by a British war squadron, which held the passengers and crew for some days at the British base at Halifax, Canada. Lowell’s baggage was subject to several intensive searches, for his captors had been warned that he may have stolen designs for power textile weaving machinery, a serious crime in England. Lowell, indeed, had done just that — but, aware of the risk, had committed the designs to memory.
The British rarely accorded outsiders the privilege of touring their cotton plants. But Lowell was a leading Boston merchant who imported a great deal of British cloth and had solid relations with his British counterparts. One can imagine him on one of his tours, feigning languid disinterest even as he diligently filed away details on gearing and loom speeds. By the gentlemanly codes of the day, it seems dishonorable.
Today, it’s China that is the rising power, and the United States that is the hegemon wary of the young upstart. To China, the United States appears much as Great Britain did to Americans two centuries ago. The U.S. Navy is an intrusive presence on its coasts, while U.S. support for Taiwan parallels British sympathies for southern separatists. Most threatening for Beijing is the appeal of America’s raucous democracy for China’s rising masses.
The Chinese today are as determined as 19th-century Americans were to achieve economic parity with their rival, and like early Americans, will steal all the technology they can. The important difference is that modern documentation standards make theft much more rewarding. Any drawings Lowell purloined would have been mostly dimensionless and only approximately accurate. (He was fortunate that Paul Moody, the genius mechanic who designed and built his plants, was also a skilled weaver.) In the mid 19th century, Americans were also desperate to replicate Britain’s famed Sheffield steel, by common consent the world’s finest. But the best Sheffield craftsmen the United States could buy failed to replicate it. (The key, which even the British had not guessed, was the local clay used in the heating vessels.)
Today, Chinese espionage is widely assumed to have targeted virtually all big American technology companies. A long list of firms, including Apple, Boeing, Dow Chemical, Dupont, Ford, Motorola, Northrup Grumman, and General Motors, have pursued successful criminal actions against Chinese moles and other agents.
Back in 1812, finished cotton textiles dominated British exports, accounting for about half of all trade revenues, the fruit of a half century of progress in mechanized mass production. Proportionate to GDP, the industry was about three times the size of the entire U.S. automobile sector today. High-speed textile manufacture was a highly advanced technology for its era, and Great Britain was as sensitive about sharing it as the United States is with advanced software and microprocessor breakthroughs. The British parliament legislated severe sanctions for transferring trade secrets, even prohibiting the emigration of skilled textile workers or machinists.
But the Americans had no respect for British intellectual property protections. They had fought for independence to escape the mother country’s suffocating economic restrictions. In their eyes, British technology barriers were a pseudo-colonial ploy to force the United States to serve as a ready source of raw materials and as a captive market for low-end manufactures. While the first U.S. patent act, in 1790, specified that "any person or persons" could file a patent, it was changed in 1793 to make clear that only U.S. citizens could claim U.S. patent protection.
China’s modern trade and patent regimes are similarly tilted against outsiders. "Use" patents are freely awarded for Chinese versions of Western inventions. High-value chips are denied import licenses unless companies allow the "inspection" of their source code. Western partners willingly make Faustian bargains to contribute crown jewel technologies for the sake of immediate contracts. German companies that once supplied mag lev technology to their Chinese high-speed rail partners now find themselves shut out by newly born Chinese competitors. Last summer, GE made a similar deal involving its highly valuable, and militarily sensitive, avionics technology.
If anything, the early Americans were even more brazen about their ambitions. Entrepreneurs advertised openly for skilled British operatives who were willing to risk arrest and imprisonment for sneaking machine designs out of the country. Tench Coxe, Alexander Hamilton’s deputy at Treasury, created a system of bounties to entice sellers of trade secrets, and sent an agent to steal machine drawings, but he was arrested. While skilled operatives were happy to take U.S. bounties, few of them actually knew how to build the machines or how to run a cotton plant.
The breakthrough came in the person of Samuel Slater. As a young farm boy, he served as an indentured apprentice to Jedidiah Strutt, one of the early developers of industrial-scale powered cotton spinning. As Strutt came to appreciate Slater’s great talents, he employed him as an assistant in constructing and starting up new plants. (In his signed indenture, Slater promised to "faithfully … serve [Strutt’s] Secrets.")
Worried about his future in England, Slater made the jump to the United States when he was 21, bringing an unusually deep background in mechanized spinning. Emigrating under an assumed name, he answered an ad from Moses Brown, a leading Providence merchant, who had been badly stung by ersatz British spinning machinery. Brown was sufficiently impressed by Slater to finance a factory partnership, and over the next 15 years, Slater, Brown, their partners, and the many people they trained created a powered thread-making empire that stretched throughout New England and down into the Middle Atlantic states. Former president Andrew Jackson called Slater "The Father of the American Industrial Revolution," the Brits called him "Slater the Traitor."
The development implications were profound, for Slater and Lowell together jump-started American mass-production manufacturing, the essential ingredient in its startling 19th-century growth. The United States’ present-day high technology could have much the same implications for China. There is no point appealing to Chinese ethics — in the great game of nations, ethics don’t enter into the conversation. Had Americans invented a magic telescope into British factories, they surely would have used it. A more appropriate response is to apply what some have called "innovation mercantilism": If Lowell had been reincarnated as an American consultant today, he could have told the multinationals to keep all Chinese out of their factories, no matter how friendly they seemed.