Why This Year's Economics Nobel Winner Fears the China Trade War

(Bloomberg) -- When Paul Romer sees the world’s two biggest economies locked in a trade war, his thoughts turn to robots.

Business leaders and investors worry that tariff barriers thrown up by the U.S. and China will block the global flow of goods and services. Romer, who won this year’s Nobel economics prize for his work on how technology drives growth, is more concerned about the flow of ideas. He sees the risk of a different kind of protectionism: one in which Washington and Beijing fight to control fields like artificial intelligence -- claiming ownership of breakthroughs which could benefit all humanity, if only they were set free.

Why This Year's Economics Nobel Winner Fears the China Trade War

“If the knowledge already exists, it’s better for everybody to use it,’’ Romer said in an interview.

Underlying the trade conflict, from a U.S. perspective, is Chinese disregard for intellectual property. The Trump administration has accused China of pursuing its ambition to dominate the key technologies of the future by stealing American ideas.

‘There’s a Precedent’

But if that’s what China is doing, Romer suggests, it’s merely following in American footsteps. Britain leveled similar accusations against the U.S. when it was emerging as an industrial power in the 19th century. “There’s a precedent for this kind of copying as a way of catching up,’’ Romer said.

In his pioneering 1990 paper, Romer argued that technological advance isn’t something that arrives unexpectedly from outside an economy, like manna from heaven, to make faster growth possible. Instead, it’s generated from inside the economy –- and policy decisions can make it more or less likely.

The best environment for fostering useful discoveries, he said in his Nobel acceptance speech this month, is a society where they can easily be shared.

It’s essentially an open-source view of the world -– at odds with both America’s drive to protect the intellectual-property holdings of its corporations, and China’s stated goal of primacy in cutting-edge sectors like robotics.

“Especially in these domains like artificial intelligence,’’ Romer said, the best approach may be to “allow more transparency about information. Perhaps even require it.’’

Macro Takedown

He’s enthusiastic about the potential of AI, in contrast to those who worry about subjugation to robot overlords. Tesla Chief Executive Elon Musk has called AI the “biggest existential threat’’ to humanity, and is spending billions to keep its dark side at bay.

Romer has been an entrepreneur too during his maverick career, founding then selling an online-education startup called Aplia. He pioneered the idea of building “charter cities’’ from scratch in poor countries, with their richer peers acting as guarantors -- an approach that was labeled “neo-colonialism’’ by critics. He lasted less than a year as the World Bank’s chief economist.

The biggest intellectual splash he’s made recently was an attack on his own discipline. In a now-famous paper, Romer tore into macroeconomists for allowing their elegant, math-heavy models to drift away from reality, and abandoning scientific inquiry for a cult-like adherence to flawed ideas.

He namechecked three Nobelists among the culprits, angered a wider group of his peers, and came to be seen as a dissident in the world of economics. So when the call came from Stockholm telling him he’d won the prize himself, Romer says it came as a surprise.

Getting to Yes

“I said, ‘Oh, great!’ And they said, ‘Do you accept it?’ I had this momentary thought of ‘Gee, does anybody say no?”

He said a different kind of “yes’’ the day he accepted the Nobel. Before heading to the Stockholm Concert Hall for the award ceremony, he got married at a church in the Swedish capital to Caroline Weber, an author and French literature expert.

Romer shared the prize with Yale’s William Nordhaus, who pioneered research into the mutual dependence of the economy and climate.

‘Us Versus Them’

The Nobel is a platform, and Romer is weighing how to use it to advance an open-source agenda. He favors free markets but says there’s an important role for government too: steering what he calls the “global innovation machine’’ toward shared problems that need solving, like lowering carbon emissions.

What often he sees is something different: “crazy politicians just challenging facts, challenging science,’’ and deepening polarization within and between countries. Much of it is rooted in an out-of-date notion of economics as a fight over scarce resources, Romer said in his Nobel acceptance speech.

“When people see the world that way, there’s a tendency for nations to see progress as a matter of ‘us’ versus ‘them’,’’ he said. “Ideas mean that people are no longer our rivals.’’

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