President Donald Trump has announced that 5G, the next communications revolution, will be “private-sector driven and private-sector led,” while the federal bureaucracy will focus on facilitating innovation and restructuring any regulatory impediments. There remain doubters who think that government should play a lead role in bringing new technologies to market, but Trump’s move is bullish for U.S. leadership, and it should bring joy to the capitalist hearts of investors and risk-takers in Silicon Valley.
5G represents a leap in performance equivalent to going from the era of dial-up modems to high-speed fiber networks which took us from the world of emails to streaming, high-definition video. Deploying 5G will entail enormous capital expenditures, involving a more than 100-fold proliferation in base stations, entirely new classes of wireless semiconductors, and artificial intelligence to manage wildly complex networks.
Speculation abounds about what kinds of new businesses will emerge from this next phase in the digital era, and just what that will mean for the economy, but all parties agree that it will be “huge.” That’s why the possibility that Chinese firms might outcompete American companies as suppliers of the underlying hardware and infrastructure is causing so much angst. Liberals and even some conservatives have implored the Trump administration to mount a major federal program to combat China’s government-backed campaign to achieve 5G dominance.
We should be relieved that the administration decided on a free-market approach. To understand why, consider the lessons in two seminal events in recent history, both of which mark anniversaries this month. April 3 marked the birthday of the cell phone. On that date in 1973, a Motorola executive made the first mobile phone call. The phone weighed more than two pounds, and its 30-minute battery took 10 hours to charge. No government program ignited the cell-phone era; rather, engineers competed furiously to produce a marketable consumer product. But there wouldn’t have been any competition if not for the subsequent breakup of AT&T, a federally controlled monopoly.
The other event occurred on April 14, 1982, when Japan launched its government-backed program to “leapfrog” U.S. leadership in computers. Japan was then the ferocious “Asian tiger,” prompting all manner of fears within the political intelligentsia. Democrats and Republicans begged then-President Ronald Reagan to launch our own government initiative to counter the Japanese threat, lest America lose its computing supremacy. Reagan’s response: “I don’t know what the future holds for computers, but I do know one thing. None of you do, either.”
On the tenth anniversary of Japan’s effort to “seize the lead in computer technology,” the New York Times reported that the program was “fizzling to a close, having failed to meet many of its ambitious goals or to produce technology that Japan’s computer industry wanted.”
While Trump’s instincts confound many critics, his recent comment about the role of the private sector in technology development was not only reminiscent of Reagan but also evoked principles articulated by Nobel Prize-winning economist Edmund Phelps, who recently wrote that the “hallmark of capitalism is that the capitalists are independent, uncoordinated, and competing with one another: no monarchy or oligarchy is in charge.” Phelps saw America’s competitive advantage precisely in the seemingly chaotic market system because it is “a vast imaginarium—a space for imagining new products and methods, imaging how they might be made, imaging how they might be used.”
Since the days of the Pony Express, opportunities for wealth creation have correlated with the speed and breadth of communications networks. 5G will unleash traffic at the speed of first-generation landline fiber optics—but over the airwaves, instead of under the streets. While hundreds of thousands of miles of physical glass fiber networks already exist, 5G will be the equivalent of hundreds of billions of miles of invisible virtual fiber making trillions of connections. It will unlock nearly ubiquitous and near-instantaneous access to the cloud’s rapidly expanding supercomputing capacity. The businesses and services that entrepreneurs will yet imagine are as difficult to predict today as they were in April 1973 or 1982.
Trump expresses confidence that American entrepreneurs and our capital markets, will prevail over Chinese central planners. History is on his side. Bureaucracies are where imaginariums go to die.