Huawei not another Aecon
Saturday’s column dwelt on the importance of separating national security from economic nationalism when it comes to dealing with the operations of Chinese state-owned enterprises in Canada. In brief, the first is a legitimate object of policy, the second a meaningless slogan — but one that is easily mistaken for the first.
The issue then was the $1.5-billion bid for Torontobased Aecon Group Inc. by China Communications Construction Co. (CCCC). But no sooner had the dust settled on Ottawa’s (probably wise) decision to block it than the Globe and Mail followed up with a lengthy scare story on the alleged threat posed by telecommunications giant Huawei Technologies and its prodigious funding of Canadian university-based research into 5G, the next wave in wireless technology.
The point is not that Huawei’s activities raise no issues. But if CCCC’s takeover of Aecon was mostly a national security story with some economic-nationalist overtones, the Huawei panic seems almost entirely about economic nationalism, with a thin veneer of national security painted over it. At any rate, it again shows how easily the two can be confused.
Billed as “a Globe and Mail investigation,” the story reveals that Huawei has been “investing millions in Canadian research,” through its “vast network of relationships with leading researchheavy universities in Canada.” Over the last decade, it has “committed about $50 million to 13 leading Canadian universities,” and is expected to add “another $18 million this year alone.”
Wait, it gets worse. Huawei “now boasts 566 research employees at offices across the country, up from 70 in 2010.” It has “more than tripled annual R&D spending here since 2014 and is now one of the 25 largest R&D spenders in Canada.”
At this point you may be wondering what exactly the scandal is here. Don’t we want companies, domestic or foreign, to be investing in R&D in Canada? Isn’t that one of the perennial Canadian complaints, that business doesn’t do enough research here? Are those Canadian universities being harmed by the injection of millions of dollars annually in research funding? Are the Canadian researchers whose work it funds?
To be sure, Huawei’s connections to the Chinese government warrant caution. Though not a state-owned enterprise like CCCC — the company is privately-owned. though by whom precisely is a bit of a mystery — it has often been the beneficiary of state aid and, like many of China’s biggest companies, is widely considered to be a de facto arm of the state. It has been accused in the past of industrial espionage, and intelligence experts worry that its products and technology could readily be put at the service of the Chinese surveillance state. That’s a good argument for not using Huawei’s equipment in any western 5G network, as indeed it is unofficially prohibited from supplying existing telecoms infrastructure.
It’s not as clear why it should be banned from even conducting research in this country. And, indeed, the bulk of the Globe’s complaint would seem to have little to do with security. Rather, it is an adaptation of the value-added fallacy (“We sell them logs, they sell us furniture!”) that condemns “mere” resource extraction as somehow a losing enterprise, filthy rich though it may have made us, as compared to further processing of the same resources. Only in this case it is “mere” world-leading research that is the new indentured servitude.
The flavour of it is captured in this spleenburst from patent lawyer Jim Hinton, whom the Globe quotes at length: “We need,” he begins, in a telltale phrase, “to retain at least some ownership of what we’re subsidizing … As it currently stands in the technology space, Canada is an employee and consumer state — we work for pennies to harvest the land, then pay our foreign masters dollars to eat what we had harvested.”
There’s a lot to unpack there, but basically the complaint is twofold.
One, although Huawei is contributing millions of dollars to the research projects it backs, so is the federally funded Natural Sciences and Engineering Research Council (NSERC); the salaries of the academics conducting the research are likewise paid for by the taxpayer.
And two, although the research is being done here, the intellectual property rights belong, not to the researchers themselves, but to Huawei — the quid pro quo for all that funding.
Again, public funding of corporate R&D raises legitimate issues but, so far as it does, it has little to do with the nationality of the corporation. The classic “public good” case for government intervention is to fund basic research — the kind for which there is no immediate or obvious commercial application — not the kind of applied research Huawei is engaged in.
If we don’t like the idea of corporations getting wealthy off publicly-funded research, that’s an argument for getting governments out of applied research, not for barring foreigners from participating. At the very least, someone might point out just which Canadian technology firms would be stepping up to partner in 5G research were Huawei not hogging all the funds.
As for the patents Huawei is said to be snapping up, I see no evidence it held a gun to the heads of the professors who agreed to sell them to it. Presumably they considered the terms on offer — take Huawei’s money to fund their research up front, in exchange for whatever uncertain future returns they might hope to earn on it themselves — to be worth accepting. Who are “we” to second-guess them?
China’s aggressive expansionism is not a phantom threat. But we need to learn how to distinguish just where its advances need to be checked, and where we are simply harming our own interests.