Translation: We are likely at the biggest geopolitical turning point since the Second World War. Big Tech will be at the center of it. And the Internet itself will be the battlefield. It’s a far cry from the happy, connected world that the Big Tech utopians once dreamed about.
The Rise of Techno-Nationalism
Why is this happening? In part, because American and European policy makers made the wrong bet about China. The conventional wisdom has always been that as China became more developed, it would also become freer. But after the financial crisis of 2008, the cracks and hypocrisies inherent in America’s own system were exposed, and the Chinese became understandably worried about how opening up—financially, economically, and politically—could put them at risk and make them vulnerable to outside forces (like, for example, rapacious Wall Street bankers who could bring down global financial systems).
The result was that the economic opening and privatization of the previous decades began to tail off. The Chinese began to assert themselves, and their own model of state control, on the global stage. No longer biding their time and hiding their brilliance, as the old Deng Xiaoping quote goes, a new group of technocrats led by Xi Jinping began to consolidate power and export their own political values, capital, and technology to other countries.
Some of these moves, like new investments in Africa, and the One Belt, One Road strategy, which aims to connect China through the old Silk Road all the way to Europe, creating new economic and political alliances in the process, have been commended, though not by everyone—the idea that China will somehow be able to create fair and productive new alliances in difficult parts of the world where others have failed seems naïve at best. To be fair, the jury is still out on whether China’s economic diplomacy efforts, which are looping in many European countries as well, will be a good thing for both China and the world at large. On the one hand, it’s fair and right that China should play a greater role on the global stage, as the world’s number two economy. On the other, how to do business with a state-run autocracy in which individuals have absolutely no right to privacy is a massive conundrum for Western companies and countries.
But in some ways, for China it really doesn’t matter. That’s because China is a country that looks very much like the United States in the post-WWII period—a large, single-nation growth market with tremendous potential gone that will pull many other countries into its orbit. The Chinese have spent the past several years moving up the value chain, and now they want to use their system of state capitalism to give preference to homegrown players, many of whom are just as competitive as American firms in the home market. Indeed, it’s a wonder to me that American firms ever believed they’d be able to compete with Chinese firms in their home market on a completely equal footing.
I think frequently of a trip that I took to China, right around the time of the Edward Snowden NSA leaks. I met with a People’s Liberation Army general (a woman, interestingly) and asked her about Chinese state-sponsored intellectual property theft and the notion that technologies taken from the West might be used for both economic and national security advantage. She made it quite clear that “capitalism with Chinese characteristics” meant that there was no real boundary between corporate interests and national interests. Indeed, she seemed to think it a bit naïve that anyone would assume otherwise. It was the country that mattered most, not the company.
Chinese venture capitalist and AI expert Kai-Fu Lee (the man who first launched Google into China in 2006) told me in 2018 that he believes that the United States and China will continue to move in different directions, each developing their own separate technology ecosystems, with the big race being between Google and China, in terms of who is able to develop the most sophisticated artificial intelligence systems (AI being the most strategic technology of the future). Lee believed that the growing trade and tech war could cut off capital flows and trade in technology between the two countries. But, he said, that was all right with him. China, he believed, would be more than capable of developing a prosperous technological ecosystem of its own. Pointing to already dominant Chinese brands like Xiaomi, which now sells more mobile phones in China than Apple, he said, “The question in the future will be, ‘Why buy a Western brand?’ I think you’ll see China owning the digital ecosystem not only at home, but also in ASEAN [Association of Southeast Asian Nations] and many Middle Eastern countries.”
It’s easy to make that argument. There are vastly more Internet users in China—some 800 million—than in America. The country has become a largely cashless society in which the majority of the population use locally developed apps for everything from mobile banking to food delivery to bicycle rental. As big as American Big Tech firms are, the Chinese giants Alibaba, Tencent, and Baidu are even bigger in relative terms. The Chinese, who’ve come of age in a system with no assumptions of Western-style personal freedom, seem happy to give up personal privacy in exchange for the many conveniences of Big Data. They will, for example, consent to medical sensors implanted in bodies to monitor health, and “social scorecards” in which citizens are given up or down marks for nearly every move they make, a science fiction–like system that results in easy loans and better housing for those with “top marks” in the country’s big data scoring system, but also discrimination and the inability to get a job for those that have low marks.9 If you think this sounds very much like an episode of the dystopian TV drama Black Mirror, you’re right—except in China, the system is real.
But there are massive and obvious downsides within the Chinese system, as well. Citizens can have their social media accounts closed down for the smallest infractions. They can be jailed if their scorecards have the wrong marks. Their every move can be tracked via facial recognition scanning systems—in schools, hospitals, and even in their homes. The result may be an advantage in Big Data. It may also be a return to a Maoist era of total state control and repression.
“There is no longer any freedom of speech in China,” says Jia Jia, a Chinese blogger who has written, at great personal risk, about the rise of the surveillance state in China. “In the end, no one will be spared.”10 What’s more, the Chinese have sold some of these repressive technologies to other countries, as part of a new effort to reshape geopolitics and extend their influence. A 2018 report on the rise of digital authoritarianism published by Freedom House11 found that Beijing had exported its surveillance technology to at least eighteen other countries, making it easier for Zambia, Vietnam, and other governments to crack down on their citizens.12
Top-Down or Bottom-Up?
Few Americans or Western Europeans would say that this state of Internet governance is desirable. But if you put aside the human rights implications of China’s top-down surveillance state, there is still an important question to be asked: Is digital innovation best suited to an environment of decentralization, in which many firms in the private sector working under smart regulation and within a truly free marketplace are allowed to compete? Or is the best model for the future one of centralization, in which a top-down surveillance state can collect all the data it wants, and allow the companies that it has handpicked to do with it what they like?
China is obviously betting on the latter. Xi has, during his tenure, tightened state control of the market and made it tougher for a host of companies—from Qualcomm to Apple to Visa and Mastercard—to do business in China. Beijing is also exerting more control over the high-growth technology sector, requiring both foreign and domestic companies to engage in information censorship and cooperate with state security efforts. In an age of artificial intelligence and big data, the story goes, China will have an advantage over the United States because there is no civil liberty debate to get in the way of the surveillance state. With unfettered access to all the information generated by the world’s largest population, the Chinese tech sector will move ahead quickly.13
It has been assumed that 5G, the fifth-genera
tion mobile technology that has yet to become a large-scale commercial reality, will be dominated by China. The ongoing U.S.-China trade war makes it difficult to see how this will play out. China’s own homegrown 5G chip maker, Huawei, could be severely handicapped by Trump administration attempts to put restrictions on Huawei doing business in the United States and with American firms. Still, proponents argue that China is moving ahead quickly to build out the necessary infrastructure, while the United States and particularly Europe lag behind. While Huawei equipment, which is relatively cheap, is being adopted by many countries, the U.S. chip champion, Qualcomm, was until mid-2019 bogged down in a multiyear, multicontinent legal battle with Apple that drew resources and attention away from its own rollout of 5G.
This underscores one of the great ironies of the current U.S.-China trade and tech battle. The United States wants to kneecap Huawei (a company founded by a former PLA general), by pushing allies in Europe and other countries to not use its equipment, and by preventing U.S. companies from doing business with the firm. This is in many ways understandable, given widely reported revelations of the extent of Chinese IP theft and cyber-espionage.14
But Qualcomm hasn’t been hurt so much by Huawei as it has by the monopoly power of Apple, which, when it became big and powerful enough, simply decided it didn’t want to pay Qualcomm’s patent license fees, and held the company up in court in three continents for many years. That’s a point worth remembering: Part of the tech and trade war is about China playing by its own rules. But another part is about the United States allowing the largest Big Tech companies like Apple to become so large and powerful that they can set their own terms in the marketplace in a way that may be economically and politically disruptive to the country at large.
Still, even if the United States were moving faster on 5G, many believe that it will be easier for a surveillance state such as China to own and harness the data that will be transferred via the 5G chips that will exist in all sorts of products from tires to tennis shoes to fetal heart monitors. That would, in turn, allow Beijing to harness the productivity benefit from such data more quickly. The key idea behind this thinking is that we’ve left the “innovation” stage of artificial intelligence use, and the only thing that matters is the data—whoever can get the most of it, wins.
In this line of thinking, there are no more great leaps forward to be made in AI innovation—it’s all about who can create the biggest surveillance state. Beyond that, China proponents argue that the Communist Party has the advantage of being able to direct the resources of such firms toward its own industrial policy aims, pushing companies like Alibaba to build out rural broadband, for example. The state provides support for strategic industries such as robotics, semiconductors, and electric cars.
All of these things may prove to be competitive advantages. But what we also know for sure is this: The companies that have best commercialized the Internet—not just American giants Google, Facebook, Amazon, and Microsoft, but also the Chinese leaders Baidu, Alibaba, and Tencent—did so when they were young and had more decentralized cultures. There is plenty of academic evidence to show that breakthrough innovations are more likely to come from lone academics than corporate (or state) behemoths.15 If you believe China will own AI, as Kai-Fu Lee does, you also have to believe that we’ve left the era of innovation and that data-driven surveillance states run by large countries and companies are the only path forward. That is, I believe, too big a leap to make.16 One of the few things that we can say for certain about innovation is that its path is rarely what we predict that it will be.
While China’s centralized control may be a short-term advantage, you can question whether it will pay off in the long term. “In the next three to four years, centralization will be beneficial, but in five to ten years, you may get the problems of the brittleness of centralized control,” says Arthur Kroeber, the managing director of Gavekal Dragonomics, an influential consultancy and research group focused on China. Think of the disasters of central planning under Mao, or even the recent inability of China to dominate the automotive industry.
As the historian Niall Ferguson points out in his book The Square and the Tower, rigid, hierarchical structures tend to be undermined by disruptive technologies. Authoritarian capitalism and the Internet may not be suited to each other.17 Nicholas Lardy of the Washington-based Peterson Institute for International Economics believes that top-down control and the increasing drag of state companies in China have actually resulted in a massive productivity slowdown since the global financial crisis. Reversing this will require less state control, not more. After China opened up in the 1980s, it attracted more than $1.7 trillion of foreign investment and made a huge contribution to global growth by allowing the private sector to diversify and grow. Today, as the surveillance state exerts more and more control, both overall capital flows and growth are decreasing.18
America’s “National Champions”?
Of course, it’s possible that China could be at a turning point—much will be revealed in the next few years about which country’s digital strategy will work best. But one thing is certain: America will be able to capitalize on its own historical strengths only if U.S. companies are able to compete and innovate on an even playing field, and exploit the advantages of the free market system, which are its decentralization and possibility for creative destruction and innovation from all sorts of companies—big, medium-sized, and small alike. Unfortunately, as we’ve learned throughout this book, that’s less and less the case. Big Tech in both the United States and China has become ever more monopolistic, creating large and relatively closed-off systems that attempt to control “talent and resources on breakthroughs that will remain mostly ‘in house,’ ” as Lee puts it in his book AI Superpowers. Silicon Valley leaders, such as Facebook’s Mark Zuckerberg, cite this as a virtue. And, when threatened with more regulation, they argue that breaking up tech behemoths would prevent them from competing with the Chinese.
Back in 2018, Zuckerberg testified before Congress about the company’s involvement in Russian election manipulation. The most interesting tidbit to emerge from that event, which resembled nothing so much as a four-hour tech support call, was a photo of Zuckerberg’s talking points taken by the Associated Press.19 One bullet point made it clear that, if he was questioned about competition issues, he should argue that a breakup of Facebook would “strengthen Chinese companies.” Yet for several years, Facebook allowed the Chinese telecom company Huawei, which has been deemed an official security threat by the U.S. government, and other Chinese groups to access detailed data about users and all of their friends, including their work history, personal relationships. and religious affiliations.20 Facebook eventually closed down the Huawei partnership. Whether or not it still has other data partnerships going in China is unclear.
The fact that Facebook shares personal data with third-party companies in ways that users are completely unaware of isn’t news to anyone at this point. The social network has had multiple data-sharing partnerships with dozens of device makers, including Samsung and Apple, for years now. These deals—in which the company profited from sharing user data even as it was promising users it was protecting it—may well have been in violation of Facebook’s 2011 agreement with the Federal Trade Commission, in which it promised not to share users’ personal data with outside partners. That’s one reason that in 2019, the FTC slapped Facebook with a $5 billion fine, the largest in history for a technology company.21 The FTC has since launched a new antitrust investigation.
Facebook not only shared data with major Western companies and shadowy entities like Cambridge Analytica; it has also shared user data with Chinese companies that operate within a repressive surveillance state.22 The privacy and civil liberty risks inherent in doing so are one reason that U.S. authorities have begun cracking down on Chinese businesses working in the United States in sensitive areas. In the spring of 2019, for example, th
e Chinese firm Kunlun Tech was required to divest itself of the American social network Grindr, on the grounds that data from the LGBTQ dating app could potentially be used by the Chinese state to blackmail people with U.S. security clearances, thus compromising U.S. national interests.
This underscores what may well be the biggest Big Tech hypocrisy of all: the ways in which Facebook, Google, and even Apple do business with an autocratic government for profit, even as they purport to be America’s “national champions” in the race against China to control the world’s most strategic, high-growth industries.23 It’s hard for me to imagine why, if the U.S. government is prepared to force Chinese firms to divest themselves of sensitive apps, U.S. tech companies that could be compromising data by doing business in the Middle Kingdom aren’t coming under even more scrutiny than they already are.
There are some similarities between how the two entities—Big Tech and the Chinese surveillance state—act. Libertarians like PayPal’s Peter Thiel argue that in the world of Big Data, “freedom and democracy are [no longer] compatible,” something that Chinese leaders would themselves probably agree with. Other titans of Big Tech have argued that if we are indeed in a race for the future with China, then we shouldn’t let freedom get in the way of competition.
In 2017, for example, former Google chair Eric Schmidt gave a keynote address at the Center for a New American Security’s Artificial Intelligence and Global Security Summit, in which he detailed his own consulting work around cyber issues for the Department of Defense, and raised the specter of China overtaking the United States in the most cutting-edge technologies, including AI. “By 2020 they will have caught up. By 2025 they will be better than us and by 2030 they will dominate the industries of AI,” said Schmidt. “Just stop for a second. That’s the [Chinese] government that said that. Weren’t we the ones in charge of AI dominance here in our country? Weren’t we the ones who invented this stuff? Weren’t we the ones that were going to exploit the benefits of all this technology for betterment and American Exceptionalism in our own arrogant view? Trust me, these Chinese people are good.”24
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