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Asking Questions About China

A finances-first approach to innovation may be the reason we lose out to China in the technology footrace.

During the Reagan administration, Michael Sekora helped establish Project Socrates, a classified U.S. Defense Intelligence Agency program. The aim of the program was twofold: first, to identify the reasons why the U.S. was struggling to maintain its economic advantage; and second, to remedy the situation as quickly as possible.

In 1979, two years before Reagan became the 40th president of the United States, Sekora had been recruited by the CIA. He worked as an intelligence officer within the Office of Technical Services. He was a physicist by training, having entered the University of Michigan at the age of 15 and then attended Miami University for graduate studies. In 1983, Sekora transferred from the CIA to the Defense Intelligence Agency, and Project Socrates was born.

Although he and his colleagues at Project Socrates had identified the China threat for Reagan, Sekora told me, and were working on strategies to contain that threat, when President Bush came into office, his administration “abolished Socrates to appease certain allies.”

Sekora agreed to answer a few of my questions, and presented his view that the United States is mistakenly focused on finance-based rather than technology-based planning and strategy in addressing the challenge posed by China. Our conversation is presented in an edited form for the sake of length and clarity.

The China threat has only grown. Today, Sekora said, China is winning because it is putting strategic technologies first.

[It] is executing an offensive/defensive adroit game of worldwide technology exploitation chess. As a result, China will continue to out maneuver the U.S. R&D no matter how much money we spend. That is what has enabled China to become a superpower faster than any country in the history of the world. China’s rise to power is not based on cheap labor, currency manipulation and a little theft of U.S. technology as all the experts maintain. If that was all that China was doing, China would still be only producing hand assembled trinkets, as they did in the 1950s, instead of beating the U.S. in quantum, AI, biotech, et cetera.

While he has dealings with Congress, the Department of Defense, and the intelligence community, Sekora said he is deeply frustrated by what he sees and hears, because “none of what is being executed or proposed by these organizations has any chance of countering China.”

In some cases, he said, the responses proposed will “actually accelerate the decline of the U.S. and the rise of China.” I asked why.

Because they are based on some very faulty core assumptions. One is that the U.S. is in an R&D footrace with China. Both sides hunker down in their respective labs to address the “key” technologies and whoever gets to the R&D breakthrough finish line first has the competitive advantage and wins!

American leadership believes the way to beat China to the finish line is to spend more money than the opponent, Sekora said. “In actuality, increasing U.S. spending on R&D will increase not decrease or reverse the rate of U.S. decline,” he explained.

Of course, that seems rather counterintuitive; I pressed Sekora to clarify.

If the U.S. continues to execute its present approach to rebuilding U.S. economic health and military might to remain a superpower and counter China, the U.S. will be a poor debtor nation in a world where China is the sole world superpower, and this will occur in much less than 10 years. The underlying cause is that at the end of WWII, the U.S. began shifting from technology-based planning to finance-based planning.

Today, he went on to say, finance-based planning is still pervasive throughout the entire U.S. economy and military ecosystem, from private industry to the Department of Defense and the White House.

The difference between the two is that in finance-based planning, “the foundation of all decision making is the optimization of the funds,” or how to manipulate money to achieve a financial objective, such as staying within budget.

Meanwhile, in technology-based planning, “the foundation of all decision making is exploiting the technology more effectively than the competition/adversaries to generate a true competitive advantage in the marketplace or on the battlefield.”

Technology-based planning helped the U.S. became a superpower before WWII, Sekora said, and was also what Japan used after WWII to transform itself into an industrial giant in 20 short years. Our rivals use it, too.

“[It’s] what the Soviets used in the Cold War to match the U.S. militarily from a much smaller economic base,” he said. And China, not surprisingly, “has been using it for decades to become a superpower faster than any country in history.”

Today, Sekora said, the U.S. uses finance-based planning for economic strength and military might, which forms the basis of our political actions and strength. China, on the other hand, uses technology-based planning. Because of this, he argues, “China will continue on its rise, and the U.S. will continue in its rapid decline.”

As is already obvious, Sekora is not optimistic about the chances of success of America’s current strategy. What is the current administration doing wrong? I asked.

“A better question is, ‘What is the current administration doing right?'” Sekora said. “Everything that this administration and Congress are doing and proposing is based on finance-based planning.”

By focusing on the financial system, the current administration is further enabling China at the expense of the United States.

“China can literally neutralize a U.S. multi-billion-dollar R&D initiative for pennies on the dollar,” Sekora said, “while ensuring that they have the competitive advantage on the battlefield or in the marketplace.”

Sekora and his colleagues are currently working for the reestablishment of Project Socrates.

John Mac Ghlionn is a researcher and essayist. His work has been published by the likes of National ReviewNew York PostSouth China Morning Post, and the Sydney Morning Herald. He can be found on Twitter at @ghlionn.