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The Vanishing Frontier

To ensure that America never has to consider the Needham question in relation to its own development trajectory, it needs to ask itself a different one. What made it rise to first place in terms of technological progress?

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Credit: William Potter

Today, technology, state power, and development intertwine in a single Gordian knot that no liberal can untangle. After a few decades of geopolitical quiet, we have come to realize that threats to sovereignty have become more insidious, while decisions that lead to its preservation require subtle judgment, especially where the matters concern technology. Awareness of this new state of affairs is particularly acute in the two great powers: the U.S. and China.

The uniqueness of the circumstances was recognized by both Donald Trump and Xi Jinping. In Innovate to Dominate: The Rise of the Chinese Techno-Security State, Tai Ming Cheung recalls that in 2017, Xi gave a speech in which he claimed that if China wanted to ascend to the top, it had to become an innovation powerhouse. Later that year, the Trump administration released a national security strategy in which a “national security innovation base” is identified as a necessary condition for American prosperity and survival. Both leaders shared the premise that national security requires them to articulate and develop national systems of innovation.

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One can view the confrontation between the U.S. and China not in terms of the “Thucydides trap,” but rather through the lens of the so-called Needham Question. Joseph Needham was a British biochemist and author of a 25-volume history of Chinese science. A key problem emerged from his research: how did it happen that China, which had been at the forefront of science and technology for most of human history, was outpaced by the West? The realization of its own technological weakness was painful, occurring during the first Opium War and after, during the so-called century of humiliation. Today, China’s Communist elite not only wants to avoid “technological vassalization,” as Xi put it, but to take the lead in technological progress and astound the West, just as the West astounded China in the 19th century. China’s national innovation system is meant to be a set of institutions and policies designed to achieve this goal.

According to Cheung, Xi Jinping is the opposite of Deng Xiaoping. In the 1970s, the latter reoriented the state away from military and security issues toward the challenge of capitalist reform. Large military budgets were slashed and priority was given to growth. While Xi doesn’t ignore economic indicators, he places more significant focus on technological self-reliance, economic security and the modernization of the military. Cheung quotes him as saying that “science and technology power determines changes in the balance of world political and economic power.” Xi is a techno-nationalist.

Since the beginning of his rule, Xi has argued that China must accomplish a transition: abandon its role as an imitator and transform itself into an innovator. Only in this way will it become self-sufficient in critical fields of technology. In order to attain this, the Chinese leader is pushing “military-civil fusion,” a process of exchanging information, resources and capabilities between civilian and military actors in key technological and economic areas. Xi has had the MCF written into the CCP constitution as a national priority.

One of the most important initiatives under the MCF banner is the construction of a network of large laboratories where the civilian and military sides can exchange experiences and work together. Cheung notes, however, that the project’s development has been “painfully slow.” He points to the bureaucratic opposition and fragmentation as the main reasons. Elsewhere, he suggests that the innovation strategy provides cover for the process of consolidating power and overcoming resistance embedded in the state apparatus.

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There can be no doubt that, with Xi at the helm, China has ceased to adhere to Deng’s maxim, “Hide your capacities, bide your time.” But did the transition from Deng's economic openness to the pursuit of self-reliance occur suddenly under Xi's leadership? Cheung does not provide compelling evidence for the thesis of a qualitative, rather than simply gradual, change under Xi regarding technological self-sufficiency and economic nationalism.

Over the past years of strained relations between Beijing and Washington, there has been much talk about a “Sputnik moment.” Opinions differed on what exactly constituted that moment. Some pointed to President Donald Trump, his tariffs and the pressure he applied to Huawei. Others mentioned year 2016, when AlphaGo, a program created by British machine learning experts, beat the best human player in the Chinese go game. Still others claim that the restrictions on semiconductor-related technologies imposed by President Joe Biden Biden last year unleashed an unprecedented mobilization in Beijing.

Cheung’s book allows us to expand the historical perspective and propose a hypothesis of a certain continuity, more pronounced than the author himself would admit. In May 1999, the U.S. bombed the Chinese embassy in Belgrade. The CCP responded almost immediately by establishing the 995 New High-Technology Project. The ambition was to dramatically increase spending on weapon R&D. Influential military officials quoted by Cheung assert that without this program the modernization of Chinese military would not have happened on this scale or at this pace. “We should be grateful to the Americans,” admitted one general. Consider: “Total Chinese defense R&D investment between 1999 and 2009 (the first ten years of the 995 program) was more than all the investment in defense R&D in the prior fifty years.” Through this prism, Xi would represent only an intensification of a trend, not its source.

According to Dan Wang, a tech analyst who spent years in China, Xi has no real ambitions of a great reformer like Deng. The great power he has amassed in his hands is not matched by any great goal. Regarding critical technologies, his results have been disappointing so far: “Beijing is fundamentally misunderstanding the chip industry if it can believe that semiconductors can be run as a national space project,” estimates Wang.

As Wang notes, China has not made significant advances in either aviation or chips. However, it has managed to gain dominance in other sectors. In the case of EVs, huge subsidies have created a number of companies that are changing the landscape of the automotive market. As Ford’s CEO remarked, “something monumental happened in our industry where China became the number one exporter of vehicles globally. It had always been the Germans and the Japanese.” Chinese competition sows panic on the Old Continent; Carlos Tavares, the CEO of Stellantis, complained in an interview with “Le Figaro” that Europe rolled out the red carpet to Chinese companies, and now it will have to pay a steep price to compete with them. Westerners, says Tavares, are no longer comfortable with change, and rivalry with the Chinese will be “Darwinian”. “How many will be able to adapt?”, asks the CEO. China has accumulated unrivaled competence in the EV industry. According to Goldman analysts, in the PRC, construction of a EV factory takes 1/3 of the time required in other countries, while Chinese battery plants are 80 percent cheaper to build than American ones.

The PRC controls clean tech supply chains. Its grip on green technologies is so firm that many experts do not believe the EU can meet its green goals without maintaining close ties with China. When it comes to wind turbines, its share in the production of essential components amounts to over 70 percent, and in the case of solar panels, it reaches 80 percent. Beijing’s dominance in the area of rare earth metals— particularly in refining—is equally strong. Of the 54 mineral commodities that the U.S. Geological Survey deems crucial to the country, America depends on China for as many as 35.

According to Jeffrey Ding, who studies the questions of technology and great power rivalry, it is not narrow technological developments that decide a country’s fate, but so-called general purpose technologies like the steam engine, electricity, or the computer. These are engines of growth that become engines of power, as the rise and fall of nations is ultimately determined by differences in economic growth.

Ding argues that the nature of the American innovation system presents a huge advantage to the U.S. Its decentralized character allows methods, information and technology to diffuse quickly and in multiple directions. At the turn of the 20th century, while other countries had the potential to rival the U.S. in terms of innovation, it was America that “was able to diffuse interchangeable manufacturing methods because it had stronger connections between the frontier institutions, entrepreneurs, and engineers.” This gave it the edge that would be key to the American Century. It was later to be repeated with computers, when Japan—in contrast with the U.S.—struggled to integrate them into its economy and institutional practice on a large scale. Ding contends that the U.S. should defend the status quo when it comes to its own innovation diffusion structures, as these are what will keep America ahead of the PRC, including in the coming age of artificial intelligence.

A number of voices suggest that the American innovation system needs a major overhaul. On the surface, it appears that there is a genuine renewal. The CHIPS and Science Act, the Infrastructure Act or the Inflation Reduction Act might imply that the state has regained its ability to mobilize resources and carry out industrial policy. Even if we set aside criticisms, such as the argument that the CHIPS Act doesn’t represent a success for the semiconductor industry, but rather a win for the incumbents or simply a rescue plan for Intel, this whole effort may still lead to nowhere. As David Adler and William B. Bonvillian remark, “Pathways necessary for diffusing new technologies and getting them to market are missing, including a lack of scale-up financing mechanisms. The vocational education system has withered as has the corporate lab system.”

They argue that one of the main culprits was the fascination with information technologies. As a result, industrial policy was eventually dropped and deindustrialization allowed. Yet the problem boils down to more than a misguided notion of the country’s development—America is not going to turn into one big California, after all. The greatest barrier to technology implementation has become the lack of a technically trained workforce. This problem is also resurfacing in the context of the CHIPS Act. Of the 115,000 new jobs anticipated to be created in the semiconductor industry by 2030, 58 percent are projected to remain unfilled at the current graduation rate. If America wants to build an advanced manufacturing base at home, it must have the right workforce. Unfortunately, the vocational school system, as Adler and Bonvillian write, has collapsed. Without reconstructing it and reducing the gap between higher education and the manufacturing process, neither reindustrialization nor acceleration of technological progress to raise Americans’ standards of living will be attainable.

According to the head of the U.K. A.I. Foundation Model Taskforce, Ian Hogarth, we are entering an era when geopolitical relations will be transformed, if not destabilized by A.I. The U.S. innovation system will be put to a real test before our eyes with the advent of new general purpose technology.

Paul Scharre’s Four Battlegrounds: Power in the Age of Artificial Intelligence is a book about the age of A.I. nationalism. Its main premise is that an A.I. race between the U.S. and China is already underway. Translating this new technology into military or economic power will not be easy, but it will happen eventually. The author does not pay particular attention to the economic aspects of the race, such as the issue of explosive growth, which could give absolute economic advantage to one of the great powers. He is primarily interested in the effect that A.I. development will have on military power, as well as the conditions necessary for A.I. to produce such an effect.

Scharre does not define the essence of the A.I. race. Importantly, this arms race, as the economist Pradyumna Prasad explains, is indefinite: There is no clear finishing line, competitor’s relative position during the race is of utmost importance and there is always the possibility to reverse any win or loss. He believes that the most important edge that this technology could give in the future is the ability for total mobilization of economic resources in the event of war. What U.S. industry accomplished during World War II, could be achieved by A.I. in the near future. It could solve logistical problems, increase production efficiency, or magnify the effects of research and development.

Sharre describes in a very accessible manner the battlegrounds on which countries are competing in the age of A.I. nationalism. One of them is data. The claim that China is the “Saudi Arabia of data” is inaccurate; China has a wealth of a certain type of data, but lacks others. While their facial recognition systems can be trained on extensive material, it is unlikely to be used to train fighter jets.

The hardware aspect is overlooked by the public, and perhaps constitutes the most complex issue of the A.I. race, as it involves the globally dispersed semiconductor supply chains, where the Dutch ASML and Taiwan’s TSMC play such an outsized role.

“Algorithms are not a scarce resource. People are,” Scharre notes. China’s potential in this regard is growing steadily: Between 2009 and 2019, the number of AI researchers increased twelvefold. PRC researchers are expected to surpass Americans in 2025 when it comes to ranking in the top 1 percent of most cited articles. However, it is still America that attracts the crème de la crème of A.I. engineers.

The non-obvious battleground in the A.I. race is institutions. It’s not just the structure of diffusion of tacit knowledge and innovation that matters, but also their internal dynamism. Scharre cites the example of an American company that worked with the government in the field of A.I. and whose owner concluded that he had no other choice but to let his start-up be acquired by a larger corporation that had entire teams dedicated to government contract compliance. As Scharre writes, “the fact that an AI start-up felt it needed to be acquired by a major defense contractor in order to succeed is a major problem for the DoD.” The ossified bureaucracy needs reform if the U.S. doesn’t want to lose its lead in the technological arms race. 

Regulation is another facet of the competition for the best institutions. The European Union has thrown itself with ferocity into the race to regulate AI. It is widely believed that Brussels wants to be the quickest and the toughest, because that way, as in the case of GDPR, it will succeed in imposing AI standards around the world. That being said, it’s hard to imagine that the U.S., China and especially Big Tech will just stand by and watch. As Brookings analysts have convincingly shown, the so-called “Brussels effect” has little chance of working in the case of A.I. The regulations designed by the EU are so strict that supposedly none of the so-called foundation models (like GPT4 or LLaMa) meet them. One can risk the thesis that E.U. is well aware that the Brussels effect will not work this time around.The A.I. Act is, as I see it, the Maastricht of A.I.—all member states will now be bound by an even tighter web of laws regulating a technology that will perhaps shape our future to a greater extent than the Internet.

The A.I. Act will also establish in each country a new agency associated with European A.I. regulation. In doing so, it will create a new interest group, the A.I. bureaucracy, which may align more closely with the E.U.’s interest than with those of member states. A.I. is not an opportunity for Brussels to assert its regulatory power in the world, but to deepen the European integration.

The PRC has opted to be less strict. The Chinese state crafted a set of fairly rigid regulations and put them up for debate by companies working in the industry. In consequence, the initially tough restrictions have been loosened. Still, the most relaxed approach prevails in the United States. This attitude—which one analyst described as “laissez-faire and learn”—amounts to keeping a vigilant eye on AI, while acknowledging that lawmakers do not yet know enough about the technology to formulate regulations.

Washington's decision not to burden A.I. with excessive regulations demonstrates its confidence in Silicon Valley. Not only are U.S. companies spending more on A.I. than the government, they are also capturing all the available talent: In 2020, 70 percent of PhDs in A.I. were hired by the private sector. On the other hand, while China can count on the complete loyalty of its companies, the U.S. government’s relationship with Big Tech is problematic.

Scharre reminds us how 3,000 Google employees protested their employer’s cooperation with the DoD. If support for American national security was controversial for Google, cooperation with the CCP on the Dragonfly project (it involved a search engine for the Chinese market that would meet Communist censorship requirements) was not. Google’s CEO defended the cooperation with China to the very end.

Similar protests over cooperation with the U.S. government have also broken out at Amazon and Microsoft. However, there are companies in the field of AI for which national security is important, like Palantir. Its CEO, Alex Karp, rightly noted that entrepreneurs from Silicon Valley “charge themselves with constructing vast technical empires but decline to offer support to the state whose protections and underlying social fabric have provided the necessary conditions for their ascent. They would do well to understand that debt, even if it remains unpaid”. Ultimately, the U.S. will have to carve out a narrow path between Big Tech’s dominance and the government’s heavy-handed grip, treating A.I.-building companies as it used to treat Big Oil: supporting them where their interest align with the advancement of the American national interest, while also curbing harmful monopolistic behavior. Nevertheless, the shift to techno-nationalism will be too painful for some— techno-cosmopolitan incumbents will be replaced by companies that are not ashamed to work with the U.S. government.

The A.I. race carries obvious but asymmetric risks. It is to be feared that if A.I. gets out of hand, it will happen in the PRC. As Bill Drexel and Hannah Kelley write, “Little accountability for mistakes means that business owners tend to play fast and loose with safety, as evidenced by China’s grisly history of industrial accidents.” In those cases where accidents have come to light and been met with public outrage—like with the toxic toothpaste incident, the poisoned infant formula, or the collision of two high-speed trains—it has done nothing to improve public safety. 

Achieving mutual restraint in this arms race seems to be no easy feat. If the hype proves true, the advantage in AI could dwarf all other factors, becoming, in the parlance of Jake Sullivan, a force multiplier. But even if AI does not translate into a military or economic revolution, it will significantly change both war and the economy, and no great power will miss the opportunity to gain an upper hand in those areas. Scharre mentions that there is a lively discussion in China about AI restraint. However, he cites a U.S. general arguing that those who talk the loudest about restraint are the ones who implement it the least. The trust gap seems unbridgeable.

To ensure that America never has to consider the Needham question in relation to its own development trajectory, it needs to ask itself a different one. What made it rise to first place in terms of technological progress? Many books have been written on the subject and complex arguments constructed to account for American exceptionalism in this regard. Still, there is a perspective that seems neglected. It reveals something about the American character. One study shows that CEOs born in frontier counties are more supportive of innovation than others, and their companies create more and higher quality patents than their competitors, building a culture striving after technological breakthroughs. Fixing the innovation system alone won’t be sufficient: the technological frontier could still vanish from the horizon. The frontier spirit has shaped America and expressed a certain moral type, but it is not eternal and may fade away. The fifth battleground is to preserve and cultivate it.