Today, my memories of September 11, 2001, when the world froze and I stood paralyzed as images of people jumping from the Towers repeated and repeated and repeated, are mixed up with memories of other days when time stopped — the deaths of each of my parents, my brother, selling off my dad’s cattle, days that closed one chapter of my life and initiated another, whether I knew it or not.
In the past, I watched landscaping crews saw limbs off of trees where birds were nesting in the spring and early summer. I thought I knew how those hysterical creatures felt as their homes and offspring tumbled to the ground. But 2020 has shown me I didn’t, I couldn’t, watching safely from the ground.
Today, I see images of cataclysm on a Biblical scale — the California fires and melting ice caps, human-induced tragedies, unintended consequences of — let’s call a spade a spade — our greed and ambition. I think of the lives destroyed and the unimaginable suffering of those beautiful lands and the wildlife trapped by fast-moving flames and melting ice.
None of us knows what will follow. Have we learned from our mistakes? I wish I could say, “Yes, absolutely!” But that’s yet to be seen.
So here, on this day, I’m offering a prayer that we rise above our prejudice, greed and hate to preserve what we love and somehow figure out how to move together into a future that honors our best selves.
China welcomed Tesla’s EV manufacturing innovation and used it to build an EV supply chain. Where is America investing?
Del Valle, Texas, has made a bid for Tesla’s $1 billion electric truck Gigafactory, waiving some $46 million in property taxes over 10 years, with the county kicking in an additional $14 million.
Can you help us get an HEB?
Question from a Del Valle resident to Tesla representatives
The thing about economic development is that, in Texas at least, communities bid with the property taxes that pay for public health and kids’ educations. Del Valle, a stone’s throw from Austin and its Bergstrom International Airport, is chronically underserved. It has neither a permanent medical clinic nor a hospital. At a recent community meeting, a school board official’s question to Tesla representatives was, “Can you help us get an HEB?,” HEB being the the state’s flagship grocery store.
Innovation, riding the crest of Chinese investment
Any relationship is a risk. Not too long ago Tesla, in need of cash, made a similar gamble with China. Tesla agreed to pay $323 million a year in taxes, accept a $1.6 billion state loan, and source 30% of its parts locally (100% by the end 2020) to open a Gigafactory in Shanghai, the first foreign automobile company not required to share profits and technology with a local company.
The deal paid off handsomely. Tesla’s second-quarter earnings moved into the black, the stock’s value quadrupled to $1,790 per share, and Elon Musk’s personal wealth pushed past Warren Buffet’s.
But then Tesla fit neatly into the guiding principle of China’s “Made in China 2025” strategy: “innovation-driven, quality first, green development, structural optimization, and talent-based.” And since Tesla sources parts locally, China builds an in-country supply chain for manufacturing electric vehicles.
Looking for a mask? All roads lead to China
That’s EVs, now consider medical supplies. If you’re wondering why American doctors are re-using their masks, read Keith Bradsher’s reporting in The New York Times. In three years’ time, China has dominated the market in medical devices and supplies by investing heavily in companies that make those things and requiring hospitals to source locally. Bradsher, chief of the Times‘ Shanghai bureau, quotes an LA-based entrepreneur who decided to manufacture masks and hand sanitizer, only to discover the machines that make masks and the plastic bottles that dispense hand sanitizer are only made in China.
Investing in the future, locally
In the next 10 years, Deloitte and the Manufacturing Institute estimate U.S. manufacturers will be short some 2 million skilled manufacturing workers. The starting salary for an entry level Del Valle Gigafactory worker with a high school diploma would be $36,000, about 55% of a living wage in Austin. But those jobs could conceivably propel workers into more skilled, advanced manufacturing roles with double the salary, in a market market hungry for those skills.
To fill the pipeline, local Austin-based manufacturers and the Army Future Command are collaborating with the Austin Community College to build an advanced manufacturing incubator that would offer hands-on experience and apprenticeships. As an EV manufacturer, Tesla could play a major role in mentoring the community in those very sectors that matter so much to the Chinese government: “innovation-driven, quality first, green development, structural optimization, talent-based” manufacturing.
Some signs of investment at the federal level
These are important but local initiatives. The larger question is whether we as a country are learning anything from China’s passion for investing in the technologies that will shape the future — advanced manufacturing, artificial intelligence, 5G, semiconductors.
Take semiconductors, technology that beats at the heart of all things digital. The U.S. semiconductor supply chain is complex and global. Fabrication and assembly are mostly off shored. A bipartisan bill proposed this month would offer matching grants to chip manufacturers willing to build domestic fabs, a line item of some 20 billion for a state-of-the-art facility. Two of the bill’s sponsors are incumbent Texas’ politicians, both ranking members in their respective chambers and both up for re-election this year. In the Senate, John Cornyn (R-TX) is working with Mark Warner (D-VA), vice chair of the Senate Intelligence Committee; in the House, Michael McCaul (R-TX) is working with Doris Matsui (D-CA). China meanwhile, seeing the writing on the wall, is investing huge sums in building domestic semiconductor manufacturing capabilities. The jury is out on the feasiblity of such an initiative but then again, China is a country with a history of moving mountains.
Texas and Austin, of course, were once the site of the semiconductor consortium SEMATECH at a time when Japan threatened American dominance in that seminal industry. In the end, the state withdrew funding, SEMATECH moved north and is no more. So much for long-term vision.
In this mercurial world, it pays to pay attention, particularly to our own hubris. Texas has always been a destination for risk-takers. Hopefully we’ll take the right risks, and Del Valle will finally get its HEB.
An old book of Texas history, pulled from storage during the Covid-19 shutdown, reminds us of the optimism that marked the start of the 20th century, in stark contrast to our fears for the 21st.
A young activist writer living in Austin, Texas, is inspired by a charismatic politician. He writes a successful novel, secures a good job close to the halls of power and passionately supports liberal causes. A global crisis breaks out. He volunteers to help, is exposed to an untreatable virus, and dies at the age of 33.
The writer is Sinclair Moreland; the year, 1918. The virus was the so-called Spanish Flu. I pulled his book, The Noblest Roman, a tale of idealism in the face of corporate greed and political corruption, from a box I stored a decade ago in preparation for — now?
When Moreland wrote The Noblest Roman, the world must have seemed full of possibilities. The Spindletop gusher of 1901 remade the oil industry in the image of Texas. Progressives took the reins of power and used a tax on oil production to create the state’s educational and transportation systems. They battled big business, reformed the prisons and passed laws to protect food safety and regulate lobbying. They created the Texas State Historical Society where Moreland became the archivist.
The corporate villain of the time was Ohio-based Standard Oil, the first company to master both vertical and horizontal integration and own its supply chain. Feared and disliked by competitors for its questionable business practices, Standard Oil built a loyal consumer base by keeping its practices low. The company’s CEO, John D. Rockefeller was the world’s richest man. Sound familiar?
The year after Moreland published The Noblest Roman, The Supreme Court split Standard Oil into 34 separate companies, one of which became Exxon-Mobil. The stage was set for what The New York Times columnist Thomas Friedman calls “the next train coming down the tracks,” climate change.
So goes the arc of history. Last week, six new Guggenheim Fellows were announced. Among them is Jeff Goodell, who like Moreland, lives here in Austin. But while Moreland paints an ideal of political leadership, Goodell’s award-winning The Water Will Come mourns its absence in the face of rapidly-rising sea levels, and the inevitable associated destruction and mass migration.
And while Moreland’s subject was bounded by Oklahoma, Louisiana and New Mexico, Goodell’s is global, differentiated only by economic disparity and whether there is too much or not enough water.
“Nature is going to win. Nobody wins with water. Think about the Grand Canyon.”
In 1917, the year before his death in the flu pandemic, Moreland wrote a second book, The Texas Women’s Hall of Fame, dedicated to the women of Texas for whom “social caste has no place” and who maintain a “vital interest in … clean streets, better factory conditions, child and animal protection, higher moral standards, public health, social justice and decent government.” With that in mind, I pass on the brilliant Arundhati Roy’s thoughts for our preset time:
Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next. We can choose to walk through it, dragging the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas, our dead rivers and smoky skies behind us. Or we can walk through lightly, with little luggage, ready to imagine another world. And ready to fight for it.
There’s a continuum (and a conundrum) between the social distancing mandated by the coronavirus pandemic and the vitality of our communities. Ancient Athens and a Nazi concentration camp remind us how much we need each other.
Surrounded by my four walls, I’ve been thinking about ancient Athens, which for a single generation, from 454 to 430 B.C., erupted in pure genius. In a perfect storm of creative class-like action, its citizens founded the Western world. Our systems of government, science, philosophy, law, the arts and education are outgrowths of those 24 years.
Athenians valued civic life above all else. Rich and poor lived in similar kinds of housing and ate the same plain fare. People congregated: the rich mixed with the poor, foreigners were welcomed, eccentrics praised, and differences tolerated. The author Eric Weiner writes the condemned Socrates chose death over exile from his beloved Athens.
In time, what Weiner describes as a “creeping vanity” set in. The global city grew insular. The rich built big, showy houses. The streets became wider, the differences between the haves and the have nots, more glaring. Foreigners were shunned. Political divisions erupted. Athens went to war with Sparta. Farmland was destroyed. Tolerance dwindled.
In 430 B.C., a plague killed nearly two-thirds of this dense city’s population. One of its victims was the great Pericles, who had been censured in the city’s political upheaval. A series of despots and tyrants rose to power. After a brief period of peace, war resumed, and Athens was absorbed into Sparta. Some historians have postulated the plague was caused by the Ebola virus, a coronavirus.
The density conundrum
Years ago I visited the concentration camp Terezin outside of Prague. More than 150,000 Jews were sent to the camp; some 17,000 survived. I remember a guide commenting that the very act of crowding the Jews together so densely gave them the power of community. Artists, philosophers, musicians and scientists suffered alongside their fellows. There were no differences among them.
In 1944, the composer and conductor Rafael Schächter conducted a chorus of 150 prisoners singing Verdi’s massive “Requiem.” The performance was part of a Nazi propaganda initiative for a Red Cross inspection, and as chilling as the story is, I can’t help but wonder how much strength that beautiful project gave Schächter, his singers and their imprisoned audience.
The other thing I remember about visiting Terezin was a compulsion to leave as quickly as possible and never return, so vivid is the stamp imprinted by the place.
The need for foundations centered around people
We are not victims. We’ve ignored the Cassandras and their warning signals. We’ve pushed the natural world to a state of dry tinder and its inhabitants to homelessness, starvation and flea markets. There is a natural cycle to things, a cause and effect.
Will technology to save us? It will certainly help those who have the time and tools to use it, hopefully including both children and adults in need of a good education. It will continue to enrich those who create and dominate it. But, without guard rails, it will also drive us down the same path we’ve been on.
Dr. Vivek H. Murthy, a former surgeon general of the United States, has championed the role of happiness in health, including maintaining a vital social safety net. Quoted in a recent column on social distancing, he says:
“If we want to be a stronger, more resilient society, we have to focus on rebuilding foundations centered around people.”
Dr. Vivek H. Murthy, author and former surgeon general of the United States
If we learn anything from history, it’s that nothing lasts forever, and everything has its price. Oh, and leadership matters.
The Defense Innovation Board report on 5G is a warning that the U.S. is headed down a path of isolation that with disastrous economic and moral implications.
A super-fast national Internet exclusively for urban America? That’s the scenario that comes to mind in reading the Defense Innovation Board‘s report on 5G, the next generation of super-fast wireless communication. Written by technology’s A-List, it outlines a trajectory that separates cities from rural areas, the have’s from the have-not’s and the United States from the rest of the world in a “post-Western wireless ecosystem.”
“The leader in 5G stands to gain hundreds of billions of dollars in revenue over the next decade, with widespread job creation across the wireless technology sector. 5G has the potential to revolutionize other industries as well … The country that owns 5G will own many of these innovations and set standards for the rest of the world…
That country is currently not likely to be the United States.”
“The 5G Ecosystem: Risks & Opportunities for DoD,” Defense Innovation Board
Chaired by former Alphabet Chairman Eric Schmidt, the Board was commissioned by former Secretary of Defense Ash Carter to make recommendations to the Dept. of Defense on the next wave of innovation.
I recommend the 30-page document itself, but if you’re pressed for time, try Dr. Lee, Physic Genius’ more entertaining version though, disclosure, despite some inquiries, I have no idea who Dr. Lee is.
A technical approach that deepens divisions
In the United States, the Federal Communications Commission allocates the electromagnetic spectrum. Most current 5G development is in the “sub-6” range. But in the United States, the military owns that portion of the spectrum. So the FCC made a higher-band width known as “mmWave” available for commercial development, which is where Verizon and AT&T are developing their 5G offerings.
Only two other countries currently support mmWave for 5G. Both of these countries are now U.S. allies — Japan and South Korea — and both are using a dual strategy, developing both the sub-6 and mmWave ranges.
U.S. policy makers and suppliers hope mmWave will eventually become the global standard, but as the Defense Innovation Board report makes clear, it’s not a strategy to hang your hat on. MmWave transmissions are more powerful but shorter and blocked by solid barriers — walls, trees, even people. Providing comprehensive service will require what the report labels a “massive infrastructure build-out” ($$$). If and when that is successful, mmWave service may not be viable for rural areas, where reliable connectivity is a literally a lifeline.
Consider that despite diplomatic tensions with China, Canada recently signed a contract with Huawei to deliver 4G LTE to rural communities in the Arctic, remote areas of north-eastern Quebec and Newfoundland and Labrador and according to Huawei, some 25 communities in the largely Inuit areas of the Nunavut territory.
Own the IP; own the industry
No American company makes the base station equipment to transmit 5G signals. The United States owned the majority of 4G-related standards-essential patents. But today over one-third, (34%) of worldwide standards-essential patents for 5G technology are owned by Chinese companies, 15% by Huawei alone, according to Asia Nikkei News. South Korea is second, with over 25% of standard-essential patents.
That will make building the network infrastructure for autonomous cars or next generation factories more expensive for U.S. companies. But owning the intellectual property will reduce costs and accelerate China’s building the infrastructure of the future.
Huawei has signed 50 contracts to provide next-generation 5G networks to 30 countries including Italy and the United Kingdom.
We damn the consequences at our peril
Were the United States to decide to compete with the rest of the world, the Board’s report provides a timeline. Sharing the sub-6 spectrum will take five years, and the Board considers a sharing spectrum a viable alternative. Clearing the spectrum would take 10 years. This would get us to the starting gate — if the federal government were to open up the sub-6 range. And that’s a big “if” in this political environment.
“Damn the consequences!”
General George Patton
The consequences of isolation are immeasurable. Beyond the obvious — American competitiveness, jobs, standard of life, education, opportunity — connectivity is the root capability for solving every over-arching problem we face — climate change, income inequality, immigration, human rights.
I just finished reading Hyeonseo Lee‘s remarkable story of escaping from North Korea with her family. She’s paid a broker to get her mother and brother to South Korea when they are imprisoned in Laos. Here, she’s waiting to enter Laos to rescue them:
“About 20 people were waiting in line to have their passwords stamped. A few were backpacking white Westerners in high spirits. I looked at them with envy. They were inhabitants of that other universe, governed by laws, human rights and welcoming tourist boards. It was oblivious to the one I inhabited, of secret police, assumed IDs and low-life brokers.”
Hyeonseo Lee, The Girl with Seven Names
Laws, human rights and a high standard of living are part of a vulnerable legal and moral infrastructure. Protecting its integrity and viability requires an actionable connectivity policy and a cogent strategy. The Defense Innovation Board report is a warning salvo. We must make sure that it is heard.
Five business leaders walked onto the stage of the Texas-EU Summit to talk about managing transatlantic businesses. Two run European units based in the United States; two developed European units of U.S. practices; and one has done it all. Four wore stilettos.They didn’t have much time, and they had something to say. Not one wanted to be called out for her gender, and not one considered that remarkable.
The hardest thing: Finding and keeping talent
Without question, the biggest challenge confronting a European company in the United States is finding and retaining talent. “Americans’ resumes look great, but you have to train them,” said Belen Marcos, president of Cintra US, one of the world’s largest private developers of infrastructure. Marcos, an engineer by training, noted that in Europe educational credentials are paramount. Americans job-hop more than European hires. They tend to specialize and resist working in areas outside their specialty.
“Europeans are generalists. They expect to do many different jobs.”
Belen Marcos, president, Cintra US
Navigating European statutory regulations
Disruptive business models challenge both business and cultural norms. Consider the vacation rentals that have turned many traditional neighborhoods into latchkey hotels. Cristina Silingardi, a Brazilian with deep finance experience, helped Austin-based HomeAway successfully navigate the sticky process of integrating acquisitions in both Spain and Brazil.
“Understand the statutory regulations before you do business … It went off without a hitch.”
“Contracts are part of the law in Europe,” said Liz Wiley, an attorney and partner, Grable Martin Fulton PLLC. who specializes in intellectual property.
“Very little if anything can be negotiated (in Europe). Expect negotiations to take much longer.”
Belen Marcos, president, Cintra US
Marcos knows a thing or two about the subject. Her company Cintra is part of the Spanish infrastructure provider Ferrovial. She and her team negotiate the construction and long-term management of roads, airports and concessions, many of which are public-private partnerships.
Codes vs. negotiation. Consider privacy.
Europe is not a monolith. Both EU and country-specific regulations come into play when determining who owns what. For example, “the EU has the General Data Protection Regulation (GDPR), but France has its own data protection authority, the CNIL, which handles GDPR complains and defends the French position with GDPR-related issues,” said Wiley
“The United States is not a code country,” commented Wiley, “We make our own deals.”
Liz Wiley, partner, Grable Martin Fulton PLLC
Wiley, whose practice includes both French and American startups, recommends first filing for U.S. patent protection, then filing in other countries to ward off infringements.
Soft skills matter
“When in doubt, err on the side of formality,” advises Wiley. And in the hurley-burley world of entrepreneurs, she recommends oral presentation training for cautious French startups that compete in the winner-take-all American pitch culture.
Sharon Schweitzer’s company, Access to Culture, cross trains business people to be effective in other cultures. Recounting an incident where two older Czechs silenced their giggling younger colleagues with a steely glare, Schweitzer said the significance of a seemingly minor incident caught her by surprise.
But do high heels also matter?
The specter of political change is everywhere. Here too, dress is brand. This year’s Yellow Vest protests revealed the deep divide between France’s privileged class and rest of their country. As I’m writing this, on the other side of the world, young people in Hong Kong wear black and mourn a man in a yellow raincoat.
Remember Mark Zuckerberg’s testifying before Congress, stripped of his signature t-shirt and uncomfortable in a blue suit? Melania Trump in a white pussy-bow blouse and sky-high heels? Dress is political, and high heels stand unrivaled as a symbol of gender and power. Flip flops may reign in U.S. youth and tech enclaves, but search “business women” and you’ll find women in power in wearing heels — because they choose to.
In another culture where talent and a diverse work force weigh heavily on its future competitiveness, Japanese women unsuccessfully petitioned their government to ban gender-based dress codes (#KuToo), and specifically high heels. My guess is there’s another shoe to drop there.
In 1869, men in the Wyoming Territory needed wives. Politicians in Washington needed more voters in the Western territories. So Wyoming gave women the vote. John Morris wrote to a national magazine promoting women’s suffrage:
It is a fact that all great reforms take place, not where they are most needed, but in places where opposition is weakest; and then they spread.
John Morris, following the Wyoming Territory’s decision to give women the vote
“To be sustainable, change takes time,” Wiley noted. Would this panel have happened 30 years ago? 20? Maybe.
With that thought, I’m pulling out my high heels to wear sometime soon.
Hats off to Ana-Barbara Llorente and Pendas International, for sponsoring the panel, and the World Affairs Council of Austin for hosting.
When is fear a valid reason for protectionism? At what point does openness become bad business and a national security concern? David Firestein, the executive director of the China Public Policy Center, stopped by the “World Spins” to remind us that relationships make the world go round, and punitive tariffs don’t win trade wars.
David Firestein dropped by last week’s “World Spins” session to reassure us that at about $1 trillion, give or take a few million, the U.S.-China trade relationship is too big to fail. But he had some thoughts on where we’re taking it.
Firestein‘s credentials in U.S.-China relations are wide and deep — the State Department, EastWest Institute, and now, president and CEO of the George H.W. Bush Foundation for U.S.-China Relations — in addition to his role in academia launching the LBJ School of Public Affairs’ China Public Policy Center.
Perceptions of growing authoritarianism
“China’s rising authoritarianism colors U.S. views in a profound way.”
The Uighur minority and the telecom giant Huawei are the poster children of American perceptions of China, prompting national security concerns that have underpinned both the administration’s trade narrative and domestic regulatory actions. On the heels of watching China use facial recognition software to persecute the Uighur and other Muslim minorities, San Francisco banned the technology. Last week those same concerns spread to Washington, bubbling up at the House Committee on Oversight and Reform.
Blacklisted by the administration, Huawei typifies China’s state-supported hybrid economy. The telecom giant sits on a deepening Maginot Line between the Internet of the East and that of the West, drawing a line between American interests and increasingly, everyone else’s.
“In public and private statements, American intelligence officials and telecommunications executives and experts have begun to concede that the United Sates will be operating in a world where Huawei and other Chinese telecom companies most likely control 40 percent to 60 percent of the networks over which business, diplomats, spies and citizens do business.”
There’s a silver lining for Big Tech. Nothing unites like a common enemy, and China has provided Qualcomm, Facebook, Google et. al. with a new “America First” narrative to relieve regulatory threats.
The missing quid pro quo
“China is vastly more closed to us than we are to them,” Firestein said. “When someone from China gets off a plane in San Francisco, they have immediate access to their email through WhatsApp. But an American landing in Beijing can’t access their Gmail.”
For an administration determined to deliver on its “America First” campaign promises, protecting America from China is a top priority. Vice President Mike Pence’s watermark speech at the Hudson Institute frames the U.S. response to Chinese “economic aggression.”
With China, all silk roads lead to intellectual property. In the absence of any Chinese quid pro quo to American openness, in 2018 the administration has expanded its powers to protect domestic technology from foreign investment. The Treasury Department’s Committee on Foreign Investment in the United States (CFIUS) began to block mergers and acquisitions considered a threat to national security. The Export Control Reform Act (ECRA) and the Foreign Investment Risk Review Modernization Act (FIRRMA) are charged with protecting tech sectors that map with its “Made in China 2025” strategy — advanced manufacturing, artificial intelligence, self-driving vehicles, semiconductors and telecommunications.
Applying worst-of-breed practices
Unintended consequences abound. The ban on Huawei network technology hits rural areas the hardest because the small network providers have to swap out cheaper Huawei equipment for more expensive offerings. And faced with its American supply chain being cut off, China will accelerate its build-your-own strategy, a trend that is already impacting U.S. tech companies’ stock prices.
Which brings us to where Firestein breaks rank. A trade strategy based almost exclusively on punitive tariffs has penalized American producers by eliminating lucrative markets, disrupted supply chains and cost consumers at check out.
“The United States is adopting “worst of breed” practices that are destructive to the economy … Our trade deficit with China is the largest good and services deficit dating back to 1776.”
Nowhere is the cost of the trade war more obvious than in the agricultural sector. Last week at a “hats on” event, President Trump announced a $16 billion farm aid package in a robbing Peter to pay Paul strategy to offset farmers’ losses with taxpayers’ dollars.
In fact, tariffs can make industries less competitive.
It breeds a kind of laziness here,” said Simon Lester, director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute. Tariffs are taxes on outside goods, so they inherently protect some U.S. businesses from foreign competition. “You don’t have to compete with the best in the world you can just relax you don’t have to work that hard and face any competition,” he says.
Despite the national security narrative, the relationship between China and the United States is not about military might. Certainly, the U.S. technology industry is rooted in federal defense funding, and the Department of Defense continues to fund innovation. But this is a 21st century struggle not a 20th century one. China’s goals are economic.
“Military interests are a function of power. China is building its military to define its power … But let me assure you, China has no interest in becoming the world’s policeman.”
Relationships make the world go round
The conversation closed with a reminder that relationships grease the wheels that make the world go round. Firestein brought up a flash point from his first few weeks in Austin when two U.S. Congressmen, a U.S. Senator, numerous professors and the University of Texas student newspaper protested an offer from the Confucius Institute to make a donation to the CPPC. Firestein noted, however, that the United States has similar practices, and that in the end:
“Relationship matters. We have to get it in sync.”
What does the future look like?
A year ago, Firestein cautioned that competing with China was like a no-holds barred cage fight in wrestling. China knows what it wants its future to look like. State control provides a longterm planning horizon. It has a clearly written industrial strategy, state funding and a non-interference strategy with its people. The United States operates from tweet to tweet. As for a strategy?
In the end, we’re going to have to step up and compete. China is not our enemy but it is our fiercest competitor.
David Firestein, in a May 2018 talk at the “World Spins”
In the not too distant future artificial intelligence, autonomous vehicles, advanced manufacturing, semiconductors, telecommunications will shape not just American competitiveness but what our world will become. Even the current administration, loathe to cooperate on much of anything, went so far as to endorse a set of international AI guidelines sketched out by the Organization for Economic Cooperation and Development. To echo a comment made by Senator Richard Burr at the University of Texas’ Fifth Annual Texas National Security Forum:
If we don’t create a framework for this technology, who will?
Senator Richard Burr, chairman, Senate Select Committee on Intelligence, Nov. 2018
Titanic trade clashes, Chimerica, Huawei,’s blacklisting, theft of intellectual property — oh my! As the trade war with China intensifies, Tyler Johnson’s “The Way of the “Laowai” reminds us that international business is an art; opportunity, a matter of perspective.
In the titanic trade clash between China and the United States, Tyler Johnson’s is a calm, sane voice. But then he is a businessman, and businessmen get things done. Johnson spent the go-go years between 2005 and 2015 growing Dell’s Asia-Pacific business. He saw the blossoming of Chimerica and now, on the cusp of what is starting to look like a nasty separation, reminds us there is an art to conducting business with another culture.
What he learned is the subject of a new book, The Way of the Laowai, a testimonial to taking a global perspective. (Laowai means outsider or alien in Mandarin.)
Take note, America: The self-selected attendees at Johnson’s “World Spins” talk were almost all Chinese. As one explained, “I want to learn how you think American companies should compete in China, from your perspective.
The scale of the trade clash is enormous, and the stakes are high.
China is the world’s most populous country. Its breakneck development over recent decades has added hundreds of millions of consumers to the global marketplace while supplying a vast assemblage of low-cost goods… It is the source of roughly one-third of the world’s economic growth.
Separating business from policy is a sticky wicket, especially when two radically-different cultures have bound themselves so tightly together economically. As Li Yuan, the New York Times New New World correspondent wrote :
The two sides have plenty of reasons to distrust each other. The United States blames China for heavy job losses, theft of corporate secrets and cheating at the rules of global trade. China credits the hard work and sacrifices of its people for its success and sees the trade war as driven by American fears of a prosperous Chinese nation. (Photo/Doug Mills, The New York Times)
But in the end, business is business, and sometimes getting things done requires a “whatever it takes” approach.
In China, government initiatives drive almost everything. It’s important to understand those initiatives and analyze how they figure into your business model. The more you understand what the government wants, the more likely you’ll be aligned …
A laboratory for future innovation
Over the past 25 years, China has become what Oppenheimer Funds calls a “laboratory for future innovation” for U.S. companies. Big Tech-funded R&D centers place scientists from both countries side-by-side to crack breakthroughs in pivotal data-intensive areas including artificial intelligence and cloud computing. Microsoft Research Asia (MSRA) funds basic research in AI. Google opened an AI lab in Beijing and has a research alliance with Tencent on cloud services. Jeff Ding, a graduate student at Oxford and the force behind the China AI newsletter, is well worth following for a deeper understanding of cooperation between the two countries in R&D and technology (AI) commercialization.
But there are concerns. M.D. Anderson Cancer Center in Houston recently severed ties with three scientists over their ties to China and policy violations with research grants from the National Institute of Health. Writing in The New York Times, Mihir Zaveri noted that a report commissioned by the N.I.H. also mentioned that 39 percent of the Nobel Prizes in physics, chemistry and medicine won by Americans have gone to foreign-born scientists.
Data, ethics and national security
Research spawns innovation and ethical (cultural) concerns. The facial recognition technology that San Francisco banned out of fear it would be abused by the city’s police, is being used in some form by companies in China to save pigs from the devastating spread of untreatable African swine fever — and allegedly to suppress minority populations.
“Today’s battles are all about data, how you get it, who has access to it, and who you can share it … With 1.4 billion people (and limited enforcement of privacy laws), there is plenty of data in China.”
Then there’s national security. At an intelligence forum sponsored by the University of Texas earlier this year, Sue Gordon, the principal deputy director of National Intelligence, acknowledged the reality of concerns over “dirty networks.”
“We have to figure out a world with diverse technology we can’t control.”
Sue Gordon, Principal Deputy Director of National Intelligence
Huawei, the subject of Gordon’s reference to “dirty networks,” is a stunning case study in whether a Chinese company, genetically bound to its government, can thrive as a global technology company. Huawei has made it a point to develop an entrepreneurial culture based on best-of-breed Western business processes.
“Only by learning from them with all our humility can we defeat them one day.”
But its blacklisting by the Trump administration is having a trickle-down impact. Just yesterday, Reuters announced Google restrictions on Huawei customers’ purchases of its proprietary offerings, a move analysts expect will hit Huawei’s European business hard.
A big world full of opportunity
At the eye of this hurricane, The Way of the Laowai is a reminder that opportunity is a matter of perspective.
There are roughly 196 countries in the world and close to 800 billion people. That’s a lot to wrap your brain around. Each of these countries is complex in its own way … In every location you want to do business in, you need a grasp of these particulars. In each place, business needs to be conducted differently… The world is big and full of opportunities if you can keep your perceptions in place.
As proof, Johnson proudly brought along his smart, confident 13-year old, Mandarin-speaking daughter Reese, a living demonstration of all there is to be gained from learning the ways of another country. Indeed, she corrected him several times.
The March 29 deadline for a Brexit go now/go later/no go (unlikely) is around the corner. Despite some defections, especially in fintech, many U.S. companies are opting to stay. The tragedy has spotlighted two leadership flaws: the hubris in calling for a referendum and the inflexibility in dealing with it.
As I made my way to the Capital Factory, that go-go hive of entrepreneurial-ism in the center of Austin, to hear what the U.K. Dept. of International Trade had to say about Brexit, I thought about a University of London marketing class I took years ago. The professor, a Scot, turned to a world map. He drew a line between Europe and the United Kingdom. Then he drew an arrow across the Atlantic pointing toward the United States and made a prediction: At some point, the British will break away from Europe and join the United States in an economic block. Prescient fellow.
Borders, walls and disagreements
It takes guts to tell your story when the facts aren’t clear, but the U.K. team did an admiral job. Representatives from the British Consulate’s Department for International Trade, law firm Taylor Wessing and accountancy Blick Rotherberg were optimistic that even the Irish border conundrum could be resolved — at the last minute (“That’s the way Europeans do things.”).
It was one day after Parliament sent Prime Minister Theresa May once more into the breach of negotiations with the European Union, and less than a week after Congress reached an agreement to pause the longest government shutdown in U.S. history so our elected officials could settle a disagreement about a wall between neighbors.
Do we stay or do we go?
Ross Allen, the New York City-based director at the U.K. Department for International Trade led the discussion, reminding us that the United Kingdom has a special relationship with the United States. The two countries are genetically linked — in language, history, laws and culture — and those commonalities matter a great deal.
Data Privacy: Privacy continues is a hot button for the U.S. GDPR is in place in the U.K., as is Privacy Shield. Regulation is a moving target, but there is a common foundation.
Business Headquarters: “Pragmatism” is the operative word. Considerations such as degree of industry regulation, the need to move people around Europe, the size of the organization, labor laws and tax rates all factor into a decision.
Regional Differences: London will continue to be its own country, as are all great cities. But other regions, particularly the north, where businesses that rely on international supply chains will be hit hard – Leeds, Northern Ireland, Wales. I read this morning that U.K. automotive production declined 8% in 2018, as investment plummets and jobs disappear.
Trade: Separate trade agreements are in the works with Israel and talks are underway with South Korean and Japan.
Defense: NATO, an intelligence community that’s joined at the hip.
Worst case scenario? On March 29, Parliament decides not to decide. A second referendum to stay in the E.U.? Too late and too expensive. Unlikely.
“I am England”
Every muddle has its heroes, and I asked Vice Consul Haileigh Meyers and her Silicon Valley-based colleague David what they thought about Prime Minister Theresa May.
She (Mrs. May) is a true public servant, and she realizes she needs to get this done. She’s driven by a commitment to public service.
UK International Trade and Investment British Consulate-General
Imagine taking a job that no one else wants, a job that brings you defeat and humiliation by even your closest allies. Imagine sticking with that job as other opportunities more to your liking and skill set pass you by. If you haven’t read the New Yorker piece on Mrs. May, do. Here’s hoping Queen Elizabeth, another woman who knows a great deal about sacrifice in the name of public service, can offer guidance from her own long tenure as leader of a nation that faced and dealt with dwindling political and economic power.
Closing the session, Allen tossed out a provocative idea: “What if it’s just like Y2K, and we wake up and nothing happens?” Some of us remember the panic that preceded the turn of the century hysteria about whether networks and data centers could tolerate the transition between “1999” and “2000.”
After the session, I rode down in the elevator with Drew Haas, who is moving to London next week to open the U.K. office of San Saba Pecan. They have a warehouse outside of York, and Drew will be growing the business in Europe, where almonds are vulnerable to some stiff Texas competition.
POSTSCRIPT: Inflexibility: The flip side of determined leadership?
UPDATE March 18, 2019: The BBC reports Mrs. May will try to get her proposal passed after two rejections, something the now-famous House of Commons Speaker John Bercow has ruled as a no-go unless there are “substantive changes” to the proposal. Will Mrs. May charge into the same brick wall once again?
The Fifth Annual Texas National Security Forum called for closer cooperation between government and the technology community. Is a public-private partnership in our future?
We expect our government to keep us safe. The Constitution cites “providing for the common defense” as part of the reason to even have a government. In the best of times, protecting a country as proudly technology-driven as ours is a tough job. And these are not the best of times.
Ranking members of the Senate Select Committee on Intelligence were in town recently to talk about the challenges of overseeing national security in a cyber world. Below, from left, Senator John Cornyn (R-Texas), Vice Chairman Senator Mark Warner (D-Va.), Chairman Senator Richard Burr (R-NC) and Moderator Stephen Slick.
“Technology is a wonderful thing. It helps us communicate, but it can also be meddled with,” said Burr. “We need to change the entire architecture of government to recognize we’re not in the 20th century. We’re in the 21st century, and that’s not just government (alone), it’s how we integrate that into the private sector.”
We can thank the Russians and Facebook for jump starting a public conversation about technology, sharing, business models and national security. Consider the complexities. Our finance, hospitality (Airbnb), mobility (Uber and Lyft), communications (Apple, Facebook and AT&T), oil & gas (pipelines), as well as many power, water and utility networks, are privately owned, managed and vulnerable.
A broken partnership and the spectre of 9/11
Technology has historically been a collaborative effort between the public and private sectors. Nuclear technology came out of World War II. The networking technology behind the Internet came out of the Defense Dept. via DARPA and the PARC research facility. But these days, the companies with the research and development muscle to push the boundaries of technology are global, rich and fast-moving. Thanks to Edward Snowden, intellectual property concerns, employee activism and a large customer base outside of U.S. borders, they don’t necessarily trust government to lead them down the right path. Google’s withdrawal from Project Maven, the Army’s first implementation of artificial intelligence is a case in point.
“We don’t want to stop innovation,” Cornyn explained. “But we need the private sector to be responsive to the needs of government.” He made a cautionary reference to the government’s failure to predict the incomprehensible horror of the Sept. 11 attacks:
“The most important failure was one of imagination. We do not believe leaders understood the gravity of the threat … No president can promise that a catastrophic attack like that of 9/11 will not happen again. But the American people are entitled to expect that officials will have realistic objectives, clear guidance and effective organization.”
Excerpted from The 9/11 Commission Report
There are striking similarities between Big Tech and Washington. Both profess transparency but value secrecy. Both think globally and maintain strong international allegiances. Both know results matter. Both value the rights, freedoms and security our nation represents. Best case scenario, each provides a check and balance on the other.
Guardrails for the application of new technologies
Big Tech recognizes emerging technologies like AI are potentially dangerous. In June, Google published a set of internal principles that were accompanies by a cautionary memo from its chief executive, Sundar Pichai, “We recognize that such powerful technology raises equally powerful questions about its use.” “
“This is why we’ve tried hard to articulate a set of AI principles. We may not have gotten everything right, but we thought it was important to start a conversation.”
Sundar Puchai, chief executive officer, Google
But Google’s AI principles don’t work for everyone. America’s fiercest competitor, China, requires companies to give up their source code, both figuratively and literally, for government applications. It has made artificial intelligence the cornerstone of its long-term strategy for technology leadership and a way to automate social control. Witness a recent issue of Jeff Ding’s excellent China AI newsletter for a translation of a white paper by the China Academy of Information and Communications Technology (CAICT) for an outline of “how Beijing aims to use AI to automate censorship, control of public opinion, and improved public security.”
“If America gives up its leadership ability to set a a framework, it’s not going to happen,” warned Senator Byrd. Vice Chairman Mark Warner, both a founder of and an investor in technology companies, was more blunt. “We need guardrails…. We constantly reach out and beg them (the private sector) to work with us in a meaningful way.”
An inflection point in American history
Senator Ben Saase (R-NE) also spoke, describing the long-term race with China as “an inflection point in 230 years of American history,” an opportunity to “organize the American people around long-term competition with China.”
Senator Burr suggested that a public-private partnership located perhaps in North Carolina or Austin could develop the “architecture of cooperation” between the government and private sector.
Certainly, the Army took a calculated risk with its newly-formed Army Futures Command. Based here in Austin, AFS is an entire brigade charged with drawing talent from the start up community to develop the weapons of the future. It’s a big cooperative initiative with a challenging scope.
Never waste a good crisis
Austin has a solid track record of public-private partnerships, most successfully with SEMATECH, formed in the late 1980’s when the semiconductor industry was fighting a losing battle with the Japanese. But P3s are no silver bullet. They are highly collaborative. Competitive issues can be a barrier. They require the participation of top talent. Crises come and go, and their goals and structures must adapt:.
A crisis is helpful to attract support, but there must be an overarching vision to give it the flexibility to adapt as things change. Political, social, economic, and technological conditions are fluid and a P3’s structure, mission and goals needs to reflect those changes.
Collaborationis key, modeled from the top and rewarded at all levels of the organization. Beware of making intellectual property a barrier in this integral process.
Large companies have the resources – talent and support – to collaborate. Smaller companies quickly become overextended. Set realistic expectations with leadership.
Define ROI in terms of the organization’s goals. Establish incremental ROI benchmarks to demonstrate early successes. People will be watching.
A closing note on intellectual property
Intellectual property is a concern in any collaboration, but restrictive IP requirements can torpedo possibilities. I found this article by Charles Duhigg a fascinating case study of the Silicon Valley mindset. It describes tech’s proprietary focus on IP and the lengths Google took to retain the knowledge inside a top engineer’s head, the intriguingly perverse Anthony Levandowski. The piece closes with this quote from Levandowski, who as of this writing is working with Chinese investors to fund his self-driving truck start up:
“The only thing that matters is the future… I don’t even know why we study history. It’s entertaining, I guess — the dinosaurs and the Neanderthals and the Industrial Revolution, and stuff like that. But what already happened doesn’t really matter. You don’t need to know that History to build on what they made. In technology, all that matters is tomorrow.”
Anthony Levandowski, serial entrepreneur and former top Google engineer
For more information, here is a link to the presentations from the Fifth Annual Texas National Security Forum, “The Return of Great Power Competition” and the inspiration for this entry.