Two contrasting tech battles

October 2020

While China bids for dominance in digital technology and to become the world’s AI superpower the West’s attention is distracted by policing its tech giants, write flow’s Janet Du Chenne and Graham Buck

Citing advice previously offered by both Machiavelli and Churchill, the former Chief of Staff to Barack Obama, Rahm Emanuel once recommended “Never allow a good crisis to go to waste. It’s an opportunity to do the things you once thought were impossible.” And along with the many casualties whose jobs and livelihoods have been spoiled by Covid-19, there are others who can be said to be “having a good pandemic”. They include everything from online sellers and supermarkets to medical/PPE equipment suppliers and bicycle manufacturers.

There is scant evidence of any of the world’s economies enjoying a good pandemic, but as Rana Mitter, history professor at Oxford University notes, the latest economic data suggests that China is the only major world economy on course to make a full recovery from the impact of the coronavirus crisis – growing by 2% this year, while the US falls by 5%, the Eurozone by 8% and the UK by 10%.

Writing in the 24 October issue of The Spectator, Mitter notes that Justin Yifu Lin, former Chief Economist of the World Bank, believes that China is now on track to become the world’s biggest economy by 2030. Beijing “can now look forward, while other major economies are still working out how to manage the damage while racking up staggering amounts of debt.”

While the West launches fresh rescue packages for stricken companies and extends furlough schemes to prevent unemployment from spiralling “China is investing heavily on research and development,” writes Mitter. “The (Covid-19) virus has, in fact, given Chinese science a boost in several areas, from biotech to artificial intelligence (including the use of drones to deliver online shopping). This comes at a time when funding for research in the West may be vulnerable due to constrained budgets.”

China’s AI leadership bid

Beijing …can now look forward, while other major economies are still working out how to manage the damage while racking up staggering amounts of debt
Justin Yifu Lin, former Chief Economist of the World Bank

China’s bid to become both the world’s biggest economy and its leading force in AI and other emerging technologies was in focus at the recent conference The Rise of Digital Authoritarianism: China, AI and Human Rights, co-sponsored by the Stanford Global Digital Policy Incubator (GDPI), the Human Rights Foundation, The Hoover Institution and the Stanford Institute for Human-Centered Artificial Intelligence, which ran over four days in late September and early October.

Among the topics covered in the discussion, which was aired on YouTube, was a session in the latter half titled ‘The Ethics of Doing Business with China and Chinese Companies’, in which Eileen Donahoe, Executive Director of the Global Digital Policy Incubator (GDPI) at Stanford University and a former US Ambassador to the United Nations Human Rights Council interviewed former Google chief Eric Schmidt. Schmidt served as CEO of Google from 2001 to 2011, followed by a four-year stint as Executive Chairman and is also co-founder of philanthropic initiative Schmidt Futures, set up in 2017.

As Donahoe noted, it is increasingly accepted that in the 21st century, every variety of power from geopolitical and economic to military will be derived from dominance in digital technology – and China has clearly stated its intention to be the world’s AI superpower by 2030. Studies suggest that it has not yet usurped pole position from the US, but there is a strong possibility that it will manage to do so within the next 10 years.

Schmidt agreed that the US is still where the leading research in AI is carried out, but it is no more than a year or two ahead of China and its ambitious rival is fast catching up.

A Deutsche Bank Research report titled Life after Covid-191 captured the rivalry between the two nations and described how the pandemic is accelerating the building of a tech wall, where competition is creating two poles with little or no interoperability and presenting a difficult dichotomy for policy makers. The root of this Tech Cold War (see Figure 1) was assessed by flow in Technology versus virus which included a view by the US administration that China is engaging in forced IP transfer and “innovation mercantilism”. The Chinese administration’s view is that they are migrating from a “factory of the world model” to a global innovation hub model, and technology supremacy is a natural national priority.

Figure 1: Index based on Global Tech Cold War and proxy mentions in newswires globally

Source: Deutsche Bank

AI an enabler of everything

What could give China the edge in AI dominance is country’s numerical research helped by government incentives for published papers on the topic, Schmidt told Donahue. He suggested that the only way for the US to stay in the lead is to do what it does well and do more of it. “One area to study is the role and scale of data in bringing innovation to AI.”

At the moment China is at an advantage for data aggregation and the algorithmic advantage is profound
Eric Schmidt, Executive Chairman and co-founder of Schmidt Futures

Here both countries have biobank proposals based on AI but China has no privacy concerns and is therefore unrestricted in its ability to bring vast amounts of data together. “At the moment China is at an advantage for data aggregation and the algorithmic advantage is profound,” said Schmidt.

He cited the recent tit-for-tat battle involving the Trump administration’s banning of Chinese video sharing social networking app TikTok (the first time that the US government has banned an app inside of the US) and the subsequent retort by the Chinese government, which banned the exporting of a TikTok AI algorithm to the US.

China’s Bytedance-owned TikTok was banned in the US for national security reasons2, for which which AI is the starting point. “So the reason people are so profoundly focused on the AI question is that it’s an enabler to everything else. If you care about material science, or you care about biology, or you care about chemistry, or you care about national security surveillance, all of these are classical problems that are solved in a different way using AI,” said Schmidt.

Digital authoritarianism: The 5G lesson

While China labours at attaining AI dominance, it has already asserted itself in digital infrastructure. Referencing a goal this year for 120 million Huawei handsets, Donahue and Schmidt discussed how the country’s export of the technology enables it to “suck up” data from other countries and bring it back to China. Asked about a Western alternative to Huawei, Schmidt mournfully remarked that the West “collectively screwed” up in the race to 5G when it gave 200 megahertz of spectrum to each of the three major telcos in China. “The reason we're doing that is we did not get the right frequencies in the right place,” he lamented.

One way to reclaim lost frequency, Schmidt proposes, is through spectrum sharing so that the innovation that comes out of it is Western-based and built on top of the 5G network, which could enable a generation of new entrepreneurs and new start-ups.

Huawei employee carries out quality checks on a cell network antenna
Photo credit: Huawei

Another example is the Android operating system, which is based on a modified version of the Linux kernel and other open source software and is the primary basis for the majority of the mobile phones in China. This is a net win for America, “because it means that the values that were developed in the Android team, which are essentially based on open source and Linux, are all intrinsic there. China can take that open source platform and they can change it. And they are doing so,” said Schmidt.

To rectify the imbalance, Schmidt proposes a “rivalry partnership model” of global platforms, which are used by both the US and China. This is similar to the way Huawei operates, which is trying to become a uniform standard globally. “Their values are intrinsic to the way they operate, which are subtle and important and become part of the way we operate,” explained Schmidt. Similarly, American technology firms make their products with a certain kind of set of biases and values that we would not want to give up, he added.

From sledgehammer to scalpel – the partnership approach

This rivalry partnership model should be to handle the platforms with care. Teasing out the ramifications of the executive order against TikTok and WeChat in the US, Schmidt said new models of localisation for TikTok in the US (where Walmart has agreed to buy a stake in the platform’s US operations3) may diverge and be different. “And once they're different, they cannot be put back together again. And when you shut down the interaction, it leads to replication duplication, or theft of what we're doing and copied in time.”

This localisation of TikTok follows an agreement between the US government and the group to resolve outstanding issues, through Oracle and Walmart together investing to acquire 20% of the newly formed TikTok Global business4. Schmidt supports what he calls the “scalpel argument” of carving out the business for it to be localised in a way that ensures a competitive market and also avoids taking the “sledgehammer approach” to knocking down these companies completely.

This approach is better for global platforms, he said. Schmidt warns of the sledgehammer approach having repercussions similar to those that resulted when the US administration stopped the sale of specific high value semiconductor chips to Huawei, which impacted their handset business and caused them to make copies. The blocking of new versions of the Android could force a domestic Android competitor, which creates a divergence in the technology, he said. “By scalpelling things, you’re willing and tolerant of local demands of control, but you don't want to break up platforms globally, which is what's underway right now.”

For example, on 1 October China announced its intentions to lead the world in a broad swath of technology including quantum communications, supercomputing, aerospace, 5G mobile payments and new energy vehicles. If the world decouples in these platforms, says Schmidt, roughly 40% of the communications infrastructure and information platforms would be under China.

Banding together on platforms

Rather than break up the platforms, democracies should band together, said Schmidt, and combine their data and technology, but let the division happen. “I think a much more likely scenario is where the two large institutions – I’ll call them the West and China – learn to coexist,” he predicted. An alliance strategy was an outcome discussed in the interview, where the inner “digital 10”, a grouping of 10 countries that collectively could operate this way. “I would argue that this is an opportunity for diplomacy to try to do the hard work of diplomacy by taking some of the rough edges, getting the ways in which the 10 work together to be a bit more in alignment. And that would be a great diplomatic achievement,” said Schmidt.

Foreign policy experts are predicting a strengthening of the tech wall during the pandemic as the US and China set up poles, which middle countries may be forced to choose from5. “The more we forced them to choose the more we increase the possibility of making the wrong choice. So I want to be a situation where the West broadly has a great alternative to Huawei, which can be sold to Pakistan and India,” said Schmidt. “And these are profoundly important objectives, because once the platforms are established with the values that they have they’re very difficult to change.”

Explaining the notion of rivalry partnership further he warned that pure decoupling of the platforms causes products to become substandard. “Think of it in terms of we band together, we still find way to work with China on some things in a rivalry partnership.”

Enabling AI competitiveness through R&D

While China steals a march on AI through numerical research and published papers, the talent question came up during the interview. Schmidt said that more highly skilled immigrants are needed for AI projects in the US, particularly researchers and particularly from China. This collaboration is critical to our research enterprise, he said. Further underscoring the concept of rivalry partnership, he added means that US competitiveness will require some level of partnership and access to the Chinese market and cooperation with the country.

"This is now more important than ever,” said Schmidt, who pointed to research on US R&D funding at only .07% of total national budget. He cited the AI Commission research which has already issued its first set of recommendations: key to this being a significant increase in basic research. “Many of the core aspects of AI – including bias, which people are very worried about, as well as the amount of data – are not fully researched as they're not mature yet,” he said.

Google in the firing line

The conversation between Schmidt and Donahoe preceded another tech story that has attracted headlines. In a long-anticipated move, on 20 October the US Department of Justice (DoJ) launched what The Economist called “the biggest antitrust suit in two decades” against Google. The DoJ claims that the tech giant employs anti-competitive measures to maintain a monopoly for its famous search engine and related advertising.

Google, and its parent Alphabet, allegedly operate “an unlawful web of exclusionary and interlocking business agreements that shut out competitors” reports the Wall Street Journal. The billions of dollars derived from advertisements on its platform are used to pay mobile phone manufacturers, carriers and browsers such as Apple’s Safari to reinforce this monopoly and deprive consumers of choice. While the DoJ has yet to suggest a remedy, it is likely to involve a restructure of the business. “Don’t hold your breath, though: Google dismisses the suit as nonsense, so the case could drag on for years,” adds The Economist in its 22 October leader.

In Wired magazine, Steven Levy compares the DoJ’s action with its tussle back in 1998 with Microsoft, which accused Bill Gates’s group of similarly being over-dominant. “The DoJ won the suit, although it failed to break up the company as it had hoped,” he notes in an article published 20 October. “But it did hobble the Redmond, Washington giant in its efforts to dominate the world.”

Levy isn’t convinced that the case against Google is as strong. “In the former case, the Department uncovered a vast trove of emails affirming Microsoft’s bullying behaviour, particularly in extorting computer companies to use its browser,” he notes. “In the current charges, the closest Google comes to bullying is the way it uses its search engine to allegedly boost its own products.”

Nor does Google have the “arrogant equivalent” to Bill Gates, says Levy. Its former CEO, Larry Page “has dropped off the map” while current leader, Sundar Pichai “has mastered a deferential demeanor under oath”. And while Google evidently dominates search engines, in 2020 no one company rules technology. Instead, there is a cluster – including Microsoft.

Assuming Google decides to employ all its legal resources, Levy agrees that a lengthy struggle is in prospect. But there is the other option of a relatively speedy settlement as “the DoJ’s main complaints are relatively easily addressed” by Google. The US election result could also change things as “we have no idea whether a Joe Biden DoJ would drop this investigation, continue it, or even double down on it and conclude that Google’s market power should not include YouTube or other properties”.

A gathering storm

So the DoJ’s salvo against Google could flop badly, but it “marks the moment when the so-called Techlash took tangible form” and further action against Facebook, Twitter, Amazon and other social media seems likely, says Levy. It’s a theme developed by The Economist’s 22 October leader titled ‘Who controls the conversation”, which sees it as symptomatic of “a category 5 hurricane of popular outrage buffeting unaccountable tech firms for supposedly destroying society”.

The magazine notes that the left claims that “social media are drowning users in hatred and falsehood”, which include conspiracy theories and the incitement of white supremacists” while the right accuses the tech firms of censorship, such as suppressing a recent “dubious article” alleging corruption in Joe Biden’s family. “And yet the question of what to do about social media is best seen through the same four stages as the case against Google: harm, dominance, remedies and delay. At stake is who controls the rules of public speech.”

The Economist is concerned that “the tech firms’ shifting attempts to sterilise this cesspool mean that a handful of unelected executives are setting the boundaries of free speech” while governments have been using social media companies to go beyond the law, often without public debate. This might all matter less if the social networks were less dominant and “people could switch as easily as they change breakfast cereal”. Instead, they have become central to distributing news and opinion, while in order to sell more ads tech companies send users news and posts most likely to gain their attention. “Political cynics, con artists and extremists take advantage of this bias towards virality to spread lies and hatred [and] they are rapidly becoming more sophisticated.

While the purest remedy would be to change the tech firms’ business model and introduce more competition – so for example the social networks would become utilities and get paid a flat fee – the obstacles to this “are immense” and a more realistic option could be less sweeping remedies from the authorities “such as giving users the right to choose feeds set by a neutral rule, not an attention-grabbing algorithm.

The Economist concludes that change cannot be implemented quickly but societies need solutions now and governments will need to set basic rules at the national level as they already do for speech. They should “define a framework covering obscenity, incitement and defamation and leave judgments about individual posts to others. International human-rights law is a good starting-point, because it leans towards free speech and requires restrictions to be relevant and proportionate, but allows local carve-outs.”

And the unanswered question to emerge from this is whether as the West’s focus on free speech on social media might serve only to distract attention from the competition with China for digital supremacy, allowing the latter to achieve its goal of becoming Number One within 10 years by default.


1 See https://bit.ly/3oummKq at dbresearch.com
2 See https://bit.ly/2Zt8WTw at db.com
3 See https://on.wsj.com/2J8iCy0 at wsj.com
4 See https://bit.ly/3jCRa87 at oracle.com
5 See https://bit.ly/34z55Ie at dbresearch.com

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