What will happen to the United States if China's technology continues to advance?
What will happen to the United States if China's technology continues to advance?
Shift from finite to non-finite
It really depends on how one views economic competition and global trade.
Some view it as a zero-sum, winner-take all game: “There is a finite supply of resources and only one of us can own it.”
Some see the benefits of trade and collaboration: “I am good at A. You are good at B. Let’s trade and share in the value creation.”
My deeply held view is that the world has been shifting from (1) to (2) since the dawn of the industrial revolution. This is the nature of moderntechnology-driven progress and the difference between “finite” and “non-finite” goods and services (explained in more detail below). Over the past fifty years, the pace of this shift has only accelerated.
In a world of relative “distributed plenty” — driven largely by technological progress — collaborating (trying to expand the pie together) becomes a more effective strategy than taking an adversarial stance (trying to grab a bigger share of said pie).
Technological-driven change inevitably results in disruption. Technology destroys old ways of doing things and replaces it with new, more efficient ways of doing things. Change and disruption almost always create both winners and losers, leading to social change. The countries that can handle the negative social effects of disruption best are going to be the ones that can best harness the associated positive benefits from technological-driven progress.
From the perspective of a nation-state, this actually puts greater importance on inward focus (making sure the domestic economy is dynamic enough to handle change and proliferate said technology) as opposed to outward focus (trying to win every negotiation with trading partners).
In other words, a country needs to first get its own house in order so that it can reap the benefits of technology-driven change — both internally and externally driven change. I am talking about social and domestic economic policies that ensure that our economy remains dynamic.
How the U.S. is impacted by China’s (almost inevitable) progress in technology will largely be driven by how well we are prepared to handle disruptive change on the home front.
If we learn how to handle change, we will benefit from Chinese advancements in technology by trading the inevitable technology advancements that we will be making — or even straight-up assimilating those new ideas and techniques. If we are unable to handle change, we run the risk of being isolated and left behind.
As the world continues its inexorable march into the future, thinking with a zero-sum mentality becomes a bigger and bigger liability.
Finite vs. non-finite goods and services
There are certain types of goods that are finite, or limited by their very nature. Land is one example. Crude oil and most natural resources are another example. These types of goods can only be owned by one person or country at a time. They cannot be created magically out of thin air.
Others are by their nature not limited by any physical constraints. These types of non-finite goods and services are largely the result of people getting together and collaborating.
For example, consider semiconductors:
They are built on top of a physical resource that is widely distributed around the world and virtually unlimited: Silicon.
Improvements in chip design increase the efficiency and output of a chip without increasing the amount of silicon required.
In other words, it is mostly human creativity and ingenuity supplying all of the horsepower.
And once a chip design is completed, it can be copied at nearly zero marginal cost.
The shift from finite to non-finite as illustrated by the Dow Jones Industrial Average
Most economic development these days comes from non-finite goods and services like technology as opposed to finite goods and services. This is very evident when you look at how the component companies of the Dow Jones Industrial Average have changed over time.
As you can see, when the Dow Jones Industrial Average was first formulated in 1896, all of its component companies involved some sort of limited resource whether it was land (for agricultural products), fossil fuels (for power plants) or physical commodity (rubber, cows/leather). General Electric is the only company on the list which relied on a significant technology component — and probably not a coincidence why it is the only recognizable name from that initial list today.
In today’s list, most of the companies are from knowledge-driven industries that rely mainly on human ingenuity and collaboration (pharmaceuticals, financial services, information technologies, retail etc.). There are some natural resources companies like ExxonMobil and Chevron but these are a small minority at this point.
The technology frontier, life at the “bleeding edge”
At the edge of human ingenuity is the technology or innovation frontier, or something folks refer to as the “bleeding edge”. Here we sit at the farthest limits of our achievements to date. Beyond this point, we stare into the abyss of the unknown and our best and brightest push on in a heroic effort to continuously advance and better ourselves. This is the front line of human civilization and development.
The developed world (the U.S./E.U./Japan) have shouldered most of the burden for pushing the bleeding edge of the technology and knowledge frontier forward since the Industrial Revolution. For this, we have been rewarded with untold bounty and riches. We have been able to trade much of this technology and knowledge with less-advanced countries in exchange for them taking on some of the less-desirable types of human toil and labor. This trade has undoubtedly improved our quality of life.
For much of the last four decades, China has been squarely in catch-up mode. It has not contributed much directly to pushing that technology and knowledge frontier forward. Instead, it has traded the time and toil of its people, largely to rich, developed countries. By doing this, it frees up resources in rich, developed countries that can be used to continue pushing the human technology frontier forward.
In other words, China has focused on technology proliferation — taking technology that may not necessarily be considered “bleeding edge” and proliferating it in its own economy to move forward. Over time, China has gradually caught up and gotten closer and closer to the technology frontier. It is still not quite there but in many cases, the “bleeding edge” is within shouting distance and in certain cases it may even be standing at the very edge.
Going forward, it is almost inevitable that China starts to help push that technology frontier forward. There is just too much inertia and momentum behind this push — one-fifth of humanity striving for a better quality of life. How much the U.S. can benefit from this depends on how well we handle ourselves.
Both efforts are important. Pushing the technology frontier forward increases the maximum potential for human civilization. Done right, proliferating the knowledge gained at the technology frontier into the rest of the population generally results in better lives for everyone.
A world of “distributed plenty”
With all of the progress being made at the technology frontier, we are gradually moving towards a world of plenty:
The combination of solar technology and battery technology or other storage technologies can remove the former constraint of limited energy resources.
Software will continue to play an increasing role in the efficient allocation of resources and matching supply of goods and services with demand.
Robots and automation technology will continue to remove the need physical human labor in the manufacturing of physical goods or provision of services.
Future technology advances may expand the scope of human civilization beyond this planet.
By and large, most innovation today is driven by the invention of or incremental improvements made in non-finite goods and services.
Technology-driven plenty also tends to be more distributed around the world than finite-driven physical wealth of the past.
As opposed to a commodity like crude oil which tends to be somewhat random in where it can be found in great, economically extractable quantities, the sun shines everywhere.
Moreover, the sun tends to shine brighter in places were historically disadvantaged (from an economics perspective).
Solar power can smooth out some of the economic disadvantages wrought by geography and topography.
Sand (the main ingredient in silicon) is also present virtually everywhere.
Software is border-less and can be replicated virtually instantaneously at zero marginal cost.
The implications of this shift to a world of plenty
Back in the late 19th century, economic output and wealth were determined far more by the ownership and acquisition of finite goods like land and oil and playing this game is much more zero-sum and winner-take-all. Hence, Colonialism as the dominant ethos of that era.
But today, economic output and wealth are increasingly tied to the invention and proliferation of non-finite goods like semiconductors and software. These are products and services that are created primarily by unleashing the productivity of human capital/ingenuity.
There are several major implications of this shift:
Technology and knowledge are much more difficult to hoard than physical commodities. It is relatively easy to copy software or a design but impossible to create a barrel of oil out of thin air.
It is easy to use military might to accumulate or protect physical resources. This strategy is far less effective with technology and knowledge-based non-finite-type resources.
The very nature of how the technology frontier is advanced, and how technology is proliferated relies on people talking to one another to come up with new and novel ways of doing things.
Collaboration and partnership are more effective in today’s game than taking an adversarial approach.
Because much of technology/knowledge-based wealth can be created literally out of thin air, even the relative losers can be much better off in absolute terms.
Modern technology has modified the rules of the game and maintaining leadership means recognizing those rules and adapting to them.
Maintaining technology leadership in a “non-finite” world
There is little debate about the United States’ dominant position in technology leadership today. The question in my mind is how we maintain this position. The following are some of the principles that I think we need to follow.
First, we need to look forward, not backwards:
I used run cross-country in high school. The races were long and it could be a lonely at times, especially if you were at the front of the pack. One of the key lessons my coach taught me was to always look ahead and not at the runners behind you.
We need to focus on inventing the technologies of tomorrow instead of hanging on to the industries of yesterday.
That means making sure we are doing everything we can to be in the right position to succeed in emerging industries like AI, blockchain, robotics, renewable energy, genetics etc.
Second, we need to be adaptable:
We need to recognize that the rules have changed from a hundred or even fifty years ago when wealth and power were determined far more by the ownership and production of zero-sum, “finite” goods.
Using raw power and military might to control the narrative is simply a far less effective strategy than in previous eras.
Instead, being able to collaborate and build strong alliances is a far more effective strategy.
Third, we need to be introspective and humble:
We need to recognize our own flaws and work to fix them.
For example, I think our biggest Achilles Heel is our massively inefficient healthcare system.
If we can fix our own flaws, we become a more productive and competitive economy, freeing up economic resources that can be used to maintain our technology leadership.
Fourth, we need to be empathetic … so that we can be dynamic:
We need to recognize that technology-enabled changes are disruptive to society.
Technology-driven progress effectively means forcing change on people, which impacts their communities and eventually shows up in our politics.
If we do not pay attention to the effects of technology-driven change on society, eventually those that are affected will start to push back.
While we should certainly reserve most of our empathy for our own citizens, it doesn’t hurt to share with the rest of the world either.
Fifth, we need to recognize that military leadership is underpinned by economic leadership and alliance-building:
Maintaining a strong military goes hand in hand with being a global technology leader.
But we need to recognize the fundamental truth that military leadership is ultimately underpinned by a strong economy.
We also need to recognize the increasing importance of building strong alliances vs. an isolationist approach.
Sixth, we need to double down on the things that really made us great:
Our ability to attract the world’s best, brightest and most ambitious through intelligent immigration policies.
Our ability to overcome challenges in the past that were far more serious.
The fact that we are the strongest when we are united, not divided. In the past, our unity has allowed us to successfully defeat Nazis and Fascists and put a man on the moon.
We need to recognize that the world is an increasingly complex place and the key to understanding complexity is communication and nuance. The biggest issue I see with society today is the increasingly divisive nature of the national conversation, which makes it incredibly difficult to come up with good, long-term solutions to the issues that we face.
This was originally published on Quora in October 2018.
I find the chip comparison faulty. Surely if it were "non-finite" and could be created out of thin air everyone would have been producing chips. But in reality it requires some of the most advanced and capital-intensive investments, which are only available to highly-industrialised countries. Not even China has the latest litography machines, since they're made by a couple of companies that can ARTIFICIALLY keep the designs (etc.) finite. Intellectual property is also doing the same.