This article was previously published national interest.
Last month, the United States CHIPS and scientific law, one of the first parts of national industrial policy – government planning and intervention in certain industries – for the last 50 years, in this case semiconductors. After sipping celebratory champagne and confetti on the ground, it’s helpful to put the CHIPS Act in context and understand the work left behind by government and private capital.
Today, the United States is in great power competition with China. Contest on which country leads the world in 21st century diplomatic, intelligence, military and economic systems. As a result, we face either a dystopian future for China or a democratic future where individuals and nations can choose for themselves. At the heart of this competition is leadership in emerging and disruptive technologies, from semiconductors and supercomputers to biotech, blockchain and everything in between.
National Industrial Policy – US vs. China
Unlike the United States, China manages industrial policy through a top-down five-year plan. Their overall goal is to transform China into a technologically advanced and militarily powerful nation capable of challenging the commercial and military leadership of the United States. We have embraced the idea that security is inexorably intertwined with commercial technology (semiconductors, drones, AI, machine learning, autonomy, biotechnology, cyber, semiconductors, quantum, high performance computing, commercial access to space, etc.). I was. .) they made what they call civil-military fusion – Build a dual-use ecosystem by tightly coupling commercial technology companies with the defense ecosystem.
Using its last three five-year plans, China has invested in key technologies (semiconductors, supercomputers, Al/ML, quantum, space access, and biotechnology) as national priorities. They have built a sophisticated public-private funding ecosystem to support these plans. China’s technology funding ecosystem includes regional investment funds. over $700 billion (what they call Civil/Military Guidance Fund). These are investment vehicles in which central and local government agencies invest and are combined with private venture capital and state-owned enterprises in strategically important areas. They closely tie key private companies into the defense ecosystem to help develop military weapons and strategic surprise attacks. (Books by Tai Ming Cheung The best description of the system. )
There is nothing comparable in the United States.
In contrast, for the last few decades, the planning of the US economy has been left to the “markets.” It is based on the economic theory of the Chicago School of Economics, which premises that free markets best allocate resources to an economy and that minimal or no government intervention is optimal for an economy to thrive. There is. For decades, the United States has run its economy on this theory as a bipartisan experiment. Optimizing profit above all has led to wholesale offshoring across manufacturing and industries to reduce costs. Investors will focus heavily on industries that provide the fastest and greatest returns (social media, e-commerce, gaming, etc.) without long-term capital investment, rather than hardware, semiconductors, advanced manufacturing, transportation infrastructure, etc. We have started making large investments. , private equity, and venture capital have been the de facto decision makers of US industrial policy.
With the Soviet Union and the United States crumbling as sole superpowers, this “profit first” strategy was “good enough” and no other country could match the technological superiority of the United States. That changed when we weren’t paying attention.
China’s ambitions and strategic surprises
During the first two decades of the 21st century, the United States was focused on combating non-national states (ISIS, al-Qaeda, etc.), but US policymakers are increasingly concerned about China’s size, scale, I didn’t understand the commitment as a nation. A world leader in technology. Not just in ‘a’ technologies, but in all technologies that are important to both national and economic security in this century.
China’s top-down national industrial policy means we plan, overstaff and overspend. By some estimates, China could become a leader in many key technology areas sooner than we think.China’s technology investments have been redundant and wasteful at times, but when combined, these technology investments represent a series of strategic surprise Hypersonic aircraft, ballistic missiles with maneuverable warheads as aircraft carrier killers, partial orbital bombardment systems, rapid advances in space, semiconductors, supercomputers, biotechnology… there are likely to be many more surprises – all commercially also aims to gain superiority over the United States and militarily.
Limitations and Obstacles to Chinese Dominance
But America has advantages that China does not: a capital market that encourages rather than coercion, untapped innovation talent that is willing to help, a labor market that can be upskilled, and university and corporate research that is still excellent. . Shown in China’s march to technology supremacy. The lockdown of some of their most successful entrepreneurs and investors, the crackdown on “extra” technology (games, online coaching), the China Nasdaq, the slowdown in listings on the Shanghai Stock Exchange. star market – It could indicate that the Republican Party is curbing its “anything goes” approach to getting the United States through. Prohibit the export of critical equipment and components What China needed to build a tech ecosystem.
Billionaires and Venture Capital Funding Defense Innovation
In the United States, prime contractors and federal laboratories, traditional suppliers of defense tools, technology and weapons to the Department of Defense, are no longer leaders in many of these emerging and disruptive technologies.And the Department of Defense has world-class people and organizations it’s for a world that no longer exists(The inability to acquire and deploy commercial systems quickly requires a redesign of the organization. Goldwater/Nichols method, is not a reform. )
Today, innovation in many fields is left to commercial enterprises. Instead of a Consistent US National Investment Strategy for Emerging and Disruptive Technologies (Think His 10x for CHIPS Act), US Billionaire Launched Own Initiative – Elon Musk – space x and star link (reusable rockets and space-based broadband internet), Palmer Lucky – Anduril (AI and Machine Learning for Defense), Peter Theil – Palantir (data analysis). And in the last few years, a series of defense-focused venture funds – shield capital, Lux Capitaland others – appeared.
But relying on defense-interested billionaires is not a sustainable strategy, and venture capital invests in businesses that can be profitable within 10 years. This involves technologies that may take decades to mature (nuclear fusion, space activities, new industrial processes, etc.)death valleyAttempts to bridge this valley of death often find technology companies dependent on government capital. These programs (DIUs, inqueue phone, AFWERXetc.), which are limited in scope, time, and success on a large scaleThese government investment programs have largely failed to scale these emerging disruptive technologies for four reasons.
- Government agencies restrict access to top investment talent to support sophisticated technical investment decisions
- Government agencies lack the commercialization skills to help founders turn technical ideas into commercial ventures.
- The Department of Defense has encouraged the start of new ventures, but has not been able to match it with acquisition funding to scale. There is no DoD coherent/committed strategy to create a new generation of prime contractors around these emerging disruptive technologies.
- Neither private nor government funds are operated as “patient capital”. Ten years mature and expand
American Frontier Fund
Today, a private capital fund is trying to solve this problem.Founder Gilman Louie inqueue phone,It has started American Frontier Fund (AFF.) This new fund will invest in key critical deep technologies to help the US keep up with the onslaught of Chinese capital focused on this sector. AFF plans to raise $1 billion in “patient private capital” from both public and private sources and focus fully on identifying and strategic investments in key technologies. Establishing the fund as a non-profit organization allows us to focus on long-term investments for the country, not just the means to maximize returns. These investments will ensure that we grow into a large commercial and dual-use enterprise focused on national interests.
They are extraordinary team Seasoned venture capitalists (I’ve known Gilman Louie and Steve Weinstein for decades), world-class chief scientists, and startup incubation teams, they have a strong background in national security and emerging technology and disruptive We have a unique and deep understanding of the intersection of technologies. .
AFF is the most promising effort I have seen in tackling the long-term challenges of funding and scaling emerging disruptive technologies head-on.
At stake is whether the rest of the 21st century will be decided by authoritarian governments trying to impose a dystopian future on the world, or whether free nations will be able to decide their own futures.
While these are intractable problems and no single fund can underwrite the massive investments China is making, the AFF’s market-driven approach will help the government stop re-engaging in industrial policy. Combined with , there is a possibility that the scale can be restored. our favor.
I hope they succeed.
Filed Under: National Security |