The End of the Gov-Tech Symbiosis
For 30 years, tech companies could rely on the support of the US government – not anymore.
Originally published by Atlantikbrücke (in German)
Genius versus History
The Silicon Valley is primarily concerned with the future and does not bother too much looking in the rear mirror. That’s a shame, as history helps to understand the present. The reason for Silicon Valley’s aversion to history is its emphasis of the genial entrepreneur, who shapes the future by “creative destruction”. Such a narrative does not leave a lot of space for historiography. Hence, Silicon Valley is notoriously bad in understanding its own dependence on structural forces. The Internet economy started to scale at the moment when the Cold War ended – the DotCom bubble burst just three years after the Iron Curtain came down. The technological foundations of the Internet economy were laid during the Cold War, and often driven by state-sponsored research programs (think of network protocols, satellites, and GPS. The notion that regulatory decisions were as important as technology to let the Internet economy grow is equally unpopular in Silicon Valley, but without the limitation of platform liability (Telecommunications Reform Act 1996 in the US in 1996, e-commerce Directive in the EU in 2000) our current platform economy would hardly exist.
A third, and maybe the most consequential blind spot in the Silicon Valley narrative is the geopolitical context. The global IT stack as we know it is a child of the “unipolar moment” (Charles Krauthammer), backed up by an unchallenged global superpower committed to free trade and liberalism. Over the next two decades, US foreign policy would focus on the lowering of trade barriers and become the most important ally of globally expanding tech companies. The fact that the IT stack is globally available and relies on global standards is not a reflection of some “global DNA” inherent in the technology itself – in fact, the Soviet Union was working on a competing IT stack. It failed because the geopolitical power of the Soviet Union waned before it could have any impact. While the foundations of the Internet economy were laid in the Cold War, it expanded globally due to US hegemony after 1990.
Tech companies adapted perfectly to the unipolar moment. Sam Palmisano, CEO of IBM, formulated the paradigm of an “globally integrated enterprise” (GIE) in 2006 – a hyper-efficient network, structuring its value chain across the globe. For Palmisano, the GIE is the final stage of the history of corporate development, a kind of private sector equivalent to the “end of history” narrative of Francis Fukuyama. Due to its teleology, Palmisano cannot see how the GIE is bound to structural circumstances: A GIE could only work if the circumstances of the international system allow it to operate: A global free trade order guaranteed by a sole superpower.
Tech Containment and the End of the Gov-Tech Symbiosis
Fast forward to 2024: In Washington, free trade is a dirty word. Presidential candidates try to trump each other with tirades against the WTO and free trade agreements. Robert Lighthizer, US Trade Representative under Trump (and potentially an important player in a second Trump administration), publishes an anti-free trade pamphlet with the title “No Trade Is Free”. On the regulatory level, a whole arsenal of geopolitically motivated trade restrictions has been invented – ranging from entity bans to export controls on emerging technologies. The pivot towards controls on the dissemination of technology is geopolitically motivated: The US now subscribes to a tech containment agenda, trying to stop China’s development.
China reacts to tech containment by investing in an US-independent IT stack. The coming split of the IT stack reflects the geopolitical structure, as the unified stack reflected the unipolar moment after 1990. For the tech industry, everything changes: The US government consciously works against global tech dissemination rather than promoting it. Since many US tech companies make a large share of their revenue in China, this creates a huge business risk.
The fact that a challenged global superpower pivots from free trade to protectionism to stymy the rise of a competing power is not unprecedented. History rhymes: At the end of the 19th century, the British government tried to contain the rise of imperial Germany in a similar way. With it, the relationship between the British governments and British companies changed, as well. While the expanding German industry could rely on the support of its government, British companies started to oppose the new geopolitical trade agenda vehemently. The City of London actually became a counterweight to the British government, pushing back against export controls, despite the geopolitical tensions. The arguments from back then sound familiar: While the supporters of controls pointed to the dangers of economic entanglements with Germany, free trade advocates argued that mutual dependencies might actually decrease geopolitical tensions.
Reactions: Geopolitical Optimization
Companies are the ultimate pragmatists. From a corporate perspective, regulatory challenges like export controls need to be managed as an enterprise risk like any other. On a tactical level, tools like Enterprise Risk Management (ERM) and Business Continuity Planning (BCP) are employed. On a structural level, companies adapt to the new realities by optimizing their value chains according to geopolitical considerations. To minimize the impact of data localization requirements, local cloud infrastructures are employed; to prevent the dreaded export controls on intellectual property, companies start to develop IP “in China for China”.
Companies are transforming themselves in a very different way than the GIE model of Palmisano has suggested. History never stops. You could call this new kind of company the “Geopolitical Enterprise” (GPE). Many global tech companies are already transforming accordingly – VW, Conti or Merck have already announced publicly that their China business will be “geopolitically insulated”. US tech giants like Apple and Tesla do the same, but do not talk about it.
Rise of the Geopolitical CEO?
The geopolitical insulation measures taken by companies are legal – but contradict the political agenda of the US government. As Bruce Mehlman, long-time public affairs professional and DC insider, told me in an interview: “Until recently, the DC consensus was that what’s good for the tech industry is good for America. This consensus no longer exists.” To get an impression how big the gap between government and tech companies has grown, look at the “Select Committee on the Chinese Communist Party” under the chair of Mike Gallagher. In an interview with “Politico”, Gallagher calls for a “machete instead of a scalpel” to get companies behind the tech containment agenda. Some of the attacks are very personal. The fact that the formerly business-friendly Republican Party is more active than the Democrats shows how much has changed in DC and how few free trade supporters are left.
Unsurprisingly, corporates are reluctant to speak up. Jensen Huang, CEO of Nvidia – a company directly affected by export controls on AI chips – is an exception, tirelessly pointing out that tech containment would hurt US companies by accelerating efforts in China to design out US tech. The consequence: An invitation to the Select Committee to justify Nvidias circumvention strategies. No wonder many companies prefer to stay silent, particularly now that the scenario of a second Trump administration becomes more likely. Trump’s economic policy agenda is now secret: “Mandate for Leadership“, a book published by Heritage Foundation, a conservative think tank, provides a very clear roadmap for Trump II. Trump himself has already hinted that he will heavily rely on tariffs. Corporate CEOs therefore should not expect much support from neither a second Biden nor Trump administration. Bruce Mehlman fears that many companies are tempted to keep quiet and hope for the best – a dangerous strategy: “If you don’t take the time to help policy makers to understand your perspective, you shouldn’t expect them to take your equities into consideration.” CEOs will not be keen to travel to DC and make their case – but it might be part of the job description of a “geopolitical CEO”.