Silicon Valley’s dependence on American foreign policy

Chris Gates:
... okay, I think we have a plan. Are you ready?

Danny Crichton:
It's okay, we can cut everything we don't want to do. Let's do a test. One, two, three.

Scott Bade:
Test one, two, three.

Danny Crichton:
Chris, you will mute, so you'll count us in.

Chris Gates:
All right. Ready. Deep breath in. Three, two, one.

Danny Crichton:
Hello and welcome back to Securities, where we talk about...

Chris Gates:
What is it, what are we talking about?

Danny Crichton:
Done such a great job.

Chris Gates:
Yeah, amazing. Okay, let's do it one more time. Right, three, two, one.

Danny Crichton:
Hello and welcome back to Securities. This is episode one of a podcast in which we're talking about science, technology, finance, and the human condition. I'm your host, Danny Crichton. Today, we have a special guest, Scott Bade, who is the special series editor of the TechCrunch Global Affairs Project and was previously a contributor at TechCrunch as well on foreign affairs. Scott, welcome to the program.

Scott Bade:
Thanks, Danny.

Danny Crichton:
It's a shame because we just found out as we're recording the show that Madeleine Albright, a very famous former Secretary of State under Clinton and a long longtime diplomat from Eastern Europe, passed away.

Scott Bade:
Yeah, Madeleine Albright is a living legend in Washington. She has been around town for decades, has been at Georgetown, has a consulting firm that's very prominent and she really, in some ways, personifies the moment we're in now given all the tension in Europe. She was born in Czech-Slovakia, the daughter of a diplomat who fled and had to deal with both the country being invaded during World War II and then Soviet, being a refugee from that. And she really, I think, personified American resistance to oppression and to totalitarianism and authoritarianism and was a clarion voice both in this country and with Putin. And one of her last pieces, maybe her last piece, she published very cogently on this topic, she'll be really a voice that we miss on the issues of authoritarianism and as we're dealing with people like Vladimir Putin.

Danny Crichton:
When I heard the news, I had met her once. She was remarkably gracious, very nice to students considering her stature and reputation of prestige. But to me it's really an absolute tragic end of an era because she did represent that hope and democracy, that hope and expansion of liberal values globally. And given the events with Vladimir Putin in the Ukraine, it couldn't actually be timed worse to make a point of just how much that window is closing from her era going forward into the 2020s.

Scott Bade:
And of course, Colin Powell died very recently too. I forget if it was this year or last year, but the two of them I think really, again, personified all that was best about America. You had with Powell, the first black chairman of the Joint Chiefs, the first Black Secretary of State, Albright was the first female Secretary of State, an American by choice. And they both were living and breathing, not anymore unfortunately, but examples of American greatness in a way, and their voices will be quite missed.

Danny Crichton:
Well, as we talk about the TechCrunch Global Affairs Project, I mean, I think they both personify what a lot of this project was about. I'd love to hear what was it about?

Scott Bade:
The project came about out of some of the articles I had worked on previously on China and trade and really thinking about technology from a geopolitical lens. And that that's something that I do feel that for the last 40, 50 years now, technology in the tech industry has not been as geopolitical and they've kind of gone on their own steam. And in recent years we're realizing that actually they're more intertwined than ever. And so the idea of the project was to examine that and examine these intersections and really tap a lot of smart people both in the tech world but also in Washington world and London and Brussels, and Paris, and who are usually speaking to a policy audience. And ask them to connect with they're doing to the tech audience. And say how is the everyday in Silicon Valley actually relevant informed policy on issues like climate change or refugees? And how can people in tech be making a difference in those issues?

Danny Crichton:
It not only tried to connect and bridge that gap because I think there's a huge gap in that what happens in foreign affairs and foggy bottom is completely irrelevant to anything going on in the Bay Area, which is wrong. But the second is, the world has just become so complicated and tech has entwined in so many of those issues. I mean, the front page is obviously dominated by the Ukraine today and the war, makes sense, but that bandwidth is also being sucked away from a lot of other issues you talked about as part of the project. And what were some of the topics that came up in that work?

Scott Bade:
Yeah, so I mean, we covered a lot of issues. Taiwan and semiconductors, disinformation, Russia and Chinese disinformation, which we're getting a crash course in that. One surprise is that how just bad Russian disinformation has been? They've not even tried During this crisis at disinformation. Climate change came up and on the investing side, but also how technology can be used by policymakers. There's a lot of technology now as an issue in foreign policy and in foreign relations between US and China, obviously, but us and the EU, US and other countries. And there's some interesting fault lines there. So there's a lot of areas and then also of course, talking about how do you invest in the future of technology? And what are those emerging tech, quantum defense, VC, in all those issues areas and the increasing tendency toward industrial policy? These are all things that are new and because of that, they're new, both I think in Washington and in Silicon Valley, and in many cases, both sides don't know how to talk to each other and they're looking for a common language.

Danny Crichton:
A lot of foreign countries, the UK, France, I mean, Asia, Taiwan, Korea, Japan, China, the idea of fusing industrial policy, govern an industry or in academia or even defense in the case of civil military fusion in China, we're really new to this game. I remember going into a conference at the Harvard Kennedy School a couple of years ago. It was a bunch of national security officials from former administrations, and they emphasized how much they had no idea what was going on in industry. They never talked to any of these people. They had never talked to anyone at the FANG companies. They never talked to anyone in the telecom industry. They were just totally a black void.

Scott Bade:
Absolutely. If you look historically, and this is actually very much the thesis of the Global Affairs Project. Which is that if you look back to the Romans, whomever dominated the technology of the day was going to go dominate economics, political systems' empire. So whether it was the Romans or the Chinese or the British or the Americans during World War II. Whoever had the most cutting end technology, whether it was steamships or aqueducts, in the case of the Romans, or printing press at one point. Those are the technologies, whoever dominated them was able to leverage that and control the routes of trade, the routes of information, the routes of Empire.

What happened after World War II and the Cold War is yes, the US helped seed Silicon Valley, and there's obviously been a lot of written about that in a lot of recent books that are really good on that. What's happened, I think, in the last 30, 40 years since the end of the Cold War, has almost a benign neglect. Yes, Pentagon helped Silicon Valley and there is still connections, but really kind of let it go on its own. And you had this almost division of political economy Washington was doing because there was no need for Washington to direct the tech sector. The result is they don't know what each other's doing. They don't know how to talk to each other.

And then in some ways, you have Silicon Valley either not wanting the government to get in its business or replicating functions of government. Facebook has the Supreme Court, in crypto, the makings of new monetary policy potentially. And these are things that states did, goods that the state's provided, services that the state's provided. And now tech rather than working with government, and not that they aren't working with government in some of these areas, but there is a tendency toward, "Let's build it from scratch." And so there is a need now to bring together and have a better understanding of how the two sides can work together.

Danny Crichton:
Well, I think the thesis you're giving is also, in many ways, the thesis of this show, which is there are massive interdependencies relations between economics and power and technology and power and state capacity and power. Yu mentioned aqueducts. The equivalent today is probably internet infrastructure, the payment rails that allow you to control banks and sanctions as we're seeing in the Ukraine. And I agree with you, I think when you look at the 1980s and earlier in Silicon Valley, '50s and '80s, it started in semiconductors, it was defense industries, chips. The reason the chip industry existed in silicon, the silicon of Silicon Valley was because we needed chips to fire missiles.

I mean, you had to actually target them and they had to have computers and computation to be able to calculate those arcs. And a lot of the early computer projects, Project Whirlwind, et cetera, were focused on that. And then yes, the Cold War came, but that was also the rise of the worldwide web. And I think in the '90s, you have this pivot between hardware where you had Cisco routers and a lot of networking equipment as people were rapidly trying to scale up telecom all across the country. The dotcom bust killed all of those. I mean, you remember all the networks companies, that was the core word for anyone doing super well on Wall Street in the '90s, was, "Something networks."

And then you had the sort of rise of social media. And so the last 20 years has been, I call it decadence, but a lot of entertainment-focused, social media-focused, consumer-focused, upload photos to the internet, that's worth a lot of money. And we've had a complete kind of, we've reneged kind of an investing in physical plant, building semiconductors. We've let it all go away. And today, we can talk about Taiwan maybe later, but we've lost semiconductor manufacturing in some ways, certainly on the edge at three nanometer. We've lost a lot of manufacturing and production of phones and other technologies. It scares me because we both need to create a language, but at the same time we got to get stuff done now. And I just don't know, is there urgency to get stuff done from the work you've seen?

Scott Bade:
Yeah, it's interesting because I think in certain sectors there is... so for example, we did did a couple pieces on Quantum. And that's a sector where there is tremendous demand from the sector for government guidance. Is it something where they need investment, they need guarantees, something that they're openly talking about? Is, can the government provide investment so that we can have guaranteed purchasers? Because otherwise the industry is going to stay nascent. You are seeing almost an industry asking for industrial policy. I think defense tech is another where that's coming into play.

On the flip side, we had an interesting piece from a leading climate VC who was really the only climate VC for a while. He had the interesting observation that they were in it 10 years ago, when no one else was. And now that everyone wants to be in climate VC, that's great, but you have to reinvent the sector and it's a very different sector now. And so it's very much a private sector to private sector. And rather than just chasing returns necessarily, they now have to think about how do they actually fit in with public policy and solve the problems that need to be solved. And less about necessarily just chasing the return if you want actually have an impact.
And so there's these interesting new problems, as it were, to tackle that are not necessarily traditional tech problems or VC problems. And how do you think about that? It's a challenge.

Danny Crichton:
I agree with you a hundred percent. I think particularly on climate, we see some of the most complicated challenges around the financial securities aspect. I was on a panel hosted by The Engine up in MIT a couple of months ago. Where Jigar Shah, who's the head of the Loan Program's Office at the Department of Energy, came into the current administration to figure out how to get more loans into the energy program. So how do you fund solar panels which oftentimes pay themselves back or windmills or whatever the case may be? It was interesting to me because if you think about it, there's venture returns, there's sort debt options. There's this whole different groups of asset classes that you can take advantage of. And post the breakup of Solyndra and the clean-revolution of the two thousands, late two thousands and early 2010s, it was sort of a black void.

No one invested in climate. And then all of a sudden now there you have ESG funds that are sort of forced to invest in climate. You have some firms like ours who would love to invest in the deep tech aspects of climate, but we don't have purely an ESG. Well, we always want to make the world a better place, but there's not a ESG requirement. Then you have others who are in sort of the debt loan markets, they want to help solar panel installations and expand the ability of these markets to function. So that's part of the dynamicism in some of these industries where without an industrial policy, without any sort of organizing method, it is a lot of everyone is running around with their heads chopped off.

Scott Bade:
Well, and I think especially in the climate space, you do have the problem of the returns that the early funds got, you can't get those returns anymore. A lot of the ways to best leave our money on climate are not necessarily venture investment. It's debt, it's things that are not sexy and it can even be lobbying and a lot it of it's philanthropic. And so that's where you have to be careful and not be solutionist of saying, well, we're going to solve climate change or whatever the problem is with venture money or with tech. And you have to... I think the tech industry and investors need to talk to the people in the space already and understand what's needed and how they can provide a value add.

And sometimes they can't and that's frustrating, but oftentimes they can. And I'll give you another example from one of our pieces, which is that the tech is really good that now diplomats have the ability to monitor a lot of enforcement of treaties with satellites and with sensors and a lot of the tech that we have really cheaply. And so now it's like how do you work that into legal frameworks? So that's the kind of thing where I'm not sure that the satellite companies necessarily think about that, but now that the international lawyers have realized that this is a thing, now they need to work with the tech companies to figure out how best to create a dynamic that is mutually productive.

Danny Crichton:
I'll give you two examples from our own portfolio. One that went public Planet Labs, which is focused on microsatellites in orbit that scanned the planet constantly to get real time visual information. And precisely, they have a ton of data on Ukraine because they could run dozens of satellites, capture a bunch of imagery that was never available except for large... you had to be at the National Geospatial Intelligence Agency to get that kind of data. Now I can get it. We had a company we funded a couple of weeks ago called Aurora Solar, which is focused on providing a software as a service tool for solar installers. So it's able to scan, use, et cetera, satellite photography to look at a home.

It's able to scan route lines and basically figure out the directions of the sun given the particular geography, looking at trees and figuring out the optimal way to actually deploy solar on a building. And when I think of technology, a lot of the future is can we build these sorts of capabilities that make it cheaper to fix these problems that empower both policymakers as well as the implementers to do their jobs cheaper and more effectively? Because that's the only way we get acceleration in this space. But that leads to a bigger question, which is as we talk about industrial policy and technology, I think there's a question of, is there a doctrine for technology? Should there be some way of organizing all this? Because as far as I'm concerned, there's absolutely no organizing principle whatsoever with tech politics, particularly in the United States.

Scott Bade:
You said the magic reports. As I'm thinking about this series, we wrap it up and I have a piece coming out soon on this, which is exactly that. Which is that we do need a technology doctrine in the way that we think about other areas of policy. So I'll give you two analogies, which is that a lot of people talk about data as the new oil. That's not quite true obviously, or maybe not obviously.

But I think the better analogy is to think about technology the way we think of energy markets generally, and we're seeing this in Ukraine right now. Which is that the last 50 years or a hundred years even, governments have learned how to leverage energy supplies geopolitically, whether it's Russia and their natural grass and oil, whether it's Saudi Arabia, whether it's Iran, whether it's Venezuela. These countries have learned how to deploy and use oil as a lever.

We need to do the same with technology. I think you're right. We haven't really thought about what that looks like. And the other example, and actually, we've seen this play out in the last couple of weeks again in Ukraine, is the US dollar and the financial system. Which is again, the financial system does not exist to sanction people or sanction countries, but the US because of US dollar dominance has figured out how to use that strategically actually better than I think anyone expected to basically cut off the Russian economy.

That is something we have to think about. And where I think that we're behind here in the west is that we're not systematically thinking about it. And going back to this laissez-faire behind neglect idea, is that we've sort of seen technology as growth for growth's sake is a good thing. And what's good for American tech companies to grow is good for America. And that's been broadly true the last 20, 30 years. And so you have the growth of Facebook and Google and Apple and Microsoft and whatever, their growth, whatever equals more growth for them is good.

But now that's not necessarily the case. And I think we have to start thinking about how do we channel those companies' power to American or western ends? And that's something that we are not comfortable with, I would note that in the Ukraine crisis, they have chosen sides. And that's very noteworthy because they have not necessarily chosen sides in the past. And that brings up a whole set of questions of what happens with China? Huawei is a tool of Chinese foreign policy, and right now we aren't comfortable with calling Facebook a 12-year US foreign policy or Microsoft, but they are. And so both positively and in the case of Facebook, perhaps sometimes negatively, that's something we have to think about.

Danny Crichton:
If I had to tease out a theme here, I mean, there's restrictions and capabilities, there's two sides of the coin. The US dollar as a reserve currency gives the US a lot of power in foreign affairs to influence other countries. If we cut you off from Swift, you can accept foreign payments. If we put a hold on your reserve assets at the Fed, the rest foregoes 600 billion plus of dollars, they can't access for a period of time. We're not taking it. But you can't use it to pay for your current accounts and obviously you have a lot of debts to pay and you can't buy oil and et cetera, et cetera, et cetera. And so we use a lot of these restrictions. You see the same thing with export licensing where we block Huawei or ZTE, and other Chinese telecom manufacturer from certain US patents, so they can't get chips, they can't get lithography equipment from ASML, they can't get all this technology to be able to build their businesses.

But at the same time, the problem with restrictions is, the companies that are actually being hurt are companies. Intel alone has really focused on the fact that they need access to the Chinese market. The Chinese buy hundreds of billions of dollars of semiconductors a year, the massive export market for Intel, Qualcomm and other chip manufacturers. And if they cut that market off, that affects R&D budgets. It affects the ability of headcount. It affects the entire, basically, business model for these companies. And so on one hand you have restrictions, and the other hand you have capabilities. And I think that gets at the NSO group in Israel where Israel didn't stop company countries from doing certain things. Israel had its service, a private company, NSO group, which was designed to basically allow for state level hacking of messages, chatting apps and other telecommunications equipment. And it used that as leverage to open up the United Arab Emirates, to open up other parts of the Middle East that had normally been completely forbidden from Israel and diplomacy.

There are no relationships between those countries. And it was like if you want to open up, we would give you this technology, this capability you don't have now, but you really, really want. And I think it's interesting because we do have both in the US, right? Our defense, as you mentioned, we have the F35, we sold that to Germany just last week. We're selling this high grade military equipment and that's sort of our carrot. And then we have this sort of stick approach. We have these restrictions where it's like, well, you can't get access to the cool technology and your people will overthrow you or your companies won't too successful. I just don't think it's really well organized and Silicon Valley seems to be in the middle and saying, "Well, we don't want to be a carrot or stick."

Scott Bade:
Yeah. I think that's an interesting way to frame it. And actually, I mean, Nokia and Erickson in Sweden were the biggest critics of Sweden's decision to be Huawei because they were losing a major market as a result. So I think that's right, that there is some muddy middle ground that is not always clear, and trying to sort that out is really hard. I think that the US government is getting better at this. The Biden administration does have a lot of interest in technology and there's a lot of people, the NSC now thinking about technology. There is a cyber bureau that is being stood up at the state department that has an express, this is part of their remit, is to think about the diplomacy of cyber and be it both on the terms of cyber crimes and cyber treaties, but also thinking about technology. I'm not sure if they're going to be as advanced as we might.

I mean, the bureau hasn't been stood up yet. It's in the process. And so I'm giving them the benefit of the doubt to see where they go, and I think they have the right intentions. Whether they get the right resources is a different question. I do think that we are starting to think about this a little bit more intelligently. The question though is again, are we looking for opportunities to deploy tech in a tactical or strategic way? And I actually think in the Ukraine crisis, the Biden administration was very adraught in cutting off Russia from tech components. And that was a very clever use of technology policy of these export controls to not just making a geopolitical point, but to actually inflict damage.

And at the time, obviously there was hopes that that would help as part of a broader package to detour Russia from invading Ukraine. Clearly, that didn't work, but the Russian war scene is going to be degraded because they don't have those components now and they're going to have to go to China, which may or may not want to give those. And so that is used technology that is very smart to use strategically and I think is a harbinger for what we need to be thinking about doing more systematically now. And we clearly know how to do it, so now we just need to figure out when and how we should be doing that more.

Danny Crichton:
I think the Russian example really shows what happens when you fall behind on technology. When I look at China versus Russia, it's amazing to think that at one point Russia was a Soviet Union. China was an agrarian rural society being transformed by Mao. And to see the complete trajectory difference of the two. That China now is in the vanguard has built up a huge domestic internet industry with Alibaba Jayson has built up a huge hardware industry, obviously with Xiaomi, Huawei, Ziti and others. And Al also is very focused on the emerging market, which ironically was the Soviet Union's focus, was in many ways engaging Africa, Latin America, and Asia in its projects. I mean, I think even up to the current day, unless the CIA has been reorganized, but those continents are actually still grouped under the term APLA for Asia Pacific, Latin America and Africa because that was like the Soviet Union desk and then the places the Soviet Union go.

And so to me, the trajectories that make a huge difference. I'm curious though, I mean, obviously we talked a little bit about Huawei. Obviously China has a huge tech doctrine, but where does the US stand in this? Are we catching up? Are we getting in order? Because Huawei was a huge story. I mean, obviously you reported several deep pieces. Actually I was your editor and I also get to see the numbers. They were some of the best performing pieces we had. People were very curious about it, people read them, but we haven't heard as much about Huawei and sanctions in the last year since the Biden administration came into office. And I'm curious, is that just a narrative piece as in the administration is still continuing the Trump administration sort of approach, but isn't talking about it? Or is it that there's just sort of no additional action that's been taking place?

Scott Bade:
I think it's much more the latter, that there's been sort of a reassessment on a lot of these issues. And I think, there's, I would call it almost a strategic pause, where they've not wanted to necessarily lift measures on some of these Chinese tech firms. But whether or not they go forward not. There was obviously, and this is again, a very interesting use of tech and geopolitics, which is that Huawei got entwined with these espionage cases in China. These two westerners who basically became chips because, and this is a longer story than I need to tell, but the US and its allies were concerned with Huawei and spying and had sanctioned Huawei. They used violation of sanctions on Iran, is how they got the Huawei. And they put under house arrest, the daughter of the founder who is also the CFO in... she was in Vancouver.

The Chinese then arrested these two westerners in China and essentially traded them as pawns to get them out. And it's interesting because you compare Huawei, which is clearly the tech giant in China in favor, and you compare it instead to Alibaba, and we've not heard from Jackman a while. And so I do think the Chinese, they had these dual tech industries, sort of the state, not directed, but the Huaweis, which were very much allied and aligned with the state. And then you had the Alibabas Jayson and the 10 cents that were obviously not unaligned with the state, but they were allowed to kind of do their own thing.

And now you see China, I call it its own version of, we have a tech clash here in the US and China has its own version of a tech clash. Where the Chinese are testing their tech power to serve the state, to serve the party. They want to make sure that they control the data, they control the technology, they use the exports in the developing world. Xiaomi and some of these other company in Huawei, they're building the infrastructure of Latin America and Africa and Southeast Asia. And so they're on both sides of it, really on one hand chasing the tech companies for that. But any other, they are using those companies to set the standards in the rest of the world.

Danny Crichton:
That, to me, is a really hard challenge. But I think there's a good point to conclude, which is who would've thought two years ago that Russia would be a war with Ukraine with a full on army going in over the border? That China would clamp down as three largest internet giants that were worth trillions of dollars and have lost trillions of dollars all in the course of a couple of months over antitrust and social stability measures? Clearly things are changing a lot. And I'm curious your thoughts real quick. Are we going to see more change? Is this the big wave of all the things that happened? This was the turning point in history, 2020 to 2022 led to all these changes? Or are we actually accelerated, we're, should we be expecting even further changes in the technology foreign policy intersection?

Scott Bade:
I think the answer's both, in a way. Because I think we are in a watershed moment, whether your listeners are feeling this or not in their tech firms. In the daily grind, tech is geopolitical now, in the way that the energy industry has been for decades. And I think that that's insufferable, and that's going to be something that you're going to have to think about now regardless. So that is a turning point. How it evolves is yet to be determined. We don't know where things are going. Obviously in the Ukraine crisis, which I can't overstate how consequential the Ukraine crisis is because you and I talk about history a lot. I was a history major. I never expected to watch a war in real time between two armies because you just haven't seen that.

Danny Crichton:
Well, They both had a McDonald's. So by definition of the McDonald's theory of democracy, if two countries have McDonald's, they don't go to war with each other. What we learned is if you shut the McDonald's down first, then you don't have to follow the theory at all.

Scott Bade:
Is it the Papa John's or the franchisee refuses to shut down or something like that? But yeah, I mean, you're now seeing... and that's a whole other issue. I mean, for another podcast, which is defense tech can be... I mean, that's where I think yes, there's going to be a lot of focus and I know that you're focusing a lot on that here at Lux. That's going to be very important. And we're seeing again in real time both social media, the information campaign, the satellites. It's just a very interesting time for technology. And with supply chains and with the social media being picking sides, we are in a new era and geopolitics and tech are not going away.

Danny Crichton:
I'm glad you're here to help guide us. Scott Bade is the special series editor of the Tech Venture Global Affairs Project and a contributor on foreign affairs. Thank you so much for joining us.

Scott Bade:
Thanks so much, Danny.

Danny Crichton:
More than 25 years ago, John Perry Barlow wrote a declaration of the Independence of cyberspace. In it, the founder of the Electronic Frontier Foundation wrote that, "Governments of the industrial world, you wary giants of flesh and steel. I come from cyberspace, the new home of mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather." What we have learned in the decades since is that the internet is not sovereign.

And that such an expansive view of the potential for the communications medium was completely incompatible with the reality of the human world. Far for being its own world, technology has become the world. The means by which our economy, society, and culture function and flourish. Silicon Valley is no longer its own region, a region about as geographically far from Washington power corridors as you can be in the continental United States.
It's now the center of power, where the fates of empires globally are determined. It's an uncomfortable new position, but one that must be confronted by everyone in the tech industry. Technology can be used for good and it can also be used for evil. Technology is a moral force for the world, and not making a choice is a choice as well. At a time when authoritarian governments are in the vanguard, it's critical that those who demand and appreciate freedom constantly strive to push technology toward the light rather than toward the darkness.

That might mean that companies have to pick sides, and yes, picking sides might very well mean closing off certain markets or hueing closer to politics than anyone feels comfortable with. But we are living in complex times where the securities of our world are increasingly in doubt. It's time to announce the reversal of Barrow's Manifesto and write a declaration of the dependence of cyberspace on the human condition. We are the builders and it's time to start building the future we want and deserve.