Over the last decade or so, a few US-based internet companies went beyond capturing our information and communication systems to begin dominating physical sectors such as retailing and transportation, and advancing into others like health and education. Just as mechanization left no process or sector untouched during the industrial revolution, with the digital economy, data based digital intelligence is radically reconfiguring all or most areas and sectors of economic activity.
Underpinned by a global internet, the digital economy, with its largely border-less data flows, was born as one single digital space. While data based digital intelligence is its key driver, it builds upon many digital layers- from physical networks, computing chips and user devices, to software and applications. US companies have commanded almost all of these layers, whereby the US has been shaping up as the single center around which the global digital economy is arranged. But then came along China to spoil US’s party!
China has emerged as a global force in the digital domain. What started as political panic over the disruptive potential of the internet, increasingly turned into thoughtful industrial policies aimed at promoting China’s domestic digital industry. A combination of varied factors – the great firewall of China, over a billion people unified by a single non-English language, China’s newly formed rich and entrepreneurial middle-class emerging from a very successful manufacturing revolution, close government support etc – resulted in the seemingly sudden emergence of huge Chinese digital companies in almost every sector. After successfully servicing the big Chinese market, they are well on their way towards global conquests. China’s manufacturing genius was already enabling it to capture the device and telco equipment market. Now, China’s data based digital platform companies are foraying into Asian markets and beyond, to challenge American digital domination.
With Amazon competing against Alibaba, and Uber with Didi, an interesting scene evolved. US digital monopolies were facing some competition, which was generally good for the global market. US and Chinese digital companies competed as ferociously with their compatriot companies as they did with others. Both US and Chinese markets, as well as supply chains, were important for companies from either country. This also led to the formation of cross country digital alliances and networks, for instance Baidu has teamed up with Ford for its transportation application.
An Emerging Digital Geo-Split
The digital, however, is not just an ordinary sector. Rather, it is an economy and society wide paradigm. Competition over its control is simply too political and strategic for any kind of digital camaraderie across the two global superpowers to last. Global leadership in economic terms has been contentious enough, but implicated in the digital economy are also long-term strategic, security and even military interests.
Global leadership in economic terms has been contentious enough, but implicated in the digital economy are also long-term strategic, security and even military interests.
Behind the scenes, the governments of the two digital superpowers are playing a kind of geopolitical chess. Companies like Google and Microsoft have been known to lend a hand to US’s geopolitical interests. Justifying its work with the US military, Amazon’s chief Jeff Bezos recently said that the US is a great country and it needed to be defended. Similarly, Google’s CEO Sundar Pichai has assured that Google is committed to the US military, and not China’s. China’s state-driven capitalism and its global aspirations are no secret.
In 2017, when Google’s AI beat the world champion of Go – a Chinese game significantly more complex than chess, China’s public consciousness was deeply impacted. A few months later China’s AI strategy was released, declaring the country’s intentions to gain AI supremacy by 2030. This may have appeared to be a rather extra-ordinary claim. Yet, soon enough, even the western press was full of China’s AI exploits and its AI race with the US.
As reported by Wired magazine, not only are there more AI research papers coming out of China as compared to the US, but even the quality of the former is projected to match that of the latter by 2020. This is an outstanding achievement for a country that had little world-class software or digital competency to speak of 15 years ago, and jokes about the quality of Chinese manufactured products are just only getting stale. Huawei’s telecom equipment today is not only cheaper, it holds more 5G patents than any other company, and is generally considered the world leader in 5G. If China dominates the telecommunications network industry, a leaked US National Security Council document says, it “will win politically, economically, and militarily”.
Huawei’s blacklisting by the US hit the company’s two soft spots, generally shared by China’s digital value chains. Google will be withdrawing its android mobile operating system and allied services, while the UK based ARM, whose chips power most mobiles, is discontinuing delivery of its chips to Huawei.
The latter has put up a brave face. Huawei is already developing its own mobile operating software. It also claims that it has enough inventory of chips to last a long time. China noted its vulnerability regarding the chips part of its digital value chain a few years ago, and has been investing billions of public and private dollars into developing domestic capabilities. It cannot be long before China plugs these gaps in its end-to-end command over digital value chains. The Huawei incident will simply hasten the process, and provide China useful public justification for investing in developing world-class domestic capabilities, and to the US, in every single digital aspect.
Alibaba’s cloud computing services are already closing in to the world leader Amazon, while Baidu’s AI engines compete with the best from Google, Amazon, Microsoft and Facebook. Many say that the ferment and pace of digital innovation in China today quite exceeds that of the western world.
Resisting China’s emerging digital power, the Huawei’s case is just the latest in a long series of similar measures by the US. For instance, last year, it disallowed Alibaba from buying US’s MoneyGram, and embargoed US supplies for the Chinese mobile company ZTE. But this new incident may well represent an important point of inflection in global digital relationships.
Vertical Integration in the Digital Space
The world of software and internet was built over different companies making chips, hardware, networks, software and applications. Today, Google, Amazon and Facebook are making their own chips, which is a telling story. Not just geopolitical rivals, even major digital corporations greatly fear dependence upon another company over critical links in the digital value chain. This reveals how high the digital stakes are, and how cut-throat the competition for digital supremacy can be.
A huge outcry has arisen lately in the west, including the US, for reining in the power of digital mega-corporations, possible also by breaking them up. The Chinese threat has come handy for the targeted corporations, who are claiming that any such move can scuttle US’s global digital domination. This is an open call by these corporations for the US to take a geopolitical, as opposed to national public interest based, approach to digital economy. China’s state-corporations nexus, meanwhile, is too well known to require elaboration.Global digital offerings are likely to organize and split, around the two global digital poles of US and China, while also becoming more integrated. This is an emergent but key structural logic of global digitalization.
Global digital offerings are likely to organize and split, around the two global digital poles of US and China, while also becoming more integrated. This is an emergent but key structural logic of global digitalization.
All countries other than the two digital superpowers face a dilemma of momentous proportions. As data driven digital intelligence, and the corresponding platforms, become key to the reorganization and control of almost all sectors, and the latter’s backbone is formed of digital artifacts – from chips, network equipment and personal devices to software and applications, these countries may have to make the decision to digitally align with either the US or China. A mixed basket may work initially for some time. But increasingly, with even technical standards getting split across the geopolitical divide, digital options will tend to close in to one or the other digital superpower becoming the principal choice.
As everything is digitalized, digital security applications become key to a nation’s overall security – every country’s priority concern. Much of digital security is integrated into a country’s choice of chips, devices, networks, software, applications, AI and the key sectoral platforms. And since security thinking and choices are geopolitically strategic, so will be the choice of the entire digital value chain. In a digital society’s regard, economic, social, cultural, political and security spheres all have common infrastructural bases, which renders the choice of digital geo-alignment somewhat integral and unitary.
Even if a temporary thaw is managed vis-a-vis Huawei and other current areas of digital contention between the US and China, a larger logic and set of forces are operating towards a digital chasm that are unlikely to be reversed.
What such a digitally split world would look like is scary to imagine. This is apart from the acute digital dependencies that countries will suffer vis-a-vis their respective digital overlord (US or China). Once the digital intelligence that runs a country’s sectors is owned and controlled by outside agents, countries will be in a helpless situation, quite worse than industrial age dependencies.
Digital Non-Alignment and an Open Digital Ecology
In these circumstances, what are the options for all the non-digital-superpower countries- including European countries? It is a different matter that the latter remain a prisoner of some kind of nostalgic/ romantic notion that they hold some hidden advantages that will somehow, someday, catapult them to the digital front row.
The appropriate direction would be a combination of a geopolitical approach of digital non-alignment, and a practical one of diligently promoting and establishing open digital value chains and ecology.Taking inspiration from the cold war period’s non-alignment movement, digital non-alignment would mean deliberate economic and political investments to keep ones digital economy and society not too closely hooked to either of the digital superpower’s digital products and services.
Like with the original non-aligned movement, a very important aspect of this would be to employ collective strength to, firstly, resist the very formidable digital allurements and power that these countries will be subject to, and, second, to shape more mixed and open digital options on the ground. The latter will involve and require promoting strong domestic industry participation as well as retaining sufficient digital regulatory possibilities.
The appropriate direction would be a combination of a geopolitical approach of digital non-alignment, and a practical one of diligently promoting and establishing open digital value chains and ecology.
Establishing a more open digital ecology is the technical, policy-legal and business model complement to geopolitical digital non-alignment. There is an urgent need to promote public and open technical standards in all layers of the digital value chains. This should reverse the trend towards proprietary standards, which bear the risk of splitting – at least to some extent – across the US-China divide. Such open standards also help mitigate vertical integrations, which need to be further countered by explicit and strong regulatory measures. Templates for such regulations promoting digital openness should be built at the global level, so that it is convenient for all countries to implement them. Policy and legal support is required to protect and enable domestic digital industry, including through laws and means for local data ownership and sharing.
And finally, for cross-border and global digital business, more open and less extractive business models are needed. The latter would empower and build real digital capacities of domestic businesses and economies, rather than exploit them. Such open international models can be promoted, for a start, by countries with currently better digital competencies, like some European countries, as well as bigger developing countries like India.
Huawei and China have been preparing for such digital blackmail by the US, and may even employ it to their advantage. But down the line, other countries, with much of their society digitalized with deep dependencies vis-a-vis one or the other digital superpower, would find themselves completely helpless against a similar threat or blackmail. It is most likely that they will have to give in to whatever demands are made of them.
There may yet be time to anticipate and prepare for– or substantially avoid – such a dismal future, which happens to be closing in fast.