This blog is the second in a five-part series diving into our latest thinking ‘Growth in a G-Zero World’.
I am not a technophile nor a Luddite. I do not profess to be an expert in technology – it took me far too long to work out the definitional difference between AI and IA – but anyone wishing to read the proverbial tea leaves of the geopolitical and business landscape needs to be broadly up-to-speed with the happenings of the sector.
Why? Technology will be the signpost of the future of protectionism – not just in the name of national security, but also with respect to the digital barriers to flows of IP and data around the world on which these technologies are increasingly dependent. And whilst the direction may seem obvious, the intersection of technology and data may muddle the (regulatory) waters.
The rise of protectionism
Protectionist policy in the form of new and creative mechanisms and the revival of previously defunct laws is making the business landscape more uncertain, complex, and less global.
Technology is increasingly seen as a national security asset, a view which has led to the arguable weaponisation of economic policy beyond the traditional scope of military applications to advanced ‘civilian’ technology. Political tools acting as a constraint on business have included:
- Enforced diversification of supply chains and labour forces away from dependence on competing world powers via tariffs and visa restrictions;
- Blocked mergers and increasing regulatory scrutiny over acquisitions and investment in sensitive sectors – for example, Japan is lowering the investment threshold requiring government approval from 10% to 1%;
- Enhanced anti-competitive scrutiny, with current application to non-national companies – such as the first use of EU interim order measures (on a US chipmaker) in a couple of decades;
- Bans of ‘Made in X’ vendors not only in terms of government procurement, but in (private) critical infrastructure; and
- Constraints on customer bases via export controls over identified entities and ‘adversarial’ countries.
That means: it matters more where your capital, technology and IP come from. If you are reliant on the ever-increasing definition of strategic technology (think semiconductors and facial recognition technology, among others), enhanced visibility and flexibility in your supply chain - and over your investors - is critical. If the ‘Digital Iron Curtain’ descends, consider how to best align your tangible and intangible footprint, as markets turn towards respective global powers.
The erosion of true competition
Of course, protectionism is not all bad for all companies. Nearly a quarter of the world’s largest firms are state-controlled, and Western state aid for critical sectors and ‘Made in X’ companies is nothing new – just look at the decade-long Airbus versus Boeing decisions being handed down by the WTO.
But what does feel new is the growing liberal market support for tech ‘national champions’, specifically as a way of combating China’s state market model. Questions over ‘Made in X’ companies are going beyond technical security to whether ‘Made in Y’ companies can and should have to compete with those suspected of receiving state subsidies. In this sense, we are seeing the erosion of true competition. Proposed political responses have included:
- Temporary and partial nationalization of private technology companies in the face of acquisition by a third-country vendor, to prevent the transfer of IP;
- Creation or application of sovereign wealth funds to support emerging technology ‘champions’; and
- Issuance of credit to technology companies from allied powers to better match (alleged) financing conditions.
This means: being identified as ‘Made in Z’ next gen of emerging technologies may end up limiting sources of investment and the markets in which you can play, but there is also the potential for increased Government Z support (regulatory and capital).
Data as the new oil
Enter the muddier (oilier?) waters. Despite best efforts, digital (platform) giants are operating under much less competition than what would have been allowed even a few decades ago – i.e. data oligopolies (if not monopolies). Data has power, and the current model encourages users (the public) to become the product commoditized to the benefit of advertisers and companies (or the state) – a concept critics refer to as ‘surveillance capitalism’. As a result, these companies are under increasing scrutiny, both at home and abroad – not just with respect to anti-competitive practices, but also data privacy and responsible tax obligations.
But it isn’t as simple as that. The value in those platforms lies in the data; that is, the extent of their networks. It is here that I see a parallel to the next generation of emerging technologies. The value and functionality of technologies like AI will, in part, lie in the volume of data and resultant rate of learning. Not all of this data will be monopolised by the technology in question. Nor will it necessarily be deemed sensitive and worthy of protection. But we can expect that it can be another lever with which data-rich emerging technology from abroad can be a target of increased regulatory scrutiny. And it will be interesting to see how states balance the strategic need to compete in this arena with the protection of their citizens (data) from perceived abuse of anti-competitive power.
This means: technology and data both have inherent geopolitical power, and businesses reliant on either are more likely to get swept up, both as pawn and player. Recognize that both data monopolies and stronger privacy by design can be sources of competitive advantage, particularly at home. Management of your ethical risk exposure will also be more important than ever.
 These platforms can also have farther reaching social consequences: when they are the primary conduit of information, the public can shift their own perspectives to reflect the pattern of network connections and resultant ‘filter bubbles’, further driving the political polarization I referred to in my previous blog.