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Matsyanyaaya #1: High-Tech Self-Sufficiency is a Delusion
— Pranay Kotasthane
(An edited version of this article first appeared in Times of India Plus on 22nd June 2021)
The near-daily cadence of reports highlighting China’s growing technology prowess has set the cat among the pigeons in many democracies. In response, these countries are now offering higher subsidies and fatter incentives to increase the competitiveness of their own technology industries.
The US Senate, for instance, passed a $250 billion Innovation and Competition bill on 8th June aimed at outpacing China. The Indian government, since last year, has launched Product Linked Incentive (PLI) schemes for 13 sectors worth ₹2 trillion, some of them targeted at high-tech industries such as semiconductors, telecom, and networking. Earlier this month, a draft growth strategy of the Japanese government also promised generous financial incentives to attract cutting-edge chip-making facilities. Not to be left behind, the EU, too, has announced a €145 billion plan to upgrade its semiconductor and electronics manufacturing.
While the intent is encouraging, it’s interesting to note that all these plans are qualitatively quite similar to China’s ‘Made in China 2025’ — a state-led industrial policy for technology. Released in 2015, it was labelled as a threat to global trade for channelling state subsidies to achieve import substitution. But now, many countries seem to be following a similar approach. Of course, China’s subsidies are often discriminatory and place extreme restrictions on foreign investment. Even so, all these policies mirror China’s at their core — they are all about using old-style industrial policy instruments such as subsidies and incentives to achieve high-tech self-sufficiency.
Will Subsidies Revive Technology Industries?
Unlikely. There are significant problems with the goal of high-tech self-sufficiency and the instrument of industrial subsidies, both. That’s because high-tech industries today rely on extensive cross-border movements of intermediate products, talent, and intellectual property. As R&D costs required to produce technological improvements have risen across sectors, erstwhile ‘national’ industries have been transformed into global supply chains. Instead of national champions making complete products independently, companies only specialise in specific parts of global supply chains.
For instance, the US Semiconductor Industry Association estimates that a typical semiconductor production process spans 4+ countries, 3+ trips around the world, and 12 days in transit. Japanese companies have developed expertise in semiconductor manufacturing materials, Taiwanese companies have a big lead in semiconductor manufacturing and packaging, and a significant portion of semiconductor design happens out of subsidiaries in India. Even with its massive fiscal resources, the US will find it challenging to indigenise all parts of this diversified supply chain. External dependencies for intermediate goods, specialised equipment, international talent, and critical materials will remain even when the final product is American.
Also, consider Artificial Intelligence (AI) research. MacroPolo, a think tank, notes that over half of all top-tier AI researchers are immigrants or foreign nationals working in another country. Some of them will invariably take the knowledge gained to their native countries. Restricting such expertise at a national level, in a connected world, is no longer possible.
These two examples tell us that not only is throwing taxpayer money insufficient for high-tech self-sufficiency, but the goal itself is a delusion.
Instead of aiming for self-sufficiency in technology like China, democracies should aim for two slightly different strategic goals. One, build enough redundancy in global supply chains such that China dominates no part. And two, build enough collective expertise in all aspects of technology supply chains to outpace China. Neither of the two goals needs self-sufficiency. On the contrary, countries can achieve these goals only through multilateral strategic cooperation.
Specifically, democracies can do three things. One, think in terms of multilateral tech ecosystems instead of national indigenisation. Build consortiums to construct a diversified high-tech manufacturing base. Instead of duplicating efforts, countries need to build technology ecosystems cutting across all stages at a multilateral level. Besides being cost-efficient, this geographic diversification will make supply chains more resilient.
Two, cooperate on developing new standards. Global standards set the tone for competition in the high-tech sectors. Once a standard gains hold, companies using these standards gain a disproportional competitive edge, as China’s success in the 5G standards-setting process has demonstrated. By funding joint development of future communications and security standards, countries can hand their companies a long-term edge.
Three, remove the barriers to strategic R&D cooperation between companies in like-minded countries. Technology companies collaborate through licensing, cross-licensing, joint development, technology exchange, and visitation & research participation. In each of these areas, governments have a vital role. For example, reducing export controls can facilitate more technology exchanges. Lowering investment screening barriers for select countries can encourage joint development. And finally, smoother visa processing and lower employment barriers for technology professionals could facilitate higher research collaborations.
In short, throwing taxpayer money at high-tech companies is easy and inadequate. Excelling in the high-tech sector requires genuine multilateral cooperation.
What Can India Do
Foreign policy will play a key role in developing India’s technology prowess. Given India’s developmental challenges, its financial incentives are unlikely to match what richer countries can afford. Embracing a multilateral approach to technology has a better chance of success.
The Quad is one such platform that is suitable for deep technology cooperation. The announcement of a working group on critical and emerging technologies at the first-ever Quad summit-level meeting is a good start. Rare earths and semiconductors are two immediate focus areas for the four countries to work on.
There’s no doubt that democracies should counter China’s push for technology self-sufficiency. But a response doesn’t imply that all democracies copy the same methods as China. By putting their comparative advantages to work, democracies can outpace China.
Cyberpolitik: Porous Censorship
This week marks the passage of one year since two significant events in the context of global flows of information; the passage of Hong Kong’s National Security Law; and India’s decision to ban 59 apps for activities ‘prejudicial to sovereignty and integrity of India’.
It was also notable then that June kicked off with a controversy over Israel-based Wix removing a website calling for democracy in Hong Kong, reportedly in response to a takedown request from the city’s police. Wix later reversed the action stating it was a ‘mistake’. It was subsequently blocked by local ISPs, although it appears to be an easily bypassed DNS-based block implemented inconsistently. Similarly, most of the apps/services blocked in India remain accessibly using VPNs.
In Censored, Margaret E. Roberts describes this ‘filtration’ of information or censorship as a tax on information, rather than an outright ban and interrogates the question of how effective such ‘porous censorship’ can be.
First, Roberts described three strategies that states can use:
- Fear: Relying on coercion and a credible, visible threat of punishment and follow through to be effective. However, it can also backfire by drawing more attention to the information being censored or seeding discontent.
- Friction: Increasing costs of disseminating or accessing certain types of information, relying on the elasticity of demand for it among most people.
- Flooding: Increasing costs for consumption of information by ‘flooding’ by drowning out undesirable messages.
Roberts argues that a multi-pronged approach allows for targeted deployment of these strategies.
- Friction and flooding for most information consumers who are unwilling or unable to spend additional time/money/resources to overcome these barriers. This is even more effective in an era characterised by information overload and works to filter out the ‘activist core’ from a potential support base.
- Fear for those groups who exhibit an inelasticity of demand for information or a willingness to supply information even with higher entry barriers (influential groups/people, media organisations, etc). They are also motivated enough to incur the additional costs imposed by friction and flooding.
However, in times of crisis or instability, more people exhibit a higher demand for information representing scenarios in which censorship is likely to be less effective and more accoutability is demanded from governments.
With this idea of ‘Porous Censorship’ in mind, it is worth revisiting the Demos framework from Edition 1 (Internet ka Boss: One earth, many internets). The attritive nature of these struggles shift the balance of power towards the state.