The Balkanization of Global Tech

Rising trade walls, increasing national-security anxieties and new privacy rules are shattering Silicon Valley’s dream of an interconnected world.

AP Photo/Virginia Mayo
April 29, 2018, 8 p.m.

During Facebook chief executive Mark Zuckerberg’s testimony before the Senate this month, one largely overlooked exchange between him and Sen. Dan Sullivan revealed how the world’s dominant social-media platform views its place in the world.

“Only in America, would you agree with that?” asked Sullivan, as he praised the 33-year-old’s creation of a multi-billion-dollar tech platform in less than a decade. “You couldn’t do this in China, right?”

It was the ultimate softball question, but the Facebook founder wouldn’t take the swing. “Well, senator, there are—there are some very strong Chinese companies,” Zuckerberg demurred, much to Sullivan’s surprise.

When paired with Zuckerberg’s frequent appeals to an interconnected globe (with Facebook, naturally, as the glue), the comment was an acknowledgement of how thoroughly U.S. tech companies see themselves as global citizens unfettered by the old trappings of nation-states and spheres of influence.

“The tech world imagined itself as being American firms playing on a global stage,” said Steven Weber, a professor at the University of California (Berkeley)’s School of Information.

But after more than two decades of broad cross-border cooperation on technology, access to that global stage is now in jeopardy. In Washington, Brussels, and Beijing, policymakers are now working to wall off their tech sectors from the allegedly pernicious influence of foreign actors.

“On the internet, potentially everything that you offer in terms of content is global,” said Mike Godwin, the general counsel and director of innovation policy at the center-right R Street Institute. “And so the reaction of this generation of government officials worldwide is, ‘We can’t just let this stuff erase borders. Our autonomy requires that we control our informational territory in some way, just as we control our physical territory.’”

The growing balkanization of the tech world is largely driven by national security and economic protectionism, and spurred by fears (particularly in Europe) of diminished privacy. But if allowed to continue, experts warn it could slow international tech investments, shut dominant platforms out of huge markets, and delay the emergence of artificial intelligence and other new technologies.

“If people are saying we’re going to put national security or consumer privacy or something else ahead of this goal of a globally connected world, that does change the vision of where technology is going,” said Daniel Castro, vice president of the Information Technology and Innovation Foundation.

At the heart of the issue is the increasingly acrimonious relationship between the United States and China. And while ties remain extensive, the growth of the “Great Firewall of China” over the past two decades somewhat belies the notion of an interconnected tech economy. China continues to limit the actions of some U.S. tech companies like Google, and completely shuts out Facebook and other firms.

But until recently, there was a broad sense that the inevitable march of free-market economics would force China to break down its barriers to foreign tech. Instead, Washington now seems to be tacking toward the Chinese model.

The Treasury Department’s Committee on Foreign Investment in the United States has historically had the power to block foreign investment if it’s believed to potentially jeopardize national security. But in recent months, a bipartisan group of lawmakers has pushed legislation to significantly enhance CFIUS’s powers by allowing it to block joint ventures, or even the outbound investments of U.S. companies into foreign firms.

The push is ostensibly about protecting emerging technologies with potential military applications from falling into the Chinese government’s hands. But as Senate Majority Whip John Cornyn—who’s spearheading the legislation in the Senate—made clear, it’s also squarely aimed at protecting the U.S. tech sphere from Chinese competition.

“Anything [China] can’t steal, they’re trying to find ways to work around the current version of CFIUS with joint ventures and the like, so they can gain access not only to the intellectual property but also the know-how,” Cornyn told reporters Thursday. “And then they can take it and make it in China, and all the people working in that industry in America are out of jobs.”

It’s not hard to imagine how private-sector advances in machine learning, artificial intelligence, and data analytics could one day have substantial military applications. But former CFIUS chairman Clay Lowery—now with Rock Creek Global Advisors—cautioned that the legislation, as it’s currently constituted, could cause a substantial amount of technological cross-collaboration to be considered suspect.

“If the vast preponderance of all technology is national security and subject to CFIUS review—both inbound investments and outbound transactions—then we have a problem,” said Lowery, noting the precarious balancing act needed to keep sensitive tech out of Chinese hands while also preserving innovation and the free market.

Weber cautioned that the United States could suffer by shutting its tech firms out of participation in the Chinese market, noting that researchers into artificial intelligence and data analytics have much to learn from China’s massive population. “If data is the juice that drives machine-learning systems … then the Chinese have access to a much larger pool of data than we do,” he said.

Victoria Esser, another former Treasury official now at the Glover Park Group, said CFIUS’s role is critically important but its overbroad use could “hamper economic growth and innovation” by causing foreign firms to shy away. She also noted that the reform push is coming at the same time as Beijing pursues its own “Made in China 2025” initiative, a state-subsidized plan to create homegrown globally competitive firms in advanced technology.

The growing gap between the U.S. and Chinese tech spheres is justified on both defense and protectionist grounds. But there are other splits with clearer national security catalysts.

The federal government’s blacklisting of top Russian cybersecurity firm Kaspersky Lab last year was ostensibly due to the company’s ties to the Kremlin, as well as classified information suggesting the existence of “backdoors” through which Russian intelligence could spy on machines using Kaspersky software.

But Castro called the decision’s opacity and lack of “due process” troubling, and warned it could lead to American firms being similarly targeted. “That’s not the way to collaborate on technology,” he said. “And I think the U.S. has more to lose if that’s the future of technology procurement.”

Perhaps most surprising, however, is the expanding rift within the West itself on technology issues.

On May 25, the European Union will enact the General Data Protection Regulation, a sweeping new set of rules granting European consumers greater control over their personal data held by tech platforms and mandating stricter data-breach notification requirements for companies holding European data. U.S. companies are scrambling to get ready ahead of the deadline. But full compliance will inevitably hit at the business models of platforms such as Facebook and Google, which largely dominate the European marketplace.

When coupled with enormous penalties for noncompliance, there’s a sense among many observers that the new rules are as much about pushing American tech firms out of Europe as they are about privacy.

“A lot of Europeans would say, ‘That’s what we want,’” said Castro. ”’The Americans are not protecting their data, and if they’re not going to do it, we’re going to build our own internet where data is protected.’”

For a long time, experts say European policymakers have jealously eyed U.S. and Chinese success in the tech sector. And if the GDPR is zealously enforced against American companies—given the scarcity of popular European platforms, they’re the only real targets—it could be the prelude to a broader push to create space for the emergence of a European tech community in line with continental values.

“It’s been brewing in Europe for some time,” said Weber. “Building a vibrant platform-technology sector in Europe that’s compliant with European visions and standards on privacy—that could be a project of the European Union.”

By bifurcating the online experience on either side of the Atlantic, Europe runs the risk of stifling collaborative efforts on emerging, but sensitive, technologies like facial recognition. And in the same way that rising barriers to tech-trade with China could spark a backlash if prices go up and innovation goes down, European consumers could potentially revolt if they’re denied access to popular new tech products because of the GDPR or other restrictive privacy rules.

But given the trajectory of new technologies, some experts believe further balkanization is almost inevitable. Driverless cars, for example, will likely stream massive amounts of sensor and navigation data to servers situated in the manufacturer’s home country. And Weber says he can’t imagine either the U.S. or China letting foreign-made vehicles anywhere near critical infrastructure or military bases.

“I just can’t see right now how the autonomous vehicle sector is not going to be heavily nationalized,” Weber said. “And to the extent that that technology is important, but also drives a lot of other technologies—like machine learning, computer vision, 5G networks, it’s tied to so many other things—then that becomes a huge issue.”

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