The rising influence of technology companies in geopolitics is driving a shift in the landscape: the private sector seems poised to play a significant role in the emerging world order. Washington, Beijing and Brussels will go down different paths while adapting to this reality.
In a nutshell
- The role of technology companies in geopolitics is unprecedented
- Governments now depend on the private sector
- Europe, China and the U.S. will face different hurdles
The so-called Fourth Industrial Revolution (also known as Industry 4.0) is reshaping the emerging global order. The companies at the heart of this transformation are fast becoming powerful geopolitical stakeholders that often challenge the authority, sovereignty, and the capacity of governments. Three trends are driving this change.
Trend one: Big players
The interest and influence of technology companies in geopolitics is growing rapidly. In 2016, global technology spending exceeded $6.3 trillion, making it the third-largest economic force in terms of gross domestic product (GDP), surpassed only by the United States and China. One report predicts that by 2023, more than 50 percent of worldwide GDP will be driven by services and products from digitally transformed industries. In 2018 alone, Apple brought in $265.6 billion in net revenue; Amazon earned $232.9 billion; Google’s parent company, Alphabet, $136.8 billion; Microsoft $110.4 billion and Facebook $55.8 billion. These five companies alone constitute more than $801.5 billion in annual revenue (not even net worth), roughly the size of Saudi Arabia’s nominal GDP in 2018. But this is about more than money. The real story is about the influence these resources command.
Technology companies are more than mere players in global politics; they are often the arena itself.
There is perhaps no industry more globalized than technology. All of the companies mentioned above compete in almost every market worldwide and conduct research and design in multiple countries. They employ a globally derived and deployed talent pool to develop and build their products and services. This capacity translates into an expanding global presence and a growing list of corporate interests that transcend national boundaries and directly relate to geopolitical events. Put simply, the world’s largest technology companies are amassing a level of wealth, influence, international presence and transnational interests that were previously only enjoyed by states. But these companies are more than mere players in the game of global politics; they are often the arena itself.
Trend two: Political platforms
The second trend driving the rise of technology companies in geopolitics is the expanding role of digital and social media. Propaganda and so-called “active measures” have long been a feature of geopolitical engagement. But Russia’s interference in the U.S.’s 2016 presidential elections – and in a number of other foreign elections since – places a new reality in stark relief. Modern communications technology and social media platforms combine to produce an unparalleled tool for legitimate political discussion and action, but one that is also available to bad actors.
Moreover, the burden for preventing, identifying, and confronting this interference largely falls to the companies themselves. Political leaders may punish companies for not preventing misinformation on social media, but governments can do little by themselves to stop it.
Trend three: Private intelligence
A third and final trend is that technology companies are a, if not the, center of gravity in the development of critical national security capabilities and methodologies. Governments have always sought to observe, understand, predict and shape human behavior and events. These are essential aspects of what is historically described as “intelligence.” Technology companies call this “market research,” “product development,” or “service provisioning.” Regardless of the euphemism used, the plain truth is that the state has lost its monopoly on intelligence and private sector actors know more about individuals and societies than any government agency.
The growing data and capability gaps between the private sector and governments leave national security leaders increasingly dependent on technology companies to conduct core national security missions. This is why former Chairman of the U.S. Joint Chiefs of Staff, General Joseph Dunford, observed, “Our ability to leverage industry here in the U.S.; our ability to maintain a technological edge over any potential adversary, is going to very much depend on the partnership between industry and the Department of Defense.”
The former senior military advisor to the president is saying that the nation’s ability to secure itself “depends” on partnering with the private sector in some new and sustained way. Political leaders around the world share the same sentiment.
The migration of geopolitical influence into the private sector is provoking a range of government responses. Specifically, responses from the U.S., China, and Europe help understand the relationship between technology and governance and how other nations are likely to evolve.
U.S. approach: engage and invest
National security leaders consistently tell American policymakers that the nation’s “overmatch” capability – the U.S.’s relative military superiority over its international competitors – is eroding at an accelerating pace. This deficit is not a matter of funding. The U.S. cannot write a check big enough to erase losses and ensure long-term superiority. It is dependent, as General Dunford said, on private sector actors. Interestingly, “big tech” responses to government overtures have been uneven.
Many small and medium-sized firms are happy with the role that technology companies have in geopolitics, especially regarding their cooperation with federal governments. However, generally, the most relevant work on some of the most consequential technologies is being done by large tech companies who must navigate complex political and fiduciary demands that sometimes slow, or even prevent, partnership. Even so, U.S. political and national security leaders continue to engage with technology leaders and hope to establish a more robust and systemic collaboration. But hope is not Washington’s only strategy. The government is also making large investments in these technologies.
Government efforts on technologies like quantum science, biotechnologies and advanced synthetic materials demonstrate that the U.S. understands the importance and long-term necessity of these capabilities. But the nation’s ability to fully leverage the private sector’s capacity toward these ends remains unproven. Doing so will be difficult, especially given the country’s historical aversion to formalized industrial policy and its hands-off approach when it comes to interference with private-sector economic activity. The U.S. derives many benefits from this strategy, but they do come at a cost.
Chinese approach: use and fuse
China has never made a clear distinction between its public and private sectors. Instead, for at least the last 60 years, it has employed what scholar Branko Milanovic calls “political capitalism,” which has three defining features. First, the state is run by a technocratic bureaucracy, which owes its legitimacy to economic growth. Second, although the state has laws, these are applied arbitrarily, much to the benefit of elites who can decline to apply the law when it is inconvenient or apply it with full force to punish opponents. This arbitrariness feeds into a third feature – the necessary autonomy of the state. For authorities to act decisively, they need to be free from legal constraints. The tension between technocratic bureaucracy and the loose application of the law produces corruption, which is an integral part of how the political capitalist system is set up, not an anomaly.
It is within this system that Chinese (and many other) technology researchers and companies operate: an environment where the state is free to direct, subsidize and coerce private sector support for official government priorities and policies. In the case of national security policies, this is known as “military-civil fusion.”
China’s “use and fuse” approach is supported by a growing list of cybersecurity and national security laws. All companies, even wholly foreign-owned companies, are required to arrange and manage their computer networks so that Beijing has access to every bit and byte of data that is stored on, transits over, or in any other way touches Chinese information infrastructure. This requirement will include data on U.S. persons collected by Chinese companies like TikTok, WeChat, and Alibaba. Any data that is not automatically collected and turned over to the government must be provided upon request, according to the National Security Law of the People’s Republic of China, enacted in 2015 and updated in 2017.
Europe’s approach: strangle and surrender
In Europe, where the technology industrial base is comparatively weak, governments appear to be content with strangling technological innovation with regulations while simultaneously surrendering their national security to foreign actors. Europe’s most sweeping action in dealing with technology companies has been the European Union’s General Data Protection Regulation (GDPR). The law is a hodgepodge of regulations spelled out in 11 chapters. GDPR is so bloated and cumbersome that Google, one of the largest, most profitable companies in the history of civilization, says it has spent “hundreds of years of human time” coming into compliance with GDPR. A would-be disruptor having to navigate these requirements would have no chance.
This general regulatory heavy-handedness is precisely why the EU will keep on struggling to field meaningful technological innovation. But even worse than strangling its technological industrial base is the Union’s naive integration of Chinese technology into critical networks and markets.
Despite clear warnings from the U.S. and their own intelligence services, Germany, France, Italy and others are actively considering allowing Huawei to supply, or at least have a significant presence in, their burgeoning fifth-generation (5G) wireless networks. Washington has made it clear that this could endanger the U.S.’s willingness to share critical intelligence with these countries. When pressed on these decisions, European political leaders often opine about the lack of alternative providers and the significant cost savings that can be realized by going with Chinese companies. Huawei’s bid in Italy, for example, is approximately two-thirds less expensive than any other bid. But the question is, why are the Chinese offers so much cheaper?
Decades of government mismanagement, overspending and general neglect have left many European capitals unable and unwilling to make the hard choice of foregoing near-term economic benefit in return for long-term security. As these governments default on their myriad promises of cradle-to-grave entitlements, they will also bleed political legitimacy in the eyes of their constituents and become more desperate to provide economic “wins” and critical services – even if it means subjecting themselves to Chinese aggression and coercion.
The truth of this is already visible in the fact that 23 European countries – 19 in the EU and one (Italy) in the G7 – have signed agreements under China’s predatory Belt and Road Initiative.
Without a strong technological industrial base and in the face of mounting governance failures, the rising influence of technology companies in geopolitics will lead to many European countries making catastrophic security decisions in an effort to placate public dissatisfaction and to keep up with the technological advancements emanating from the U.S. and China.