Technological advancement has been one of the key driving forces of human progress since before the dawn of civilisation. Since this time innovation has shaped the rise (and fall) of nearly every empire in history, creating the weapons and technologies that enable territorial expansion in the face of competitors, the commercial tools and systems that drive productivity and growth and the social technologies that create stable and sustainable legal, financial and governance systems. The greater and more widespread technological innovation has been within an empire, the larger it has grown and the longer it has lasted, outcompeting external threats and addressing internal challenges. This isn’t the say that superior military forces are not an important driver of great power change, but more that these often depended on superior technologies too.
While technological innovation has always been critical to an empire’s success, this has never been more the case than during the periods of discovery and disruption that marked the transition from one civilisational age to another. The transition to the Industrial Age from the 18th century onward gave rise to a series of empires, led by Britain, that leveraged technology to become larger and more powerful than virtually any of their predecessors. The transition to the Information Age currently underway represents a similar potential period of disruption.
While the US still stands out as the most powerful great power in history, many aspects of the dominance it enjoyed during much of the 20th Century appear to be fading, with China emerging as the key competitor for leadership. Last month’s Sign of the Times looked at the rise and fall of great powers through history and implications for America. It also pointed to how the US could defy the trajectories of past empires to remain the world’s leading power in the 21st Century by transforming itself from an Industrial Age to an Information Age superpower. America has a decade before China’s industrial economy is set to surpass it. It can try to fight China on that front and, most likely, fail or accept the challenge of leading the world into the Information Age with advanced technologies, new energy sources and the next generation of resources, aligning the world alongside it.
This month’s Sign of the Times examines more closely the potential struggle to lead the Information Age and at the technology and innovation competition that will likely determine success and failure. With China seeking to establish its own dominance, this contest is already giving rise to a technological ‘cold war’ whose opening skirmishes are now being fought. Winning this new ‘cold war’ is likely to require a multi-dimensional effort to drive and leverage successive waves of innovation across information processing, communications, industrial production, material sciences and energy alongside allied pressure and diplomacy.
Context: The Role of Innovation and Technology in the Rise and Fall of Empires
Over the last 2,500 years, technological advancement has been the driving force of human progress and the rise (and fall) of empires. From the early military advances that enabled the empires of antiquity to expand territorially to the modern industrial economies of the European powers - which propelled them to rapidly conquer vast corners of the world from the 18th century onward despite the existence of larger competitors - technological innovation has been one of the core drivers that determine why some empires rise and others fall.
Last month’s Sign of the Times examined the 30 largest empires in history and their patterns of rise and decline1, concluding that modern Industrial Age empires were significantly larger than those in earlier ages, driven by large industrialised economies and technological innovations in transportation, communications and armaments which made it possible for these (primarily European) empires to conquer and administer widespread, non-contiguous territories across the world. At the same time, Industrial Age empires were also more numerous and shorter lived, falling far more rapidly, reflecting intensive great power rivalry and the accelerating pace of technological change which enabled new rivals to emerge far more quickly.
The Makings of a “Great” Empire
The relative power of empires has never been fixed or constant because innovation drives differences in growth rates that shift the balance of power, as well as the military capability that drives the ability to conquer more territory2 . Though large empires have risen for a wide variety of reasons that were specific to the context of their time, they can be broadly looked at in two categories: those that rose to fill a void when their predecessors fell into statis and decline, and those that rose by pushing aside otherwise vigorous competitors because they were able to deploy new scientific and technological breakthroughs that gave them a meaningful competitive advantage over their rivals3 . Oftentimes, the rise of successor powers is a result of both.
Innovation provides the means by which a rising power can supplant an incumbent in three critical respects:
- Military innovation enables widespread and large-scale conquest and colonisation. The development, adoption and scaled deployment of new military tactics, technologies and weapons and the application of industrial technology for military purposes has allowed these empires to conquer larger and more widespread territories; ranging from now seemingly simple military innovations like the stirrup (which arguably gave rise to the feudal kingdoms of the Middle Ages by enabling the creation of knights) to technological innovations such as the gunned long-range steam ship that led to the rapid global expansion of the European powers in the Industrial Age.
- Economic innovation drives increasing productivity and higher relative growth vs. rivals. Innovation in economic and financial systems combined with the commercialisation of technological advances enables higher productivity, investment and rewards and has allowed such empires to both rise by growing faster than rivals and by creating the productive resources necessary to sustain large-scale military operations. For example, seemingly simple innovations like paved roads, bridges and aqueducts, when built at scale across Europe, allowed the Roman Empire to manage large territories, while the competition unleashed by the Industrial Revolution spurred the European powers to develop ever-larger ships and steam engines, and incentivised them to deploy them to all corners of the world, thus enabling their rapid global expansion.
- Leadership combined with political and social innovation helps maintain stability at home, and drives influence ‘abroad’. In addition to military and economic innovation, these empires have also innovated in how they co-opt and manage their own populations and subjects in overseas territories, ranging from the Roman Empire’s early use of media, in the form of newspapers and books, and its development of sophisticated legal and welfare systems, to the use of religion to build social cohesion in conquered territories. Political and social innovations were driven by strong leaders that realised early on that these were critical to securing support from a diverse citizenry both at home and in acquired territories, thereby ensuring their political survival.
These principles apply across the ages. Out of the 30 large empires considered in the analysis, ten stand out as ones that leveraged innovation most to build their positions, either by fostering new innovation or by implementing existing but novel technologies more rapidly that their competitors (please see appendix for a list of the ten Innovation Empires and the key innovations across the areas outlined above). The remaining 20 large empires generally rose due to the specifics of their time and place and the military and economic tactics they deployed to either displace predecessors that had entered into their periods of decline or take over much smaller empires and kingdoms, rather than through fundamental innovations which gave them a durable competitive advantage.
The size of these ‘Innovation Empires’ (at their peaks) grew significantly as the ages progressed, from c.4% of the world’s land area in the Ancient Age to c.17% in the Industrial Age, to be expected given the accelerating pace of technological innovations and the conquests that they enabled; and notably, from the Middle Ages onwards, Innovation Empires were nearly 2.0x bigger than other large empires during the same periods.
Throughout history, Innovation Empires tended, on average to last 1.6x longer and be 1.7x bigger rising for a much longer period and falling in around the same amount of time as other large empires (see chart below). This reflects the nature of the advantage that technological innovation provides: empires can continue to grow as long as its technological advantages are sustainable, but can also be quickly overtaken when the technological edge passes to the competitor.
Empires whose innovation edge was largely military in nature, and especially if they depended on the military commander’s genius, (such as the Mongols or Macedonians) were able to expand very rapidly, but often lacked the economic and social technology to sustainably administer the vast territories conquered or to pass a sustainable asset to the successors of the conqueror, and saw their reigns crumble as competitors adopted or adapted the winner’s military innovations, which were much easier to copy than the practice and culture of technological innovation. In contrast, empires that were built on a more diversified mix of military, economic and social innovation (such as the Roman, Spanish and British) were significantly more durable, lasting for almost four centuries on average.
Implications for American Power in the Information Age
The 21st century has brought with it another major epochal transition with the world moving to the Information Age, where the fundamental driver of value (and by extension, power) is shifting from land, labour and capital to knowledge and information5 . In such transitions, the role of innovation in shaping empires becomes all the more important, given the magnitude of change that the world is undergoing, and leadership tends to pass to those who can innovate in the key areas that are driving the global structural shift. As such, the battle in the Information Age is about the race to make breakthrough innovations that will provide the ultimate advantage and determine who rises and who falls.
In terms of America power, while America is not a territorial empire in the traditional sense, it has clearly The battle in the Information Age is about the race to make breakthrough innovations that will provide the ultimate advantage and determine who rises and who fallsbuilt its position and wealth on the back of its investments and engagements abroad, becoming the undisputed leading global power for most of the 20th century. The analysis in last month’s Sign concluded that America’s relative global power started to decline starting in 2001 across three areas in particular – economic, multi-lateral alliances and its soft power – but was stable in two critical areas: military and innovation, despite a sharp increase in investments in these areas by its principal rival, China. While China appears to be closing the gap in terms of absolute economic output as measured by GDP – with the US’s share of global GDP falling to c.25% in 2019 (from c.30% in 2000) as China’s share increased to 16% – the US has retained its dominant economic position in part due to the strength of its financial system, the position of the US dollar as the de facto global reserve currency as well as its continuing leadership in innovation.
The analysis considered the two dominant potential paths for America. The first sees it embrace the current “America First” credo and America faces a choice of ‘America First’, which ultimately leaves China to take its allies, or ‘America First Amongst Allies’ which would enable it to create the most powerful bloc in the worldcontinue its recent turn inward while becoming increasingly mercantilist with its partners, and is the quicker path to decline, with America likely to lose its global influence potentially as soon as 2030 (when the Chinese economy will likely overtake it), and in any event by the middle of the century. The alternative is for America to be “First Among Allies”, which entails managing the strategic transition to become the first Information Age empire, leveraging the strength of its technology sector and financial system, rather than over-relying on its current eroding industrial might, while working closely with its partners, particularly the EU and India, to set the rules of engagement regarding the major global ‘control points’, thereby potentially seeing its global power endure through the 21st century.
If America can achieve the latter scenario it will create a historic ‘first’, bucking the trajectory of past empires by replacing its existing Industrial Empire with a new Information Age empire of its own making. Doing so would be revolutionary: throughout history empires have risen and fallen as valuable assets (land, people and resources) have changed hands between various actors – the same assets, new management, so to speak. An American Information Age Empire would be the inverse – new assets, same management – as the country redefines the source of its wealth and power through innovation and technology, changing dramatically in the process to become a very different America. Whether this is possible will depend entirely on its ability to continue to host the world’s leading innovation ecosystem and to collaborate with other power blocs and leading nations world over as a partner.
However, America’s aspiring Information Age empire faces not just an internal obstacle in the form of its own Industrial Age incumbency but a major external one in the form of China, which too is determined to leverage technology and innovation on multiple fronts to become the undisputed global leader. The evolving technological and innovation rivalry is emerging as one of the most important areas of competition between the two countries that will shape the nature of the 21st Century. The jockeying for position has already begun with events like US and Indian authorities banning the Chinese social media app Tik Tok, China closing itself off to the US technology giants and, in the absence of the US leading its allies, Europe seeking to levy anti-trust fines against Google, Facebook, Amazon and Apple. These are all opening assaults and skirmishes in what is likely to be an intensive and drawn-out battle for the global scientific and technological supremacy that will drive the Innovation ‘Empires’ of the 21st century.
Information Age Empires: The Contenders
It is clear that leading empires of the 21st century will be the ones that are best able to innovate across the critical areas that will shape the Information Age, namely in artificial intelligence and data science, new sources of energy and transitioning to a sustainable energy consumption trajectory, the transformation of the industrial base with technology, alternative materials for scarce natural resources, and pushing the boundaries of space. The current landscape of global technological innovation points to a number of potential contenders that could build Information Age empires.
The US has Established a Major Incumbent and Overall First-Mover Advantage
The US today accounts for c.35% of the US$11.5 trillion global digital economy . Following the collapse of the Soviet Union at the end of the Cold War, the US briefly found itself as the undisputed global superpower, and used the opportunity in the 1990s to rapidly increase its investments in technology, which grew at 20% p.a. through the entire decade, driving significant economic growth in return (see chart) . This investment in technology, combined with the relative global geopolitical stability in the aftermath of the Soviet defeat in the Cold War, drove one of the longest periods of peacetime economic expansion in US history, with the US’s GDP nearly doubling in size from US$6 trillion in 1990 to US$10.3 trillion by 2000.
While the euphoria around the technology sector also led to a temporary stock market bubble which burst spectacularly in 2000, the re-orienting of US investments towards technology established the US as the first power of the 21st century to move from industrials towards becoming an Innovation Empire and set the stage for the rapid technological innovations which have since followed. Over the last two decades, digitisation has spread to virtually every sector of the US economy with its ‘digital economy’ growing at c.10%, nearly five times faster than the rest of the economy between 1997 and 2017 .
While there are no consistent estimates for the size of the digital economy over time, looking at the market value of public companies offers a potential proxy to measure the extent of America’s digital economy. During this period, America’s large technology companies have become global giants, and veritable empires of their own: the five most valuable companies in the world – Apple, Microsoft, Amazon, Google and Facebook – are all American tech companies, and alone account for 24% of the S&P 500 and c.8% of the market value of all of the world’s publicly-listed companies. In total, the largest 100 listed American technology companies have a combined market capitalisation of US$13 trillion, accounting for c.44% of the S&P500 and c.14% of the world’s market capitalisation (see table).
In addition to the major listed companies an increasing number of American unlisted companies have built leadership positions in various emerging areas of technology and are rapidly scaling. The US currently has 237 such privately-held ‘unicorns’ with a combined valuation of c.US$700 billion . The market capitalisation of the technology companies also ignores the disruptive impact that technology is having across historically industrial sectors, for example in motor vehicles – where Tesla’s current market capitalisation (US$382 billion) is more than twice that of the next largest automotive company (Toyota) and equal to c.75% of the combined market capitalisation of the world’s 10 largest global automakers – and in healthcare, where six of the world’s top ten selling drugs are biotech products rather than small molecule chemical agents, which have dominated the pharma industry since the 19th century. Industrial era stalwarts are innovating too, such as General Electric which invest c.US$4 billion annually on research and development, a significant focus of which is advancing materials sciences to new materials (including synthetics and polymers) which can replace existing resources and create an immediate competitive advantage12 .
Over the last 30 years, the US has used its position to attract international talent and investment which has helped to build a formidable advantage that it is now becoming evident as its technology companies displace its industrial era incumbents at home and globally, creating new sectors and driving innovations which are supporting US productivity growth and value creation. However, given the very nature of technology, America’s advantage is by no means insurmountable and it continues to be susceptible to being overtaken by rivals.
Innovation is importantly also wider than information technology, and a critical requirement for areas like energy, resources and the industrial base itself, where the has been relatively less focus and some political resistance to the implementation of innovation. America leaves itself exposed to being outflanked or leapfrogged by another taking a superior position on one of these fronts that negates our lessens the value of its existing advantages in technology.
China with the Goal of Technological Independence in One Decade is Rapidly Gaining Ground
China has been closing the gap with the US in innovation over the last decade as it has sought to restructure its economy based on science and technology, increasing its share of the global digital economy from 4% to 13% between 2000 and 201613 . China’s leadership has defined a clear vision of transforming the country into a global technology leader and initiated the execution of the plan by helping build national and global technology champions in established technology segments, while laying down the investments to create an innovation ecosystem around achieving global leadership in key areas of emerging technology including artificial intelligence, quantum computing, materials science and space exploration.
The government has offered strong support for this, most recently with the announcement at the 2020 National People’s Congress that it would spend approximately US$1.4 trillion as part of a digital infrastructure public spending program. China has invested heavily in technology including upgrading its broadband and wireless infrastructure, setting up research and development institutions and ramping up its R&D spending to similar levels to the US (see chart).
In seeking to develop its technology sector, China has adopted an aggressive policy of blocking foreign companies, in particular US technology giants, from operating there, and in the last decade, China has created two publicly-listed global technology giants of its own, Alibaba and Tencent, and a third unlisted global wireless communications technology giant in Huawei (which has reported revenue of c.US$120 billion, close to Google and Microsoft). China’s five largest publicly-listed technology companies have a combined market value of US$1 trillion, while all publicly-listed technology companies have a market value of US$4.1 trillion14 . In addition, China has also created 123 unlisted unicorns with a combined market value of over US$500 billion15 (of which US$140 billion is the value of Bytedance, the maker of TikTok, alone).
China’s large technology companies have served a key role in expanding its sphere of influence, displacing foreign companies at home, then regionally, and increasingly globally. Alibaba and Tencent have become major investors across both early and late stage venture capital, investing c.US$200 billion globally across key emerging technology areas and in new strategic markets like India and Southeast Asia, with Tencent alone having invested in over 800 companies, 70 of which are publicly-listed and another 160 that have gone on to become unicorns.
While China’s protection and support of its home-grown technology companies has helped create a number of national and global giants, the drawback of its approach has been growing concerns around intellectual property protection and an escalating trade conflict with other major technology powers (see inset). Due to these factors, despite the sharp government focus and prioritisation towards technology and innovation, China faces inherent challenges and constraints in engaging the rest of the world as partners and collaborators.
Also, perhaps more fundamentally, China faces a major structural constraint to continued innovation. Scientific revolutions and periods of mass creativity and innovation occur when there is an open and free flow of information and ideas between disciplines and among individual actors. The increasing ideological constraints being placed on academia in China today are reducing this flow and therefore China’s longer term ability to create widespread systemic innovation, just as its much larger government involvement in applied innovation (due to its major role in funding R&D and coordinating the business activities of its major corporations) reduces the scope for more radical and breakthrough technologies being developed bottom up. It is unclear whether China can build a sustainable advantage in technological innovation without these factors.
The EU, India and Japan will Play a Pivotal Role in Shaping the Outcome
While the US and China are the primary contenders to be the leading Innovation Empire of the 21st century, there are other powers blocs that have the potential to be major innovation centres, in particular the EU and India. The analysis of rising powers shows that both the EU and India, based on current growth trajectories, could be of America’s economic size by c.2050. These powers will have a significant stake in the eventual outcome, and therefore they could play a pivotal role in shaping it. Other innovative countries such as Japan, South Korea, Taiwan and Russia have a role to play too, but lack the scale to become power blocs in their own right.
The EU spends c.US$467 billion on R&D16 , a similar level to the US and China. It has also become a hub for technology entrepreneurship (although not at a similar scale to the US) with its publicly-listed technology companies valued at c.US$2 trillion17 , while creating 60 unicorns with a combined valuation of c.US$126 billion. However, while the EU is a mature industrial power bloc and is wealthy and significantly advanced in terms of technology, it also faces an ageing population that creates a natural drag without a mass next generation unencumbered to invest its energy in innovation and creating powerful enterprises. This argues against the EU having the capacity to be a global empire on its own (and arguably it has passed the stage having seen all of its own (national) empires wane in the 20th century), but it has found a way to preserve its relative global bargaining position as a bloc, while using its wealth to invest significantly in R&D and has created sophisticated union institutions for trade, finance, law, order, security and welfare.
On the other is India, still relatively under-penetrated in terms of high-technology, but young and economically ascendant, with its share in the global economy set to The analysis of rising powers shows that both EU and India, based on current growth trajectories, could be of America’s economic size by c.2050rise such that it will take its place behind the US and China as the world’s third largest economy by 2030. India has risen in large part due to its strength in innovation and entrepreneurship, becoming a highly significant provider of technology services to the rest of the world, with a 55% market share of global technology services outsourcing18 . In addition to its IT services companies, which have a combined market capitalisation of US$322 billion19 , India is also a hub for American and European technology companies like Accenture, IBM, Cognizant, Capgemini and many others. Over the last decade, India’s technology sector has matured, initially through the creation of large-scale e-commerce companies, and India has created 21 unicorns with a combined valuation of c.US$86 billion20 , and more recently, a growing industry of cloud software providers leveraging India’s large low-cost engineering talent base is helping to drive the digital transformation of the end markets they serve.
India’s government has recognised the potential that technology can play in helping India leapfrog the development curve and has invested heavily in creating the infrastructure necessary, including a national digital payments backbone and a nationwide wireless data network which has helped bring nearly 400m new internet users online in the last five years, as India’s internet user base has grown from c.300m in 2015 to c.700m in 202021 , among other areas. India will play a pivotal role in the battle between the US and China given its large and growing market (best evidenced by Walmart’s recent US$16 billion acquisition of Flipkart, India’s largest e-commerce player) and its large engineering talent base that is already helping to drive digital transformation globally.
The Technological Breakthroughs that will Determine the Winning Empire(s)
The great power battles in the coming years and decades will be based not on territorial invasions to conquer distant lands, but on the mega-trends which will shape the 21st century, including the shift to the Information Age and the quest for environmental and resource sustainability. The innovation battle between the contenders for technological supremacy will likely be decided in three key areas:
- Building Superiority in Artificial Intelligence and Data Science to Create an Information Advantage. How effectively countries harness and use data has the potential to create a massive competitive advantage for countries, both economically and militarily. Artificial intelligence systems will be the ‘leading edge’ of this advantage as companies and governments look to build their capabilities in machine learning, algorithms and super-computing while simultaneously applying them to both existing and new use cases to improve information processing and decision making, improving governance, and creating new digital defensive and offensive capabilities with the potential to favourably alter the global strategic balance; while looking for breakthroughs in quantum computing that could potentially lead to another revolution in the ability to process information at an unprecedented scale.
- Finding a New, Sustainable Source of Energy to Power Rapid Expansion. Carbon based energy fuelled the rise of the industrial age powers and has been the major underpinning of America’s global economic might, having been the best at utilising it to scale its industries. However, its value appears now to have been fully exploited and its costs appear to weigh increasingly unfavourably against its benefits: in terms of impact on the environment, its limitations in terms of powering exponential changes to the world, and its costs as the world strives to extract more and more from the earth. This lays the ground for an alternative, one that is cheaper, cleaner and more functional - ideally, near free, clean and unlimited – thereby underpinning the the great power status of its innovator and implementor. In addition, climate change will hit the largest empires, which stand the most to lose, the hardest. The great power contender(s) that develops and scales effective, cheap and clean energy alternatives will invariably find themselves at a major advantage as countries scramble to secure the energy necessary to power rapid economic growth.
- Transforming Every Industry Through Industrial Technologies and Material Science Innovation. Information Age empires, no matter how successful, will still be saddled with major industrial bases that generate the majority of their economic outputs and employ, feed and clothe their populations. The winners in the Information Age will therefore need to transform the traditional industrial model using innovation as a catalyst. This will create exponential growth across industries. This race, which is already well underway, will be driven by breakthrough technologies that transfer the physical model of industries with digital solutions to replace or augment physical presence, robotics to automate and enhance performance and material sciences to substitute for natural resources. As the world runs out of key natural resources, the ability to substitute for those with synthetic, nano and informational ones will become an imperative. The potential is to go well beyond substitution and create entirely new areas of value through innovation and that will power the economy of the new great powers.
There will of course be innovation in other areas beyond these as well where the great powers of the 21st century will compete, most notably in healthcare and biotechnology which will determine the health and longevity of its populations, the efficiency with which these can be delivered and resources accordingly freed for other objectives (given that major economies are spending in excess of 10% of GDP on healthcare), and more topically, how well countries can respond to major health shocks and disruptions in the future.
However, from a great power advantage perspective, breakthrough in information technology, energy and industrial models and resources The battle for geopolitical leadership will fought (and most likely won) by the first to make the most radical breakthroughs in information technology, energy, and innovations to the industrial models and resourceswill provide the basis of (a) a radical transformation and re-invention of entire economies, and (b) the development of potentially revolutionary military and defence systems and methods of power projection in the age of nuclear deterrence and mutually assured destruction, such as cyber-warfare, space warfare, asymmetric and economic warfare). Given that innovation in these three areas has the potential to either make or break empires in the coming decades, the contenders’ current spending there will be critical in determining the future shape and potential outcome of the battle for technological supremacy.
- Artificial Intelligence (AI) Systems. AI has the potential to enable new sources of productivity growth and transform virtually every area of life from managing autonomous vehicles to managing robot doctors to optimising infrastructure and the flow of people and goods to military applications which could provide an edge in cyber and information warfare. Countries are investing aggressively in developing and deploying these capabilities with both government and private sector investments, with the Chinese government, for example, expected to spend US$70 billion on AI , including a US$30 billion venture capital fund to invest in AI technologies in China’s state-owned companies24 .
- Deployment of Big Data and Creating a ‘Data Economy’. In addition to developing sophisticated AI systems, it will be important for the contenders to focus on simultaneously implementing solutions throughout the economy through investment by firms in capturing and exploiting data to create a competitive advantage. As data gains importance in driving productivity, the global market for data, estimated at US$26 billion currently, will require sophisticated data privacy regulations and robust cybersecurity infrastructure to protect critical data.
- Quantum Computing Capabilities. Quantum computing capabilities can create a significant advantage for nations in deploying AI and Big Data by creating the capacity to process information at previously unprecedented scale, and potentially provide a significant military advantage. Both China and the US are investing heavily in quantum computing, with China investing US$10 billion to build the world’s largest quantum laboratory in a bid for supremacy and making initial progress with a quantum science satellite and built a quantum network between Beijing and Shanghai and is building.
Key Changes that will Drive the Shift
- Scaling of Renewables Capacity. Leading countries are investing heavily in rapidly scaling up their renewable capacity with proven technologies with c.2,500 gigawatts of installed capacity as of December 2019 and growing at c.7-8% p.a.32 , with solar and wind power having achieved ‘grid parity’ in most major markets.
- Development of Alternative Sources of Energy. Countries and companies are investing heavily in developing new technologies and alternative sources of energy, such as converting waste to energy nuclear fusion. Seven western countries are together constructing the world’s first commercial scale (500MW) fusion reactor in France, while China has announced that it is setting up a 1GW reactor. Private sector players have also entered the mix with Google, Goldman Sachs and Jeff Bezos investing nearly US$1 billion across two leading cold fusion companies (TAE Technologies and General Fusion) which are building commercial grade fusion reactors using hydrogen isotopes.
- Efficiency. Countries and companies are investing in energy efficiency technology and distribution systems which optimises energy use. The energy intensity of the world economy has already declined by c.16% in the last decade (from c.6,000 Btu per US$1 of world GDP in 2010 to c.5,000 in 2020) and is expected to decline by a further 40% by 2050 , thereby sharply reducing the incremental energy demands from economic growth.
- Transforming the Existing Industrial Base to a ‘Smart’ One. Countries and companies are investing in deploying sensors to make their production bases digitally connected, thereby allowing them to drive productivity and increase efficiency. For example, the development to smart grids have helped to reduce electricity losses, better manage flows and ultimately increase access and lower costs for consumers.
- Robotics Systems to Automate Production. Companies are investing in both hardware and software to develop robots (and ‘super’ robots) for all types of industrial use cases, such as for warehousing and logistics where the traditional real estate and labour-intensive model is giving way to technology-driven one, for example with Ocado, the British online grocery firm which has built an entire business model based on its ability to use robots to automate its warehouses36 .
- Development of New Materials to Replace Existing Scarce Resources. Materials science is a nascent area of research and development, but one that holds the promise of creating new synthetic materials to replace existing commodities such as iron or steel, and thereby create a permanent competitive advantage. Materials science is also closely tied to space exploration (and are a big focus of NASA, for example) as new materials can both help in furthering the boundaries of space exploration, and space exploration can help secure new materials which could transform industries back on earth.
Winning the Technology Cold War for the Information Age
The emerging technology Cold War will be fought on many dimensions and across many battlefields, in many cases overlapping with and blending into the broader great power rivalry between the US and China, intertwined with broader defence policy, economic policy and foreign policy considerations. Effectively fighting (and winning) the Cold War therefore requires a multi-dimensional battle plan that builds the contenders’ technological capability advantages across the military, economic and socio-political arenas. China and the US are positioned very differently across many of the key success factors in the war and will need to adjust the battle plans accordingly.
The Components of the War
The key elements and requirements for a winning plan to be the Great Power’s requires a scope of thinking and execution that the world has not seen since the great wars of the 20th Century. The key elements are as follows:
- Securing the Critical Breakthroughs that Define the World. Advantage: US
The objective is clear, the next power will have financed, as a matter of national security, and secured the winning hand that creates the next civilisation: the information technologies of the new era, superior functional and value energy sources and the critical materials and components that will transform industry. Fundamental innovation is required to develop these technologies. While China’s top down approach to R&D and innovation is well suited to the rapid implementation and scaling of industries and technologies, it is less well suited for basic research that the innovation ecosystem of the US, whose open society attracts attract talent and capital from across the world. By way of example, there are 360,000 Chinese graduate and post-doc students in the US, the majority of which stay to work post-graduation. The number of US students in China on the other hand is negligible.
- Setting the Standards that Others Must Follow. Advantage: US
The objective is to set the standards for telecommunications, technology and data that others have to follow. The 5G race, that China is winning, shows that happens when a country lapses; the US is now in a desperate struggle to convince its allies to abandon a superior Chinese technology and wait for its own or America’s. Across technology more broadly though, the US has the advantage: it not only hosts international standards associations like the IEEE (Institute of Electrical and Electronics Engineers) or ICANN (the Internet Corporation for Assigned Names and Numbers), it is also home to the global tech giants that are likely to play a much bigger role in this area in the future, starting with the five largest companies in the world.
- Ensuring its Solutions Grow, Scale and Spread. Advantage: China
The objective is to implement and rapidly scale domestically developed technologies and innovators to allow these to dominate the world. China’s state managed economy has a significant advantage over the US in this regard, with the Chinese communist party nurturing officially designated ‘national champions’ across multiple areas in the form of government funding and preferential procurement, among others, Huawei alone, for example, has installed nearly half of China 5G mobile infrastructure and received US$222m in government grants, just in 2018. On the other hand, the only American wireless infrastructure company, Lucent, never crossed20%market share at home and was acquired by a French competitor over a decade ago after its business collapsed.
- Protecting and Blocking Your Opponents with Economic and Security Policy. Advantage: China
The critical objective of protecting the home base from power-rivals while poaching in their territory is a difficult one for a rule-based democracy to pull off, but that is the requirement in the power rivalry phase. While the US has recently stepped up its efforts in this area, China has a multi-decade track record of restricting access to foreign (particularly) US companies and technologies. Google’s share of search in the G7 countries is between c.80-90%, and 0% in China. In the more fragmented e-commerce landscape, Amazon controls c.20-50% of the market in the G7 and withdrew from China where it held less than 1% share. Further China is better placed to implement heavy-handed trade interventions than the US is, whose model of innovation generally requires it to be open to the world.
- Cybersecurity to Defend, Retaliate and Attack. Advantage: US, for now The scope of cyber warfare is widening to include every major facet of society from personal to the state and so the objective is to be able to protect, retaliate and attack with an effectiveness commensurate with the need. While the US continues to enjoy superior capabilities and resources in the cyber arena, China has been investing heavily in the space. Both, however, are also likely to face competition from other countries as well (including Russia) as well as non-state actors, making cybersecurity and warfare a much broader conflict than simply an element of the technological Cold War, that will require a broader set of strategies to prosecute40.
- Leading Allies Aligned on Making the Transition. Advantage: US
The objective is one that is very familiar to the US of old, leading as the first among equals and engaging allies to achieve a common objective keeping alignment for a decade or multi-decade endeavour. Finally, much like the original Cold War was not fought just by the US and the USSR but by NATO and the Warsaw Pact, so too will the contenders in the tech Cold War require allies and partners to win. These allies are critical in all aspects of the cold war: supporting establishing standards, serving as markets to scale technologies, partnering in cyberwarfare and defence, and countering the strategic moves of one’s opponents. China on the other hand, has little track record in consensual multi-lateral leadership, and its approach to date leaves it [untrusted] by much of the free world.
A Race Instead of a War
The world is stuck in the paradigm of framing competition as war. More strategic thinking has been formed during times of war than during times of peace and this stands in the way of reframing competition as a race between rivals, rather than a fight. With dangerous pressures on the world including climate change, mass migration from plighted zones, income inequalities and global epidemics there is a need to address common supranational issues, and conflict, even in the form of a cold war, can only stand in the way in this regard.
the recent actions of the US and China are clearly those of twoTo go beyond the paradigm of war, a race to create a better future is a more worthy vision, one that is only possible if there is trust and an alignment of values opponents gearing up for one, the transition to the Information Age does not necessarily need to be a war. The logic of such a cold war would dictate that many key innovations and technologies developed by either would need to be hoarded and closely controlled as assets in the conflict, rather than distributed broadly for maximum value creation and the benefit of all. Such a conflict would both be less efficient and more prolonged than the alternative, which would reframe the struggle as a race rather than as a war.
If the world avoids a ‘war’, where there is by definition damage to many, in favour of a race, the key advantage is that it would likely be multi-polar one. In such a scenario, the world, especially large power blocs such as the EU and India, and other innovators such as Japan and Taiwan, would be able to contribute to the development of key technologies that ultimately lead to the success of the overall project. Given the alignment they have with America, this also enables the US to co-opt them to encourage China to be more open to align its values and ways with the democracies that currently lead the world.
A race would still include many of the elements laid out above, although the strategies of actively blocking of one’s opponent and building alliances would give way to a more flexible approach built around coopetition on a case by case, where a contender might be working with a competitor in one area and competing fiercely in another. The ultimate winner of such as reframing would be humankind itself, however, as it would accelerate both the development and the near universal deployment of technologies that have the potential to change the world for the better. This requires building trust and that seems in short supply in an America that has stopped trusting its own people and in a China has been becoming less open for nearly a decade now.
A Marathon Run as a Sprint
Whether it is ultimately a cold war or a race, the struggle is likely to be a decade-long one, across multiple theatres and stages. However, it is important to remember that single innovations can change the world, sometimes quite rapidly, provided that they can be implemented quickly and confer a sufficiently large competitive advantage to its adopters. A breakthrough in AI creating a general artificial intelligence or even a super intelligence or an energy source that is clean, cheap and abundant or a material science that changes the functionality, cost and volume of a key natural resource, such as steel could be such an advantage. Given that these areas are picking up in importance and are becoming the subject of significant study, investment and research worldwide, it is not inconceivable that such a breakthrough is achieved within the next decade. The first mover of such an innovation could quickly and significantly alter the global balance of power if it could capitalise on its innovation in applications to create lead.
American power, a mainstay of the 20th century has clearly begun to decline relative to rising power blocs around the world. And this is a well-trodden path in history. While its military, its currency, its capital markets and its companies still dominate the world, its share of global economic output is declining in the face of a rising Asia and China in particular. With its economy being the ultimate source of America’s wealth, power and influence it remains the best gauge of its superpower status. While the US has options on how to delay, slow or even reverse this fall, the window for doing is a limited one, with China by many projections expected to overtake the US in terms of real GDP in approximately a decade. The window for the United States to act is therefore a limited one.
Throughout history, innovation has been one of the key drivers than has enabled empires to rise above their competitors and the countries that have developed or embraced military, economic and social innovations have risen faster and further than others. America, which gave the world electrification, the assembly line, nuclear energy, a space landing and the internet, to name a few, is clearly one of the greatest engines of innovation in history, providing it with the resources and capabilities to reinvent itself and its position in the world. However, that has not happened in history for great powers.
America’s decline, and China’s rise, are occurring at a time of transition and disruption, in which the world is shifting from the Industrial Age that shaped the past two centuries to the Information Age, and this will fundamentally reshape global civilisation by transforming work, commerce, entertainment, education, politics, our societies, culture and even values. This transition has already begun, leading to massive shifts in economic value as well as social dislocation, much like the Industrial Revolution that ushered in the Industrial Age and displaced agricultural economies.
No country is perhaps better suited to lead the world into the Information Age than the US. It has the scale, power and the raw capacity America’s two biggest challenges to lead the world for the rest of the century are China and itself …the latter stemming from its great success at being an industrial power and lately its bitter internal divisions … however, its superior innovation and risk taking culture provide part of the answerto innovate the breakthroughs in IT, energy, materials and industrials necessary for the world to make the transition. America is well placed to succeed in this challenge, particularly since it has the opportunity to make the transition effort an international one, co-opting allies and partners to a shared vision that sees it as the first among equals in ushering the global civilisation that will emerge when the transition to the Information Age has been completed.
However, America faces a number of obstacles in achieving this goal. The obvious one is China, which has clearly indicated its ambition for global pre-eminence in science and technologies. With the maths of its economy in its favour in the waning Industrial Age, it is increasingly focusing its efforts on the innovation required to dominate the Information Age. While its capacity to innovate is rapidly increasing, the country still lacks the freedoms that would spark the free transfer of knowledge and perspectives that seems to be the bedrock of breakthrough innovation. It also lacks the alignment and shared values with the rest of the word that would see its goals and its burdens being shared with allies. China’s narrower objective of pre-eminence rather than leadership reflects this reality. However, many great powers, including America where thrust into their positions by their sheer size, a singular breakthrough or the failings or tiredness of incumbent powers. This is true today too.
The other big obstacle is America itself. The country today stands as divided, increasingly splitting along lines of party, ideology, race, and identity. This division, now open enmity, risks paralysing the country at a time when it needs to be united under a shared vision and with a shared goal in order to achieve the large-scale transformations that will potentially see the revitalised country and a new world order emerge.
If America cannot unite its own people, it cannot unite and lead the rest of the world, and its power will inevitably decline in what promises to be a time of uncertainty and turmoil for the world. Unfortunately, there is little to indicate thus far that America has the will or the willingness to rally around this cause. With the law of accelerating change continuing to shorten the period between paradigm shifting innovations, time is running out for America to make this transition.
The Information Age represents a fundamental shift that will transform our world and give rise to a new global civilisation. This shift provides a unique opportunity for many, China and India being leading potential beneficiaries. For America this is not only an opportunity, it is a necessity that offers it the chance to reinvent and replace its declining Industrial Age empire with one more suited to the future that is emerging and can lead the world to that future. Doing so will require it to not just innovate across critical technologies, but to unite the rest of the world to a common purpose.
1. See August 2020 Sign of the Times, American Power: Mapping its Rise and Calculating its Fall (and Return)
2. Source: Paul Kennedy, The Rise and Fall of the Great Powers, Random House, 1987
3. This is not a binary classification of course but rather two ends of the spectrum, given that most empires have risen due to some combination of these factors; the purpose of this analysis is to evaluate the trajectories of those empires which primarily rose due to innovation
4. Source: August 2020 Sign of the Times, American Power: Mapping its Rise and Calculating its Fall (and Return)
5. Please see Sign of the Times from March 2017, The Shape of the World to Come Part III: The Path to a New World Order
6. Please see August 2020 Sign of the Times, American Power: Mapping its Rise and Calculating its Fall (and Return) (Analysis assumes that share of American economy declines to c.8% by 2050 (in line with its share of global landmass, and based on the average trajectory of decline for 6 Industrial Age empires and 6 Largest Empiress)
7. Digital Spillover: Measuring the True Impact of the Digital Economy
8. Source: Michael Rakko, St. Louis Federal Reserve, The High-Tech Investment Boom and Economic Growth in the 1990s (Mar-Apr 2002); https://files.stlouisfed.org/files/htdocs/publications/review/02/03/3-18Pakko.pdf
9. Source: US Bureau of Economic Analysis
10. Excluding Microsoft
11. Source: CB Insights, https://www.cbinsights.com/research-unicorn-companies
12. Source: https://www.ge.com/research/technology-domains/materials
13. Digital Spillover: Measuring the True Impact of the Digital Economy
14. Source: CapitalIQ
15. Source: CB Insights, https://www.cbinsights.com/research-unicorn-companies
16. Source: UNESCO, as of 2018 (in current PPP terms)
17. Source: CapitalIQ
18. Source: NASSCOM
19. Source: CapitalIQ
20. Source: CB Insights, Note: Snapdeal has been removed and Flipkart (which was sold to Walmart for US$16 billion has been included)
21. Source: Statista
22. Source: PwC, Sizing the Prize, PwC’s Global Artificial Intelligence Study: Exploiting the AI Revolution, https://www.pwc.com/gx/en/issues/data-and-analytics/publications/artificial-intelligence-study.html
23. Source: MIT Technology Review (Dec-2019)
24. Source: https://www.marketwatch.com/story/china-is-overtaking-the-us-as-the-leader-in-artificial-intelligence-2019-02-27
25. Source: Washington Post, https://www.washingtonpost.com/politics/2020/03/13/why-is-trump-funding-quantum-computing-research-cutting-other-science-budgets/
26. Source: IDC Worldwide Spending on Artificial Intelligence
27. Source: Bloomberg (US data), China data from Center for Security and Emerging Technology (CSET), Georgetown University, https://cset.georgetown.edu/wp-content/uploads/Chinese-Public-AI-RD-Spending-Provisional-Findings-1.pdf ; based on analysis of actual spending on AI by China
28. Source: IDC, https://www.idc.com/getdoc.jsp?containerId=prUS44998419
29. Global Data Market Size 2017-2019, refers to market for data purchases, OnAudience, https://www.onaudience.com/files/OnAudience.com_Global_Data_Market_Size_2017-2019.pdf
30. Source: www.ourworldindata.org; International Energy Outlook 2019, IEA
31. Source: https://www.visualcapitalist.com/alternative-energy-sources-future/
32. Source: IRENA, Mar-2020 Update
33. Source: International Energy Outlook, 2019
34. Source: IRENA, excludes hydroelectric power
35. Source: Bloomberg New Energy Finance, Statista
36. Source: https://www.altran.com/nl/en/case_study/ocado-next-generation-warehouse-automation/
37. Source: IDC, https://www.idc.com/getdoc.jsp?containerId=prUS45800320
38. Source: Forbes, data from Euroconsult, https://fortune.com/longform/space-program-spending-by-country/
39. Source: Nature, Top-200 institutions ranked by their article share in materials sciences (Note: detailed, comparable data on spending on materials sciences by countries is not publicly available), https://www.natureindex.com/supplements/nature-index-2019-materials-science/tables/overall
40. See the December 2018 Sign of the Times, Global Cyber Rivalry Challenges American Geopolitical Leadership
41. Source: Ancient History Encyclopedia, https://www.ancient.eu/article/676/the-army-of-alexander-the-great/
42. The Eastern and Western Han Dynasties which were briefly interrupted by the Xin Dynasty from 9-23AD have been considered together for the purposes of the analysis
43. Source: https://www.history.com/news/han-dynasty-inventions
44. Source: https://www.ancienthistorylists.com/rome-history/top-roman-military-tactics/
45. Source: https://www.history.com/news/10-innovations-that-built-ancient-rome
47. Includes Rashidun, Ummayad and Abbasid Caliphates
48. Source: George Lane. Genghis Khan and Mongol Rule (2004)
49. Source: JF Richards, The Mughal Empire, Cambridge University Press (1995)
50. Source: BBC, https://www.bbc.co.uk/religion/religions/islam/history/mughalempire_1.shtml
51. Source: https://www.historytoday.com/archive/spains-forgotten-naval-renaissance