a16zThe Lawyerly Society vs. The Engineering State: Who Owns the Future?
EVERY SPOKEN WORD
60 min read · 12,143 words- 0:00 – 1:36
Introduction
- DWDan Wang
I want people to get out of these rigid frameworks like socialist, capitalist, neoliberal, autocratic, to think about the US and China. I want both Americans as well as Chinese to demand better from their government. What works really well in China, and what do we have in the US right now? There is no winner here. There is no loser here. It's not a race. Nobody gets to hit the win button. We should be having some sort of better synthesis. [ on-hold music]
- ETErik Torenberg
Dan, the book is Breakneck. It's a New York Times bestseller in just under two weeks. Congratulations.
- DWDan Wang
Thank you.
- ETErik Torenberg
Um, what is the conversation that you hope to, to, to create with the book? What, what do you want people to take from it?
- DWDan Wang
I think that I want people to get out of these rigid frameworks like socialist, capitalist, neoliberal, autocratic, to think about the US and China. I want both Americans as well as Chinese to demand better from their government. We're sitting here now in Silicon Valley. Uh, not far away is the California high-speed rail project meant to connect San Francisco and, uh, uh, Los Angeles. It's been more than fifteen years since voters approved this referendum to, uh, build this train. How many people have taken this train? Uh, precisely zero. Uh, Silicon Valley, it works really well in all sorts of ways and doesn't work well for most people. And so I want people to, in America, to demand better from local governments, and I want China, and I want Chinese to feel like they can ha-- live in a government that respects individual rights and respects their own individual creative flourishing.
- 1:36 – 3:35
Lawyers vs. Engineers: Cultural and Economic Differences
- ETErik Torenberg
Yeah. And one of the framings you add to this book that I think this meme that's become more-- most popular from it is, is, uh, the competition between, you know, America being a society of lawyers, specifically in the political class, and, and China more engineering and, and the different cultures there. Um, Steven, I know you found that, that sort of breakdown remarkable. Why don't you talk about that?
- SSSteven Sinofsky
Well, in a lot of ways I, I bring it back to the way that, um, that we frame companies often, and we see companies in Silicon Valley as like startups, and we see startups as being founder-led, and we quite often alm-- I wouldn't say exclusively, but near exclusively see them as, as the product or engineering people, particularly in this AI era, we see them as the engineering people. And we, we then see the big companies as somewhere along the way making this transition-
- DWDan Wang
Hmm
- SSSteven Sinofsky
... to being MBA-led, which in a lot of ways i-is kind of lawyer-led. It's, it's they're led by the rules of a system-
- DWDan Wang
Mm-hmm
- SSSteven Sinofsky
... and arbitrage of those rules rather than breaking the rules with new bits of technology.
- DWDan Wang
Hmm.
- SSSteven Sinofsky
And so I, I see that... And, and I... You know, we, we see it in how the companies even have reacted to AI, where all the big companies immediately went to the government and basically said, "Regulate us."
- DWDan Wang
Hmm.
- SSSteven Sinofsky
Which to me is the lawyer culture.
- DWDan Wang
Right.
- SSSteven Sinofsky
Like what... I-it was-- It literally blew my mind that companies would start off before this technology is diffused, before anybody knows about it, thinking, "Regulate us."
- DWDan Wang
Hmm.
- SSSteven Sinofsky
And, and yet there we were. So I do see that similarity.
- DWDan Wang
I wonder how many a16z, uh, companies have been led by lawyers. The number's probably not zero, right?
- SSSteven Sinofsky
Uh, well, I'm actually on the board of a company of software for lawyers-
- DWDan Wang
Sure
- SSSteven Sinofsky
... that was co-founded by a lawyer by coincidence, but not very many. There are people with law degrees, but they often have engineering undergraduate degrees.
- DWDan Wang
Okay.
- SSSteven Sinofsky
Or, or they were lawyers and then immediately just made the leap to being operating executives in startups.
- ETErik Torenberg
Yeah.
- 3:35 – 7:55
Urban and Rural Life: Comparing Infrastructure
- ETErik Torenberg
You, you mentioned in your opening that you want America and China to both demand better of their governments. Why-why don't you flesh that, that out a bit more? Some people point to this convergence or, or, or say that, "Hey, we, we're borrowing from each other," n-not necessarily always the, the best things, but why don't you talk about that too?
- DWDan Wang
Yeah. So what works really well in China, I think it is the, uh, urban living experience and the countryside living experience. Day-to-day life, uh, functions really, really well. So I was living in Shanghai, China's most functional city, where everything pretty much works. You go outside, subway stations are not very far. There's dense commercial areas. The shops stay open past eight PM, which is not something you can say necessarily about San Francisco. Um, and the, uh, train and the, uh, park systems all work beautifully. In the Chinese countryside, the, a lot of the, uh, remote villages are still really well connected by bridges, by high-speed rail, by highways, and in the US countryside, there's basically roads and cars and almost nothing else. Okay. So that's what works really well in China. We have, uh, really functional logistical systems. We have really functional, uh, urban cities, uh, that are, uh, have good order. And what do we have in the US right now? Well, again, in Silicon Valley, this, um, infrastructure here is not really wonderful. Um, and what we... What Silicon Valley does have, what we have here is, you know, companies worth trillions of dollars, which is not something that any other country is able to claim. Um, here, uh, we have, uh, really functional wealth creation. We have, um, people who are able to drive a lot of corporate value. And what I'm really hoping for is that there could be a little bit of learning, um, between each other such that why shouldn't Caltrain work a lot better than it does? Um, why shouldn't it be much more possible for workers to take the train, uh, to go from Silicon Valley to New York-- I'm sorry, from Silicon Valley to San Francisco. Um, and, uh, w-- I hope that the Chinese government could actually respect its entrepreneurs, respect entrepreneurial drive, not try to crush, uh, anyone who is out of line with government directives, and that's, that's where we should be having some sort of better synthesis.
- ETErik Torenberg
Yeah.
- SSSteven Sinofsky
Yeah. So I, I don't want to say it in such a cliche way to push back on it, but there is-
- DWDan Wang
Please
- SSSteven Sinofsky
... also one of the, the things that you experience when, when living in China too is you, you know, you, you see the, the workforce, like particularly in the factories in Shenzhen, they are the rural people, and they're not allowed to just move.Like they, they can temporarily relocate for work, and then the state sort of requires them to, to go back and in a sense, they, they're forced to repatriate what they earned as a salary in the rural community. And so I, I do think that some of the things that are... But that also is a huge benefit. Like it's an immense benefit. It's what enabled their whole system to work. But here, the cities are more attractive. If they were all allowed to move to the cities, they would love to move to the cities, but they're not allowed to. So how do... It, it's challenging to sort of navigate this take the best of both or to learn when you have to look at the... Even the best part has some parts that are, that would be rejected here.
- DWDan Wang
Yeah. Well, the Chinese state has restricted a lot of rural people from going into the cities for quite a long time. This is known as the Hukou system, the household registration system that, um, stops a lot of rural people from going into schools to access better education or healthcare. I think a lot of that has, um, been loosened in the last couple of years, especially if you're in a place like Shenzhen, which is, uh, much more welcoming towards, uh, migrants. And I think one of these other big, um, differences between the US and China is that in China, cities generally work pretty well, and people really wanna go into the big cities. In the US, well, people would ra- much rather live in their, uh, suburbs, and cities aren't necessarily very pleasant. And what I would love for, um, you know, American cities is to be much more pleasant and allow agglomeration and for people to be able to afford San Francisco, afford New York, and feel like they can take mass transit there in a safe way and go eat some dumplings, uh, past eight PM or eat some sandwiches, whatever else.
- ETErik Torenberg
You write how we're a sort of lawyerly society on, on the political level, and yet we have, you mentioned, you know, some of the b- the best companies in the world and the best entrepreneurs in the world, you know. Y-y-y... But what is it about
- 7:55 – 9:49
Barriers to Progress: Regulation and Governance
- ETErik Torenberg
our sort of government that even Elon Musk couldn't, you know, h-help solve some of the, the budget issues? A-and h-how do we... W-what is a potential path such that the lawyer's society won't sort of, you know, crumble or, or sort of collapse strength, sort of the, the engineering one?
- DWDan Wang
Yeah. I think, uh, Elon is a, um, pretty interesting guy. I'm sure, um, you guys have, uh, more thoughts and interactions, um, with Elon. I think that, um, maybe the tragedy with Elon has been that he has been focused so much on cutting costs, uh, focused on personnel rather than, um, regulatory red tape. And I think that, you know, personnel costs are not a giant aspect of, um, uh, America's budget. And arguably, we need a l-lot more personnel in order to, you know, process drug discoveries and make the FDA, uh, much more, uh, efficient, process high-skilled immigrant visas, uh, and have a much more, uh, functional government. And I think it is a little bit tragic also that, um, Elon was, um, focused on reducing aspects of the government that he didn't like rather than conceptualizing, um, how to build great projects inside the government. So if I'm thinking of something like, you know, some of the great achievements of America over the past century, I would offer projects like the Manhattan Project, the Apollo missions were-- which were absolutely an element of the technological sublime, which had so much inspiration, uh, for so many people. And these were engineering-led projects within the government, um, with a military component as well. And, you know, I think it would be much more interesting if, um, Elon actually went in to try to do something like that. Um, but what do you guys think about, you know, why Elon couldn't have cut through a lot of the morass with the regulations?
- ETErik Torenberg
Well, I think just on your question, uh, uh, the other, the Manhattan Project, what is the incentive? It seems like more and more is being privatized, so
- 9:49 – 14:35
Industrial Policy and Public-Private Partnerships
- ETErik Torenberg
why would the best engineers in, in, in, in the country, um, you know, work for a sort of an initiative where there isn't that same level of upside, not just upside, but also autonomy and, you know, w-why would-- do they wanna be sort of, you know... It, it seems like outside the system is, is, is just working better.
- DWDan Wang
Yeah. Well, uh, maybe we need a degree of patriotism and national security, um, consciousness because pretty sure the Manhattan Project engineers had better things to do than go out in the desert of New Mexico and, uh, work on this thing in pretty confined environments-
- ETErik Torenberg
Right. And that's like-
- DWDan Wang
... and not making a lot of money.
- ETErik Torenberg
That's on the upside, but then how about could Anduril have built within... Even just the feasibility, like effectiveness of, of it, you know?
- DWDan Wang
Yeah. I mean, it's definitely the case that the prime contractors to the Department of Defense are not really inspirational places to work, and absolutely, I think there should be, um, efforts outside of it. But, you know, outside of just, you know, building products, I would like for many more talented engineering types to go into the government to build all of these big, um, engineering projects that we really need, things like mass transit, things like subway systems, things like, uh, solar, wind, and transmission lines that decarbonize our economy. These are all projects that could have used an Elon to support.
- SSSteven Sinofsky
Well, of course, Elon led the, leads the country in, in solar and-
- DWDan Wang
Sure
- SSSteven Sinofsky
... in, in energy in general, and I, I think that that's pretty interesting. It is, it, it, it is... You know, first, of course, in Silicon Valley, when people wanna point to government success, I, I think that the general, the first place they land is on the internet itself.
- DWDan Wang
Yeah.
- SSSteven Sinofsky
But it also shows the incredible strength that is unique, which is a, a true public-private partnership to develop that, that involved the universities, private companies, and the government itself, and in a unique way of government funding, which was like, "Hey, go build this," and we don't really have a goal. And I, I think that's a thing that you don't often see in China, the engineering focus, which is we love to build with this very specific goal. And, and I think that i-i-i- you always love to get the strengths of both, but there are these things where sometimes it just seems like you really can't just take the best of both.
- DWDan Wang
Yeah.
- SSSteven Sinofsky
Like our... We have a very long history ofOf saddling new initiatives here with too many extraneous things. I mean-
- DWDan Wang
Yes
- SSSteven Sinofsky
... and the CHIPS Act most recently is one where if you actually read the text of the CHIPS Act, the money came with like an unsolvable set of requirements. Like, there, there was no way you could actually spend the money. This much had to go to these geographies. It had to employ these kinds of people. It had to do these kinds of things, spend the money in these cities, and, and that's not really a partnership. It's like companies really needed money, and they just had to say yes, and they really wanted to make a statement by having the money out there.
- DWDan Wang
Yeah.
- SSSteven Sinofsky
Which is way different than, you know, when China decides we wanna be really good at, like, security.
- DWDan Wang
And this is where the, uh, focus of engineers typically is on the result, and the t- focus of lawyers typically is on the process. And, uh, I think the, at least the CHIPS Act was able to allocate a lot of the money to, um, the chips companies before, um, President Trump is now threatening to withdraw some of that. Um, but if we take a look at the other big, uh, pieces of legislation, Bipartisan Infrastructure Act, as well as, um, uh, the Inflation Reduction Act, there's been very little by way of infrastructure actually built by the Infrastructure Act, and there's been very little built by the way of clean technology. And so, you know, I think the, one of these problems that I feel is that the US is trying to do industrial policy, um, by putting a lot of lawyers in charge, and the lawyers are still really thinking about their committees. Um, they're still really thinking about their process. And for China, in the, um, 20th Party Congress that concluded about three years ago, what Xi Jinping did was that he elevated a lot of the leaders of China's military industrial complex, the people who ran China's crewed, um, space missions, the people who ran China's, um, biggest weapons companies, and he elevated them to be provincial party secretaries and to be governors. And it's kind of unimaginable that someone who used to run Lockheed Martin, um, would become a governor of a major state in the US. Um, but rather, we have a lot of people from law schools conducting our industrial policy, and I think it's just not the right strategy to bring a lot of lawyers to a technology fight.
- SSSteven Sinofsky
Well, we, in fact, we had a president who was a general who warned everybody about having generals-
- DWDan Wang
Sure
- SSSteven Sinofsky
... and defense contractors run the country. So there's a lot of history to, to that as well. But what is it... What,
- 14:35 – 17:02
The Double-Edged Sword of Legal and Engineering Mindsets
- SSSteven Sinofsky
what, one of the things you write, you talk a lot about, though, are the challenges that engineers bring to running things. And certainly as an engineer, I read that carefully, but I, I actually think m- my view of it is much of the excitement in at least half the audience of your book is that it points out that engineers are not good at doing, at running things, and I think people gravitated to, to that aspect. What, what were some of the things you saw or see or experience in China that the engineering mindset really backfires?
- DWDan Wang
Yeah. I think the problem with China is not that they're only physical engineers. If they were only physical engineers, there's some problems with overbuilding, there's some problems with debt, environmental destruction, displacing people. But overall, it really helps to have physical dynamism because you can see your streets, your city, your home get better year by year. The problem with China is that they are also fundamentally social engineers.
- SSSteven Sinofsky
Hmm.
- DWDan Wang
And social engineering, uh, can be really dangerous because they treat the population itself as just another building material to be torn down as they wish and remolded as they wish. So I spent a lot of time in my book thinking about, uh, the one-child policy as well as zero COVID, which the number is right there in the name. There's no ambiguity about what the one-child policy could possibly mean. And a lot of this ends up being, you know, in the case of the one-child policy, this campaign of rural terror that was really meted out, um, against female bodies, um, mostly in the countryside. And zero COVID made a lot of people lose their minds, and it was, um, pretty traumatic for especially the residents of Shanghai, China's biggest city, richest city, uh, in the spring of twenty twenty-two, in which people couldn't leave their apartment compounds over the course of about eight weeks in the spring. And so this is where I think, you know, I'm pretty clear-eyed about having a state run by engineers, which they feel like they are just making decisions very technocratically. Everything feels super rational for them. They have the, uh, state capacity really to enforce a lot of their, um, big goals. This is where, you know, I, I prefer not to have anything like one profession running everything. I think a, a healthier society would have not only lawyers, um, completely overrunning the US Congress. Right now, I think there's something like forty-seven US senators who went to law school, and one has had any, uh, degree
- 17:02 – 23:00
Social Engineering and Policy in China
- DWDan Wang
that resembles a, a STEM degree. I- instead of just being purely dominated by engineers or lawyers, let's have a few economists, let's have a few entrepreneurs. Let's even throw in a few dentists in there. That's, that's not so bad.
- SSSteven Sinofsky
We have a couple doctors. We-
- DWDan Wang
Yeah. [laughs]
- SSSteven Sinofsky
... we actually do, but-
- DWDan Wang
Excellent.
- SSSteven Sinofsky
Well, but it is interesting because that is a thing that, that, you know, earlier I, just mentioning how we have these technology founder-led people. But o- very often, and I, I actually think there's a preponderance of this, there's a, a, a yin and a yang actually of, of a technical founder and the non-technical or the, the socially oriented or business oriented co-founder. And I, I, I think I would agree that our, our policy directives sort of lack that, the, a balance of any kind, and it's, and it's very interesting how much we're structured around the procedures of the law. Like so much of u- unable to build the, the high-speed rail ha- has just been the law.
- DWDan Wang
Yeah.
- SSSteven Sinofsky
Like, and, and it's the law used to prevent building.A- a-- You know, and, and the CHIPS Act, it was the law that sort of said, "Well, here's all this money, except use it this particular way," which is not how engineers would've thought of, of the problem.
- DWDan Wang
It's a definitely a double-edged sword. You can't build companies worth trillions of dollars without having legal protections and intellectual property protections. On the other hand, um, any, uh, fool is able to hire a lawyer to stop a project that he or she doesn't like. And so I spent a lot of time looking at quite a lot of these projects that California really tries to build. Um, I spent a lot of time thinking about this, in particular, this, uh, expansion plan by UC Berkeley to try to, you know, let more people attend and get educated on its, um, inside its, uh, excellent classrooms, and it was trying to build a student dormitory on this vacant lot. And, uh, homeowners nearby put up their hands and said, um-
- SSSteven Sinofsky
Oh, yeah, yeah, yeah
- DWDan Wang
... "Well, maybe we shouldn't, um, let students move here. Has the state sufficiently studied the idea that students constitute some sort of noise pollution?"
- SSSteven Sinofsky
This park, it was a tiny little park that had been empty forever.
- DWDan Wang
It was a tiny little park, and I think they had some affordable housing units in there as well.
- SSSteven Sinofsky
Yeah.
- DWDan Wang
But they were alleging that the state didn't study sufficiently the problem, that-
- SSSteven Sinofsky
[chuckles]
- DWDan Wang
... um, students are pollution. And we have all of these very strange things in which, you know, often when I'm in New York, uh, often when I'm in, uh, San Francisco, I live around Van Ness Avenue. Van Ness Avenue has tried to add a, uh, bus line o-onto the avenue for something like 20 years. It took about 20 years more or less to add a bus lane. Um, that's-- These are the sort of things that are kind of really crazy, and often it is people hiring environmental lawyers to stop what are, you know, should be pretty innocuous projects.
- ETErik Torenberg
You, you mentioned early in this conversation how you're trying to move past sort of simplistic, uh, explanations like... or, or sort of terms like, you know, socialist or ca-capitalist to, to describe the differences in the country. How should we interpret sort of socialism with Chinese characteristics, especially a-as we think about the term in, in the US? Like, w-well, say more about what it means to them.
- DWDan Wang
Uh, socialism with Chinese characteristics represents to me, um, a couple of things, but, you know, first and foremost, I'll say, um, that, you know, socialism with Chinese characteristics, uh, represents a lot of discretion by the state to take control of resources and, uh, do with it what it will. So, you know, I think Karl Marx did not write that much about, um, redistribution. A lot of it ended up being about public ownership of critical goods. If we take a look at China's economy, um, still there is a giant state sector in which some of the most important industries in, um, China are owned by the state. So all of these upstream strategic industries like telecommunications, um, a-airlines, um, energy, essentially these are always organized by three giant state-owned companies that control pretty much the entire, uh, state of the, of the business. And so, um, this is partly why if you go into the countryside in China, they're not giving much cash handouts to ordinary people. In China, uh, I think they still have this socialist mindset that every, um, uh, act of spending by any personal, um, household is kind of this capitalist act of consumption, while any big infrastructure project is this noble strike in favor of socialism. So China provides a pretty threadbare, uh, welfare net. Um, it does not provide much by way of distribution. Um, Xi Jinping often sounds like Ronald Reagan when he denounces people for, um, ex-- relying on welfare and for being too lazy.
- SSSteven Sinofsky
And being lazy.
- DWDan Wang
That's exactly right. And so, you know, this is, um... And so, so, so first and foremost, socialism with Chinese characteristics means that the state, it is the state's pleasure to decide how to spend most of the country's resources. The other part of socialism, um, with Chinese characteristics that I, um, offer, this is not at all a standard definition, um, in the s- political science literature, is I take a look at some of these, um, highly competitive industries in China. And, um, I take, think a lot about something like the solar industry, in which, uh, most of these solar, uh, companies are extremely competitive, um, offering not highly differentiated products, uh, and, um, you know, competition is absolutely miserable. So the solar company margins, profit margins are pretty minuscule. The investors make very little money here. On the other hand, China owns pretty much 90% of this industry, everything from the polysilicon processing down to, um, module assembly, and so that is a national success for the state. And I think Chinese firms have, um, and arguably driven most of the innovation in terms of, um, pushing down costs, uh, in terms of solar, uh, as well. So, you know, socialism with Chinese characteristics also means to me, um, investors and, uh, companies kind of lose. They're pretty miserable. Consumers win, and the national government
- 23:00 – 27:10
Competition, Intellectual Property, and Business Culture
- DWDan Wang
wins. But Steven, I wanna ask you a little bit about some of these competitive dynamics that you saw in China. A lot of it is pretty cutthroat competition. Can you offer some, um, thoughts from your days at Microsoft about what sort of competition that you saw?
- SSSteven Sinofsky
Well, I think that the, the thing that jumps to mind, uh, relative to competition is, of course, one of the things you, you had alluded to earlier, which is that in the US, you rely on a legal framework for a lot of competition, and it works both ways. It, it, it protects what you have, but it also gives the government the right to, to take away what you have if it becomes too big or too successful. And I, I think China is very good at the taking away part, and they, they by design, as part of the socialist, capitalist view, don't really view intellectual property as the most important thing. And so in particular for, for the software industry, that was hugely problematic because the software industry itself is just an intellectual property business. And in your book you write about China never really, hasn't exported the arts and entertainment very much yet.
- DWDan Wang
Right.
- SSSteven Sinofsky
And that's also because there's not a lot of intellectual property protection. Like, if you invented an incredibly cool Marvel con-comic universe in ChinaYou wouldn't have any real protection to be able to maintain it. Like, people could just copy it. They could own all your merch, copy all your merch, and the economics of it go away. And I've always found that p-particularly interesting. And then, of course, at a very granular level, like you, you literally don't-- when you do business in China, you, you don't have trade secret. And you're, you're just in the office, and there's the CCP members that work in your office that you're forced to employ that report back to what's going on, and you have no say in that. Like at the level of like, they get to walk into your data center, and they get to log on to any system, and that's, that's the cost of, of doing business. It's sort of like in the US, you open up a restaurant, the, the food inspector can show up at any point and walk around the kitchen all they want. Except when it's a data center and the goal is not safety for the consumers but security for the state, it, it's a sort of a different, a, a different kind of challenge.
- DWDan Wang
When you were hiring a lot of engineers in China, um, what were you looking for? How hungry were they? Were they dynamic? How-
- SSSteven Sinofsky
Yeah, that, that's a great, a, a, a great thing to really see, and you, you, you do see some of this in the US. But in, in China, like in particular, like, uh, the example I always use is, is, um, I start from the Consumer Electronics Show, and you, you go to one part of the show where all the component makers are. And you want magnets, like, to, to put your MagSafe adapter on, and there's 500 companies selling magnets. And you walk up to any one of them, and you just take the slightest bit of interest, and they're whipping out a deal book, and they are hungry to-- Not just... Like, I talked to a guy last CES, and, and that CES on my mind 'cause it's, it registered this week. But, um, he made, uh, cases for iPhones with, with chargers and magnets and stuff in them, and he was like, "What do you not like? Have you looked at all the competitors? Have you seen the one from this other company? They suck."
- DWDan Wang
Right.
- SSSteven Sinofsky
"We-- How many do you need?" And you're like asking, like, like, I'm just a guy. Like, I don't even-- my badge doesn't say, like, "Buys lots of cases." Like, it says nothing that would indicate I'm about to write a check for 300,000 units of a iPhone case. But booth after booth, no matter the size of the component or what you want, and, and, and it's very different than in the US. You go to a US company at a trade show, and you sort of show interest, they know if you're a qualified buyer or not just by how you look and carry yours- And they're not gonna talk to you. Like, I watched a, a guy just fall in love with this, um, this, uh, iPhone container that looked like Darth Vader or something last year, and he just wouldn't shut up about it. He thought it was the coolest thing ever, and they were literally about to give him an order of one-
- DWDan Wang
Right
- SSSteven Sinofsky
... just to do business with the guy and see where it led. And that hunger is, is definitely a, a novel
- 27:10 – 35:56
Manufacturing, Scale, and Global Supply Chains
- SSSteven Sinofsky
thing. And I-- we saw it when we were building Surface, and we could just watch the component people f- you know, basically fight over the business. And they fight as, you know, the PC industry grew up in Shenzhen, and they have these factories where, like, you show up, and if you commit to building, uh, you know, 100,000 laptops, they will build you a building. And they will keep all your IP in the building. They will not cross employees over, and they will promise you the very best. And that's, you know, like Quanta, a company in Taiwan that does that. And, and I, I think, I think that hunger is, is definitely a thing you just don't see here to that degree.
- DWDan Wang
Why not? What's the deal? Why aren't people more hungry? Why won't they build our factories?
- SSSteven Sinofsky
Uh, well, the building the factories is, is probably different. You know, I'm not here to represent all of America and, and what goes into it. But I, I do think that the, the factory thing I, I view as a very subtle and interesting point. It's also one where the parties have completely switched roles over, over the past 30 years or so. When, you know, when China entered the World Trade Organization, this was a milestone I, I would say for Earth. It was a huge, immense deal for China, and but the, the Earth was like... I, I don't remember what the phrase was in the book. I, I think you, you called it like it was consistent with the elite agenda or, or something like this. And, and it was like the con- oh, consensus. It was the elite consensus that China entering the World Trade Organization was the right thing. And not one person in Western Europe or in the US thought, "Oh, this could be a problem." Like, it was, in fact, it was like, "This is the greatest thing ever. It's the true global 'Star Trek I' economy where everybody just practices art all day, and we all just... It's great." And, and it really created this, what I would think of in the, in a not the most positive way, but like this private equity phase of American business, which was all the businesses just said, "How do we get rid of our factories?" 'Cause, like, we can't employ people, 'cause they were busing people in from rural China to work for small wages every day and busing them back, and we can't compete with that. And they're committed to low price, high volume. And so, you know, it, it starts with T-shirts and socks, and then it gets to radios. And you see this all over Asia. You see even Japan saying, "Well, we could make Sony TVs in China." And you could see LG saying, "Well, we could do our industrial products in China." And meanwhile, the US is like, "And we could do cars in Mexico and in Canada." And so everybody took that moment in time to say, "Well, how do we make the leanest profit-making engine in, in the US?" And the first way is you just don't do, you don't own manufacturing. And, and I, I think now everybody is coming to sort of regret this. The question I have for you is I feel like on that one, y- the book kind of plays both sides of it. It says on the one hand, the US has to manufacture stuff, but on the other hand, it will never compete.It can't catch up. So what is the right answer to that? Not the right-- I mean, that's unfair-
- DWDan Wang
Yeah
- SSSteven Sinofsky
... to burden you with the right answer for that, but-
- DWDan Wang
I'm gonna burden you with the right answer for that.
- SSSteven Sinofsky
Yeah, yeah. Excellent. [chuckles]
- DWDan Wang
But let me, um, offer that, um, what matters is kind of, um, direction as well as intent. So, um, you know, right now, last I checked, China's, uh, share of its economy dedicated to manufacturing is about something like twenty-six, twenty-seven percent. And, um, for the US, it is about ten, eleven percent. And so, uh, fine, you know, the US is a pretty rich country. Um, you know, it, it, its labor force doesn't really wanna work, be bused to factories and work for small wages, uh, every single day. But why doesn't the US try to achieve, let's say, Japan or German levels of, um, you know, manufacturing, uh, as a share of GDP, which are closer to twenty percent?
- SSSteven Sinofsky
Yeah.
- DWDan Wang
And so I, I don't think there's any natural law that says that, um, you know, manufacturing as a share of US GDP should only be about ten percent. Let's try to get it a little bit higher. Let's try to get workers, um, quite a lot more excited about, um, building all sorts of, um, products. Let's try to have the government actually create functional infrastructure such that our ports work much better than they do, our trains work much better than they do, our trucking systems. That's something that China does really well. It invests in all sorts of port infrastructure, and it invests in all sorts of power production, so it, they have the nuclear power in order to build a lot of stuff. And so infrastructure, the government absolutely does have a good role to play here in terms of creating all of these public goods. And then it's also up to the entrepreneurs to decide that, well, making products is really, really exciting, and we should try to, you know, build a little bit here. And so when you have, um, you know, a little bit more of these... W- if we treat technology as more of a, um, aesthetic project, as more of a political project, that's really the sort of direction that I, that I wanna take things. I don't think there's a n-level that we can possibly target, um, but right now it doesn't seem still all that interesting for many people to build. The other part that China does right, I think, is that it hasn't been so focused on this idea that, you know, um, there's this line, I think that's kind of attributed to Tim Cook, that inventory is evil. We just gotta get products out the door. We shouldn't keep them all, um, i-in, in stock, uh, have lean manufacturing. And when China had a crisis, as it did in, um, uh, twenty twenty with the COVID pandemic-
- SSSteven Sinofsky
Yeah
- DWDan Wang
... when it had a production issue, there were a lot of pretty inefficient, um, state-owned enterprises as well as, um, entrepreneurial firms that had a giant workforce that had a lot of slack in the system, and they were quickly able to retool to build masks and cotton swabs. And American companies were unable to do that because they had li- let a lot of their skills atrophy. They keep a pretty lean workforce. This workforce is hyper well adapted and optimized for one particular task, and they can't really easily retool and reskill, um, pretty quickly to confront an emergency. And so, you know, this is where I wanna, um, encourage US firms to build in a little bit more buffer, both in terms of inventory as well as labor, because you never really know when there might be a crisis and that, that might strike, and then you don't wanna be hyper optimized for one thing.
- SSSteven Sinofsky
Yeah, I think that's a, that's a fantastic, a fantastic point, and it, it, it sort of feeds into the, the e- that evolution that happened at the start of WTO. I mean, it was, it... What rose for that was this whole lean manufacturing, which actually came out of Japan, and the idea of, like, how do you minimize the, not just the length of the assembly line, but the s-stockpile of inputs at the beginning of the assembly line. But one thing I do think that, that as, because you mentioned Tim Cook, I would say something that Apple does uniquely, which in this environment they, they aren't getting enough credit for, is, is i- it's almost like how do you even count the engineers versus the m-manufacturing people? Because even at Apple, the number of people that really are manufacturing people, they just happen to work in Cupertino and fly to Asian locations a lot, is very, very high, thousands and thousands of people as part of the company. And I, I think that the reason that Apple products are what they are is because they don't see this, this line that people saw in the eighties or the nineties with the WTO of manufacturing is, you know, rural people on a bus doing the same operation twelve hours at a shift, and then smart people figuring everything out in the headquarters. Apple saw, sees much more of a continuum. And I think where American industry really didn't do so great was it very quickly snapped to small number of people in headquarters that are the brains, and there, there's just too much of a distance to what's made. And that's what happened with the PC industry. Like, all PC laptops basically became the same because not just the manufacturing, but the design and the innovation and the origination all came from the factory. And so to use your... They come, they, they came from the engineers, not the designers or the MBAs or the lawyers.
- DWDan Wang
Right.
- SSSteven Sinofsky
And the engineers making a laptop are gonna make it for efficiency, and they're in fact were responding to... And the same happened with American cars. Like, American cars, you know, like no one... Your brain says, you know, an SUV and a tiny little compact car should share as many parts as possible, but an engineering outsourcing brain says, "Well, for efficiency's sake, we should use the same turn signals and all." So I had this tiny car with this giant turn signal-
- DWDan Wang
Hmm
- SSSteven Sinofsky
... 'cause it was the same one they used throughout the whole Chrysler line, you know, which made no sense at all. But that's, that's efficiency, and that's what an engineer says.
- DWDan Wang
Right.
- 35:56 – 41:48
Lessons from Japan and Korea
- ETErik Torenberg
I wanna ask if there are lessons that we can take or analogies from even further back in history. So, uh, let's look at Japan and how they built a, a manufacturing economy. What are, what are things that you think are, are, are resonant with, with how China has done it, or what are things that maybe, maybe not so much?
- DWDan Wang
Yeah. I think that the biggest difference between, um, Japan and China is that, I mean, first of all, I think the, um,Japanese are much more meticulous, and they have, um, done, um, you know, um, um, I think on average, just a much higher quality of, um, production starting out. You know, the, the Chinese kind of started out really poor, and then they got a lot better, and the Chinese-- and the Japanese tend to be much better, um, throughout this process. But I think the, um... maybe that's just a matter of opinion. Maybe that's just a, a qualitative measure that is a, a little bit difficult to quantify. But I think the crucial, crucial difference, um, between Japan as well as China is that Ch- Chinese companies were making mostly, um, Chinese product for exports, and it didn't have that much foreign involvement, um, in Japan making something like, you know, the N- Nintendo products or the Mitsubishi products. Um, that was almost all Japanese value add. And China took a pretty different approach, in part because of WTO accession that, um, Steven, um, is right about is, was tremendously important. So, um, China realized that it was so far behind the technological frontier, it couldn't possibly produce anything like game consoles or memory chips that Japan had already been really good at. And so, um, China was really welcoming of foreign companies, companies like Microsoft, companies like Apple, and companies like Tesla, to build factories in China, and then, um, have Apple engineers come over, train a lot of people, bring their managerial talents, um, bring their design talents, and then mostly assemble, at the start, um, components that were coming from the US and Japan and Germany and Korea, and ch- only provide the labor involved in-
- SSSteven Sinofsky
Yeah
- DWDan Wang
... um, producing these sort of products. That was not the case with Japan. Um, Japan was already producing, um, really high-quality products at the start, and China was, um, much more excited about welcoming foreign investors. And, you know, even today, there are still a lot of products, um, from Apple as well as Tesla that are being produced in places like Shenzhen and Shanghai, uh, for export. And I think the Chinese approach is, uh, going to avoid a lot of the problems of Japan in the past, um, because Japan really had been locked into its own model. Um, it is, um, you know, suffered what we call Galapagos sy- syndrome, in which it wasn't really, um, you know, adapted well for other markets. And, uh, Japan was, uh, much less integrated than China is today. Steven, you have a prop that you wanna show us about something-
- SSSteven Sinofsky
Well, I-
- DWDan Wang
... with Japan.
- SSSteven Sinofsky
Well, I think it's super-- I, I love this point in, that you make in the book about, a-about quality and, and what you just reiterated here. And I also think one thing that, that we tend to underestimate in the West, so to speak, is the degree to which the, the South Asian countries are incredibly focused on each other. Like, they, everybody in Beijing knows what's going on in Tokyo, knows what's going on in Seoul, is paying attention to Singapore, and they really are keyed in. And I, when I was living in China, that was the biggest thing I saw, which was, you know, Ch- China was very proud that Sony was coming to open factories in China for foreign investment and build TVs. And, and So- Sony didn't quite realize it, but what had happened, what was happening to them already was that Korea had already seen how Japan was successful with TVs and had already decided, LG and Samsung, that we're gonna win in TVs, and not in a government-mandated way, but in a capitalist market way. And so today, the share of TVs that's LG and, and Samsung is super high for export around the world, and that was very deliberate. And it turns out in the early 2000s, China was already seeing what Korea was doing. And I, I would meet with the CEOs of the electronics companies like TCL and Haier, and I would think, "God, these TVs are awful." Like, they're, they would make, like, these six-inch thick L- LED TVs, and they were, they didn't have the screen technology, and they were awful. But they were like, "We're gonna win in this." And they were also gonna beat Intel, and they were gonna beat, uh, HP or whatever in making computers. But it w- it-- the thing that's interesting in today's view of things is there are a lot of people who, who aren't as worried about China.
- DWDan Wang
Mm-hmm.
- SSSteven Sinofsky
And part of what they think about is like, well, you know, we went through... And your book does a great job of, of all the reasons if you wanted to believe that China couldn't be successful, you know, the demographic problem, the financing problem, the RMB problems, these are real things that they have to overcome. And, and so part of it was I was thinking back to the, the '80s and the, and, and Japan, and, you know, like, this is this Time magazine cover.
- DWDan Wang
Mm-hmm.
- SSSteven Sinofsky
How to Cope With Japan's Business Innovation.
- DWDan Wang
You, you should hold that up.
- SSSteven Sinofsky
Yeah, I will. I will.
- DWDan Wang
Made in Japan.
- SSSteven Sinofsky
And, um, and it's super interesting because it, it, to me, I feel like I'm on a, on like a talk show.
- DWDan Wang
[laughs]
- SSSteven Sinofsky
Can you, do you get that in frame?
- DWDan Wang
Yeah.
- SSSteven Sinofsky
Is that working? Yeah. Okay. [laughs]
- DWDan Wang
Amazing.
- SSSteven Sinofsky
And, and I think that it's just so interesting. We spent 20 years in the US freaking out about Japan.
- DWDan Wang
Yeah.
- SSSteven Sinofsky
And, and it, it never really won.
- DWDan Wang
No.
- SSSteven Sinofsky
There was a brief time when it w- And so I worry that that's exactly the kind of incumbent complacency that can happen with China, which is, "Oh, we've been here. We saw this. We're not worried." And, and actually all the things you just cited, like the Galapagos syndrome and the making things only for the Japan market, not being welcome to foreign direct investment, were, were probably the reasons why Japan is not the leader in electronics today.
- DWDan Wang
Yeah. I think that's a really great point about American complacency,
- 41:48 – 48:55
Complacency, Quality, and the Future of Competition
- DWDan Wang
because America can cite this triumphalist victory narrative that, "Oh, well, you know, in the '40s, we defeated Germany, and then later on we defeated the Soviet Union, and then later on Japan was never quite the economic threat that, you know, the emperor wasn't going to sell his land and then buy all of the land in California."
- SSSteven Sinofsky
Yeah.
- DWDan Wang
Because that was how much the palace was worth. Um, and I fear that China is a much more formidable competitor, in part because it is just so much bigger. It's four times the population, perhaps economy roughly on par by some measures to the US. It has a much stronger manufacturing base. It has some, um, advantages. It has some disadvantages. But one other advantage is that the Chinese Communist Party is a very good student of history. It sawWhat went wrong with Japan throughout the s- mostly the 1980s, um, with all of its economic problems. It really intensively studies the Soviet Union as well as its political failures. It is really intent not to repeat these sort of mistakes. And when you combine that with all of other, uh, of, um, uh, China's advantages, what I wanna say is that the competition, I believe, between the US and China will last for decades.
- SSSteven Sinofsky
Oh, yeah.
- DWDan Wang
It will not, um, be solved or, uh, or res-resolved through any single technology, not even, uh, technology as crucial as artificial intelligence. Um, they're gonna be... You know, one country will become stronger. Um, let's say if, um, if China is much stronger, um, than the US, China will feel overconfident. It's gonna make mistakes, and that's gonna prompt the US to try to race faster as well, and vice versa. And so what I, I think it is just really unlikely that either country will just implode and fail to get back up. Rather, we should be preparing and thinking about a pretty formidable competitor.
- SSSteven Sinofsky
Uh, yeah, I, I definitely, I, I definitely agree with that, and I, and I think that, m- like I said, my biggest worry is just, is, is complacency from our own... You know, like Detroit is the classic example of complacency in the US where, you know, Japan made cars. They, they actually used their lawyers, and they went to the government and basically solved their, their car problems by having the government either bail them out and/or through a combination of just making it harder for Japan to, to do business in the US and sell their cars. Germany, you know, one of the things that always, through the '70s and '80s, that surprised Americans was, "Why are there so many German cars all over Europe?" When they would go visit Europe. And it's like, well, and then you would drive them, and it became this big thing. Wow, these cars are really, really good. And then we did everything we could to make them expensive, and so now they're the most expensive cars, and they have the luxury market. But, you know, they don't have trucks. And I, and I, and I think that those less... And then, you know, certainly, like in the world of software, you know, we spent a long time like thinking, "I don't know, Japan doesn't seem to have its act together on software." And then sure enough, here's China marching through, "Oh, we're gonna make Red Flag Linux, and we're gonna make our own CPUs," and those have all failed. And then one day you're like, "Wow," like, "Huawei looks pretty good." Like, and I was just-- I was in Japan last week playing with the Chinese phones, which you can't really do here, and they're all fine.
- DWDan Wang
Yeah.
- SSSteven Sinofsky
Like, like, like if they were to be able to sell them here, which, it, you know, is a challenge, you know, those phones would all be these share leaders, and it wouldn't just be Samsung in the AT&T store, for example.
- DWDan Wang
Yeah, and here's, um... I mean, h- I wonder if you agree with this proposition that, um, over the last, let's call it 15 years, China has gotten a lot better at software, and, um, over the last 15 years, uh, the U... And, um, it, it is already really good also at hardware. And over the last 15 years, the US has a lead on software, no question about that, but its, uh, manufacturing and hardware has not gotten that much better. So the Chinese are learning at a much faster rate and patching up their deficiencies-
- SSSteven Sinofsky
Yeah
- DWDan Wang
... than the Americans are.
- SSSteven Sinofsky
Yeah, we have really only two companies doing a good job on, on hardware, which is the constellation of Elon companies and, and Apple. And, and after that, we run out, and so we have all of our bets are, are there. I, I do think I, I will be interested in seeing over time, there is a cultural difference, and I, I think some of it just comes from the scale and the, the wages and the, the need to appeal to a whole broader economy. But the-- there is a quantitative difference in quality, um, you know, that you, you can really measure on, on the Chinese products. I, I think that the, the phones are good. They're like... What I would say is they're good enough.
- DWDan Wang
Yeah.
- SSSteven Sinofsky
But... And the software is good enough. And actually, I, I think you alluded to this, like also the buildings are kind of good enough, and the bridges aren't gonna last as long as the Brooklyn Bridge. You know, they, they're not built for that. They're not designed for that. And certainly that was, you know, our apartment was falling apart, and it was brand new.
- DWDan Wang
Yeah.
- SSSteven Sinofsky
And we, we used to just laugh about this constantly. And, and but I, I think that our challenge is we, we don't have a quantity. I mean, I, like I thought it would be good... People should understand the scale of China. I know that sounds like a cliché, but I don't think people really understand it. So let me just put my scale, and then you, you update it. 'Cause when we were first opening up all the Microsoft offices in China, the person we hired to be the, the head of China said, um, "Well, you have to have an office in every city that's more than two million people," which in the US would not be a lot of... You know, maybe broad metropolitan areas, but not the cities. And we're like, "Well, how many is that?" And they said, "30." And we're like, "Well, there's no country we have 30 o- we don't have 30 offices in the US." And but, you know, how about 10 million? "Oh, well, there's just two of those." And so here we are today, and I think there's 18 cities with 10 million. I mean, that's... And, and I don't think you could count how many... I mean, two million's like a town.
- DWDan Wang
Right. Right. Right. Yes. Yes. Um, I mean, China's scale is real, and, um, the sort of broad statistics that I like to highlight is that China is responsible for about a third of, uh, manufacturing value added globally. Um, if we take a look at, you know, almost any particular industry, whether that's structural steel or solar photovoltaics, China can represent as much as 90%. And there's a couple of really crucial industries that China has almost a total chokehold over. We saw this most prominently with rare earth magnets, um, this year after Trump imposed, uh, sky-high tariffs about, of about 150%. China retaliated with not only raising tariffs really high as well, but it suspended exports of rare earth magnets. And then a lot of automakers across the West started to panic because they couldn't manufacture their cars anymore. And that's not China's only card. China is also really dominant in a lot of things that include antibiotics, um, segments of fermented antibiotics, namely ibuprofen, um, a- and other active pharmaceutical ingredients. China could totally, uh, constrain the world's ability to make solar, uh, to, uh, deploy solar for, for a while. And so this is where I, I'm taking a look at a couple of particular industries where they have choke points, and they could re-really hurt the West if it doesn't build enough.
- SSSteven Sinofsky
Yeah,
- 48:55 – 54:02
Strategic Resources and Industrial Policy
- SSSteven Sinofsky
I, I'm just personally particularly worried about pharma the most.
- DWDan Wang
Yeah.
- SSSteven Sinofsky
And I, I think that one's particularly interesting because we have all this pressure in the US to light, loosen the regulatory climateFor, for pharma. But the problem is China's regulatory climate is, is very loose, and I worry about, you know, we, we see it all the time with like, oh, you know, people are testing, like they went to the CVS and they got the same antibiotic in three different generics, and they're actually kind of not what they say they are, or they're not nearly the level of quality that they should be or purity that they should be. And, and so I, I think we need to... Like pharma is the most strategic and important one that we need to build up be-because it's the one that also we, we had the highest safety standards in the world for, for leading it. And so my hope is that's-- And it's such a straightforward one in a rel-- I mean, we used to make them all in Delaware and, and, and stuff, and that just seems to have gone away, New Jersey, and that seems to have gone away.
- ETErik Torenberg
A, a lot of our approach in terms of catching up on manufacturing seems to be around industrial policy and picking winners, sort of following some maybe the approach that China and Japan have, have, have taken to some degree. Do, do you think that's the, that's the right approach, or what would you comment on that?
- DWDan Wang
Yeah. Well, I think industrial policy could be defined as broadly as we like, Eric. So, um, let's just define it really broadly. This could, uh, involve also the creation and deployment of better sources of infrastructure. Um, again, I come back to not only traditional infrastructure like ports and, um, you know, railroads that move around a lot of goods, but also, um, China has a lot of, um, data connectivity. Um, they build just enormous fleets of nuclear power stations. Um, you know, there's something like, um, something like forty nuclear, um, plants under construction in the world, and thirty-five of them are in China right now. And the US is barely building out, um, enough of the nuclear plants. It's not, um... President Trump now is pretty unfriendly towards wind turbines. He keeps tweeting about this sort of stuff. Um, and, uh, w- industrial policy could also be defined in terms of education, um, in terms of, you know, giving more money to some of our, uh, most functioning, um, university labs or, um, national laboratories to get them to, um, deploy technology. It's quite a lot better. Maybe it could also involve workforce training. Um, it doesn't all have to involve giving, um, money to Intel. You know, uh, are we even picking, uh, winners here when we give a lot of money to Intel? Intel hasn't been doing very well. So I say that let's, um, have a broader definition of industrial policy. We don't have to call it industrial policy. Let's call it national competitiveness. But right now, I would say that the trend for the US has just not been doing very well, so let's try something else.
- SSSteven Sinofsky
Yeah, I think, and I think to build on what you were saying earlier, I, I think the lawyer side of us needs to focus. It, it's just as important to broadly define it as, you know, we want these things to happen, and we're not gonna saddle them with ancillary requirements. You know, and, and so much of, of the challenge has been like, "Oh, yeah, we want you to do this, but we also..." Like rare earths, you know, they're... Rare earths are a real challenge. It's a kind of a weird name. They're-- It's not that they're super rare elements, it's that they're, they're just called that in chemistry, but that they're really, really difficult to get out of the ground and process and turn into useful products. And our... Part of the reason we don't like doing it here is because of those environmental downsides. But the flip side is we, we, we have to be able to do them. And the, the same with pharma, like people don't like chemical plants near where they live, and we have a lot of history that says that gets to be problematic over time. So we, we need to be able to figure out how to get things done, not just by like encouraging, but by also putting barriers around the barriers.
- DWDan Wang
Yeah.
- SSSteven Sinofsky
Otherwise, people can't invest. You know, you can't... It, it all-- Everything turns into sort of commercial real estate, where you have to be this very special breed of person that has like a sixty-year time horizon to build one building. And that's-
- DWDan Wang
And that's, that's really the challenge. I mean, with something like rare earths, we absolutely need them, and they're absolutely super polluting. If we take a look at some of the rare earth processing facilities around China, the cancer rates are off the charts. In California, this is a totally NIMBY state. You know, I can't imagine that any homeowner will say, "Yes, let's have a rare earth processor in my backyard." Even in places like Nevada, which is mostly, you know, high de-- which is mostly desert, hot desert, um, you know, there were a lot of protests ab-about putting some nuclear waste at Yucca Mountain.
- SSSteven Sinofsky
Yeah.
- DWDan Wang
And that was like a pretty remote place, right? And so I, I, I don't see how we get from here to there. Um, a, a lot of these rare earths discussions that I saw from the Biden administration was, "Let's make the Canadians do it." And so, you know, this was not a really ambitious project to say, "Okay, well, we gotta figure out some remote part of California, um, you know, some remote part of the West where there's kind of federal land."
- SSSteven Sinofsky
The one thing we have is remote. We have a lot of remote [chuckles] that it's also fairly accessible.
- DWDan Wang
And it's federal land, you know?
- SSSteven Sinofsky
Yeah, yeah, yeah.
- DWDan Wang
So why don't, why don't we just build there? And yet we can't.
- SSSteven Sinofsky
Yeah, yeah.
- DWDan Wang
And yet we can't, so that's the challenge.
- 54:02 – 58:49
Foreign Policy: Engineering Diplomacy vs. Alliances
- ETErik Torenberg
Yeah. Um, Dan, I want you to com-compare and contrast, uh, America and China's approach to foreign policy and how that impacts the, the, the competition as we think about it.
- DWDan Wang
Yeah. Well, America has been a global power for a very long time. Um, there's, what, um, let's say a hundred countries or maybe, uh, fifty countries where there's, um, um, American military bases. There's a lot of people who would, um, really like the America to, the, the United States to have their back. And China, um, has not built this network of alliances. It doesn't have that much trust. It doesn't have that much trust even, um, among its near neighbors, um, all of whom have something to fear from, um, Chinese power.
- SSSteven Sinofsky
There have been a few wars. [chuckles]
- DWDan Wang
There's been quite a few wars. Um, and I think for me, what, um, the way that I would characterize, um, China's, uh, foreign policy is that it's very engineer driven. Um, they... The way that they conduct a lot of diplomacy in Africa and Southeast Asia, as well as, uh, Latin America, is just to go up to these countries and build some roads, build some light rail, build some ports. And I think for the most part, that's pretty positive. Um, a lot of these countries really do need a lot of functional infrastructure. Um, China is really good at building these at home, but it's found that it hasn't been super good at building, um, these more locally. It hasn't been able to, you know, build effectively and, uh, cleanly and, um, you know, in a way that satisfies a lot of political elites over there. Otherwise, I think that, you know, China's, um, uh, foreign policy has been not terribly ambitious. Um, a couple of months ago, there was thisminor border skirmish between, um, Cambodia as well as Thailand, and so there were some, some troops that died, uh, in this, uh, fatal conflict. And was it China, the, the regional power that really stepped up to mediate, uh, with that conflict? Actually, it was mostly mediated by, I believe, Malaysia, so it wasn't the US or, or Beijing that did something about this. This was Malaysia. Um, China has pissed off a lot of, um, Europeans who are not very happy about Trump by engaging wa- in wolf warrior diplomacy, as if insulting these countries is the way to make friends. That's also been, um, very, very strange. And in any sort of global conflict, China will have, uh, will issue, Beijing will issue these statements to say, "Well, maybe things between, um, Israel and Palestine should calm down, and maybe, you know, Russia and Ukraine should, um, you know, be friends." But they also don't really do anything to, to have stakes here. And so I think that, um, the engineering state's, uh, foreign policy is still mostly to build stuff rather than get really deeply involved in, um, a way that America has actually achieved and make friends and m- build alliances in a way that, um, America seems to be mostly walking away from now.
- SSSteven Sinofsky
Yeah, it's super interesting. The... I love your characterization of, of their foreign policy as engineering. Like, if you go to Africa, like take Madagascar, which is arguably the poorest country in the world, you know, like to go see, to land in the capital city and go see chocolate and lemurs, you know, it's this hundred mile, hundred kilometer drive, and China came in and, and-- but there's all this aluminum and metals in the same place. And China came in and just said, "Hey, we'll build you the railroad." And, and the French had built one, and then it deteriorated, and then China came in, but the French were colonizing the area. Whereas China came in and said, "Oh, we'll build you a railroad, and we're gonna just build a village where we live."
- DWDan Wang
Right.
- SSSteven Sinofsky
"And we won't even bother you." And like literally, you could go, if you wanted Chinese food, you just turned left, and you went to the Chinese part of town, and they never bothered anybody. And then if you wanted Malagasy food, you, they just said, "Hey, come here, and we'll give you chocolate and cool spices and stuff, and they... No, they never bother us." And so in a way, they, they got the engineer-- The transaction is, I think, with the State Department, the way they say it is it's very transaction-oriented. Here's the train, and now we're gonna extract and leave you alone. But then also, once the extraction is done or once it's, it's normalized, then that infrastructure isn't super well-maintained. It's not expansive. And, and yet the flip side is like countries, Latin America saw like what happens when the US came in. And so in a sense, what I'm hearing, and also what I believe, is that the world needs a different kind of foreign policy that is much more, to use a Chinese phrase, much more of a win-win than, than either country currently sets it up to be.
- DWDan Wang
Sure. Well, the State Department also says that, um, when China talks about win-win diplomacy, it's about China winning twice. [laughs]
- SSSteven Sinofsky
Yeah, yeah, yeah.
- DWDan Wang
So, yeah.
- SSSteven Sinofsky
And that's exactly-- I mean, like Madagascar is still the poorest country, and now they have sort of half a railroad-
- DWDan Wang
[laughs]
- SSSteven Sinofsky
... and less aluminum.
- DWDan Wang
Right.
- SSSteven Sinofsky
You know?
- 58:49 – 1:03:04
Taiwan, Demographics, and the Future of US-China Relations
- ETErik Torenberg
Speaking about foreign policy, um, thinking about the, the, the short to, to, to medium term here, one of the biggest questions, of course, is, is Taiwan in, in twenty twenty-seven. What, what are the things you're, um, watching to sort of get a better read on, on what, what, what could possibly happen, and what's, what's your base case on, you know, how, how, how it plays out?
- DWDan Wang
Yeah. Well, I wanna quote from, um, the great analyst, uh, Ben Thompson here, who recently moved, um, back to the US from Taiwan, and his assessment is that there's always a lot of risks, uh, out there. But, um, in his view, the, um, there, uh, a conflict between Beijing and Taipei is not imminent and not inevitable, and that's kind of my view. I feel like there is no, um, deadline that, um, Beijing has issued to say, "We will seize, uh, Taiwan island by twenty twenty-seven." Maybe they wanna be ready to do it, um, but I think, you know, so long as Beijing feels that the long-term trends favor China, and that is their publicly stated position, that China is growing wealthier, it's growing more powerful, it is, um, you know, uh, getting more confident. At the same time, um, while the US appears to be falling, you know, the, Beijing likes to say the East is rising and the West is falling, then perhaps they take some, um, uh, solace from the messiness of American society right now in twenty twenty-five, that, um, they feel that time is on their side. If they have some sort of hope that the Taiwanese could themselves really vote themselves to be part of the mainland again, um, that looks pretty unlikely now, but maybe they get a, um, KMT government, which is more friendly towards Beijing. So long as they, um, believe in all of that, then I think they have no urgency really to move, and I think that the status quo has been pretty robust for the last seventy-five years now, and maybe that could hold for quite a few years longer.
- ETErik Torenberg
And so y- y- you're not worried about... Some people say b- because of sort of the demographic situation or because of sort of Ch- China's, you know, sort of economic, you know, some- somewhat slowdown, that, uh, they're gonna be forced to, to sort of, you know, make a hand here while they, while they have it. Y- you think it's unlikely?
- DWDan Wang
Yeah. I think that China's demographic situation is a problem, um, more in the next fifty years rather than the next five years. The slope, the curve of their demographic decline is pretty modest. I mean, they still have one point four billion people or just shy of that now. It's not that many people that they're losing every single year. And their economy, you know, you can debate what exactly the, the number is, but they, um, publicly say something like five percent growth, and there is still growth there, and there is still all sorts of, you know, new business creation there and all sorts of, um, fantastic new technological advancements there. And so I don't think they view themselves to be fundamentally weak and that there's a window that they must act in before it closes.
- ETErik Torenberg
What I appreciate about, about the, about the book is right now in the intellectual conversation around China, I feel like there's the two extremes where you have this sort of extreme bearishness, like the Zeihan view of, hey, because of sort of demographics, because of sort of limitations around food and energy, uh, you know, he, he thinks they're gonna implode in the, in the next decade. And then there's the sort of, you know, Balaji, but many others who are like, "Hey, they have m- many more people, and they're smarter, and they're just winning on so many things, and it's only gonna, gonna compound." And I feel like you have a more sober view, uh, to some degree, which is, hey, America's got unique strengths and, and, and weaknesses, and, and China's got unique strengths and weaknesses, and it's gonna be...
- DWDan Wang
There is no implosion. Um, when one side is ahead, the other side will overstep, and then the, then, and then they'll need to catch up. And so I wanna say that there is no winner here. There is no loser here. It's not a race. Nobody gets to hit the win button. Um, and I think we should just take this as a slow, steady grind that will require all of us to get better in all sorts of ways.
- ETErik Torenberg
I think that's a great place to wrap. The book is Breakneck. Dan, thanks so much for coming on the podcast.
- DWDan Wang
Thank you, Eric. Thank you, Steven.
- SSSteven Sinofsky
Thanks so much. [upbeat music]
Episode duration: 1:03:05
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