Technological Patriotism

on October 13, 2014
Reading Time: 6 minutes

Technology is breaking down barriers throughout the world. Conversely, a form of technological nationalism has taken hold, limiting tech’s rise. Expect such nationalist fervor to become more widespread, more virulent, probably more unfair. 

Technology is the new oil. It’s vital to our lives, our economy, our personal wealth, our national interests. As such, governments believe it is right to be intimately intertwined in the development, use, purchase, promotion and spread of technology.

Government inquiries, embargoes, regulatory barriers and tax disputes with technology companies will become commonplace. Fighting (and/or championing) such affairs will become a standard course of business for tech firms, much like complying with accounting standards are today. VCs, start-ups and well established high tech companies will need to fundamentally reconstruct their focus. I say this all without judgment.

That most of the world’s largest, richest tech companies are American — Apple, Microsoft, Google, Facebook, Amazon, Cisco — makes this new world order that much more combustible.

Should Five Percent Appear Too Small

Big technology companies are sitting atop sizable piles of money. Many governments believe they are owed their rightful share of these piles. The European Union (EU) alleges Apple is concealing taxes duly owed on sales and profits generated throughout Europe. Their allegations rest almost entirely upon the obvious: 

“Multinational corporations have a financial incentive when allocating profit to the different companies of the corporate group to allocate as much profit as possible to low tax jurisdictions and as little profit as possible to high tax jurisdictions.”

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Examine Apple’s European org chart. What does it appear optimized for? If successful, the EU’s action could cost Apple billions. That is why, when Tim Cook told the US Senate “we pay all the taxes we owe — every single dollar,” he is no doubt being 100% accurate and equally irrelevant.

Tax battles are costly for tech firms, but just one fight of many. Regulatory barriers can similarly limit the full and beneficent spread of the world’s most liberating technologies. As famed tech investor Peter Thiel recently remarked:

“It probably would be better for Europe to find ways to be more innovative, rather than ways to regulate.”

This sentiment was echoed by uber-VC Marc Andreessen, an aggressive proponent of Bitcoin, a cryptocurrency that could, in theory, disrupt a core government function and major policy lever:

‘‘The problem with building a new product or service in the existing financial industry is that tens of thousands of pages of legislation and thousands of lobbyists are going to come down on you very quickly. We needed a new technology to have the wedge to be able to enter the market, to be able to justify all the work to rebuild the system.

With bitcoin, we now think we have that wedge.”

Neelie Kroes, the EU’s digital chief, has made it abundantly clear government is not so willing to rebuild its systems:

“I do wonder how many more Valley companies have to get slapped before the rest of them realize it’s time to start investing in better relations with the EU.”

Expect such “investments” to become commonplace. Likewise, add Amazon to that list of companies who apparently need to be “slapped”:

The European Commission is poised to launch a formal in-depth probe into its serious concerns over improper state aid, dragging Amazon into a multi-pronged clampdown on sweetheart tax deals that has already ensnared Apple in Ireland and Starbucks in the Netherlands. 

To absolutely no one’s surprise, Amazon has declared it pays “all applicable taxes in every jurisdiction that it operates within.” As with Apple, the accuracy of this statement is borderline meaningless.

Prediction: numerous governments will alter their tax rules simply to prevent other governments from getting a larger share of any Big Tech monies available. To wit: Why let Europe get a (theoretical) cut of Apple’s bounty when that money could be put to better use in America? Or Brazil? Or China?

Here, There And Everywhere

Tax disputes are certainly not the only concern for tech companies. Just this year:

The Chinese government (blocked) virtually all access to Google websites, instead of just imposing 90-second delays when banned search terms were used. Experts initially interpreted the move as a security precaution ahead of the 25th anniversary of the Tiananmen Square crackdown on June 4. But the block has largely remained in place ever since.

This latest move and previous actions by China have significantly impacted Google’s long term potential inside the world’s largest Internet market. Not surprisingly, China’s own Baidu has a 90% share of search — and not because users prefer its results to Google’s.

Despite Baidu’s ubiquity, many users are finding it to be a poor replacement—especially students, academics, researchers, and technicians who need to rapidly find reliable information online. 

It’s not only Google that faces such barriers. Twitter and Facebook are both “filtered” in China. Nor is the problem confined only to American technology companies.

Two popular messaging services owned by South Korean companies, Line and Kakao Talk, were abruptly blocked this summer (by China), as were other applications like Didi, Talk Box and Vower.  

Nor is hardware spared. Despite its stellar reputation for security, China’s CCTV ran a report earlier this year suggesting Apple’s iPhone location tracking could put state secrets at risk. If true, China obviously has no choice but to take swift, decisive action.

Government entanglements can take many forms. For example, Apple was caught off guard last month when regulators did not provide the requisite approvals for the company to begin legally selling its new iPhones in China. This despite Tim Cook’s many visits to the country, Apple’s sizeable third party workforce there, and the fact Apple and its partners had readied a major advertising push, believing they had done everything necessary to satisfy the various interested parties. Not so, apparently.

Surprise! Regulators have now proffered their assent, in large part due to Apple’s latest assurances that the American government cannot “backdoor” access iPhone data and obtain any of those China state secrets as noted above. 

Rules are rules. The costs required to successfully navigate such rules may not always fall the way prices of technology always seems to fall. Nor may such rules prove as leveling. As Bloomberg recently reported, myriad new government rules in China are likely to benefit local companies, such as Xiaomi.

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Moreover, now that users in China can legally purchase iPhone 6, it may cost them more than anticipated. China’s government recently decreed that China Mobile, the world’s largest carrier, must reduce phone subsidies. The effect of such actions are obvious.

“High-end flagship phones will suffer the most from the regulation due to their prohibitive prices in the China market without subsidies.”  

“Samsung and Apple, as the two major high-end flagship phone makers, have the most to lose.”

A Day In The Life

Brazil has demanded Apple delete the Secret app from iPhone. Russia recently seized Bitcoin mining equipment at its border with China. Several US states have taken legal action against Uber and Lyft. The EU wants Google, Facebook and Twitter to help it combat what they view as online extremism — and what others view as free speech. The lesson, once again: Tech company interactions with governments will become the norm. Simply put, because tech touches everything.

No matter what you think of Europol‘s veracity, when Europe’s cybercrime unit writes the following, it necessitates a reasoned, continued and very likely financial response from well-heeled technology companies eager to profit from the Internet of Things:

With more objects being connected to the Internet and the creation of new types of critical infrastructure, we can expect to see (more) targeted attacks on existing and emerging infrastructures, including new forms of blackmailing and extortion schemes (e.g. ransomware for smart cars or smart homes), data theft, physical injury and possible death, and new types of botnets.

Death and botnets are always scary. Fighting them is no doubt expensive.

Technology’s promise carries with it parallel strands of fear, always. Consider how smartphones and social media have deepened our understanding of events around the world, such as the recent protests in Hong Kong. Now consider not everyone is pleased by this.

Tim Cook has spoken publicly about civil liberties. Is it fair to ask him — and Apple Inc — to choose a side in this latest skirmish? Is it fair to ask the same of Twitter? Many will.

You Say You Want A Revolution

I suspect you want me to say these many government interventions are dubious, the product of terminally greedy tax collectors, frightened regulators, and entrenched forces hoping to kill off outland competition.

I won’t. Mostly because such sentiments are not relevant.

The many reasons for these many government actions will grow in number, kind and intensity as technology continues to destabilize and disrupt industry after industry. You must understand: There is no bigger industry than government.

Tech is money. Money is power. All three are quickly spreading around the world and most of us want, at minimum, our perceived fair share. Do understand, however, that what’s right and what’s wrong are just two sides to this proverbial Rubik’s Cube.

Freedom is not a zero sum game. Not all believe the same is true for money and power. This is true everywhere. The really big disruption won’t just be of the established order, but of human nature.