December 15, 2017
The World Doesn’t Need Silicon Valley
by Vivek Wadhwa
China is right, and America doesn’t realize how much things have changed and how rapidly it is losing its competitive edge.
Ever since the Chinese government banned Facebook in 2009, Mark Zuckerberg has been making annual trips there attempting to persuade its leaders to let his company back in. He learned Mandarin and jogged through the smog-filled streets of Beijing to show how much he loved the country. Facebook even created new tools to allow China to do something that goes against the social media giant’s founding principles: censor and suppress content.
But the Chinese haven’t obliged. They saw no advantages in letting a foreign company dominate their technology industry. China also blocked Google, Twitter, and Netflix and raised enough obstacles to force Uber out.
Chinese technology companies are now among the most valuable—and innovative—in the world. Facebook’s Chinese competitor Tencent eclipsed it in market capitalization in November, crossing the $500 billion mark. Tencent’s social media platform WeChat enables bill payment, taxi ordering, and hotel booking while chatting with friends; it is so far ahead in innovation that Facebook may be copying its features. Other Chinese companies, such as Alibaba, Baidu, and DJI, are racing ahead in ecommerce and logistics; artificial intelligence and self-driving cars; and drone technologies. These companies are gearing up to challenge Silicon Valley itself.
See also: What India Can Teach Silicon Valley
The protectionism that economists have long decried—which favors domestic supplies of physical goods and services—supposedly limits competition, creates monopolies, raises costs, and stifles competitiveness and productivity. But this is not a problem in the Internet world.
Over the Internet, knowledge and ideas spread instantaneously. Entrepreneurs in one country can easily learn about the innovations and business models of another country and duplicate them. Technologies are advancing on exponential curves and becoming faster and cheaper—so every country can afford them. Technology companies that don’t innovate risk going out of business because local startups are constantly emerging to challenge them.
Chinese technology protectionism created a fertile ground for local startups by eliminating the fear of foreign predators. Yes, the technology industry is a predator. Silicon Valley’s moguls openly tout the need to build monopolies and gain unfair competitive advantage by dumping capital. They take pride in their position in a global economy in which money is the ultimate weapon and winners take all. If tech companies cannot copy a technology, they buy the competitor.
Amazon, for example, has been losing money or earning razor-thin margins for more than two decades. But because it has gained market share and killed off a lot of its brick-and-mortar competition, investors have rewarded it with a high stock price. With this inflated capitalization, Amazon has raised money at below-market interest rates and used that to increase its market share. Uber has used the same strategy to raise billions of dollars to put potential global competitors out of business. It has also been unscrupulous and unethical in its business practices.
With these predators out of the way, Chinese technology companies started adapting Silicon Valley’s technologies and improving on them. In doing so, they weren’t only copying the technologies, but also copying Silicon Valley’s style—which is also to copy.
Steve Jobs built the Macintosh by copying the windowing interface from the Palo Alto Research Center. As he admitted in 1994, “Picasso had a saying, ‘Good artists copy; great artists steal’; and we have always been shameless about stealing great ideas.”
Apple usually lags in innovations so that it can learn from the successes of others. Indeed, almost every Apple product has elements that are copied. The iPod, for example, was invented by British inventor Kane Kramer; iTunes was built on a technology purchased from Soundjam; and the iPhone frequently copies Samsung’s mobile technologies (Samsung also does the reverse).
Facebook’s origins also hark back to the ideas that Zuckerberg copied from MySpace and Friendster. And nothing has changed since: Facebook Places is a replica of Foursquare; Facebook Messenger video duplicates Skype; Facebook Stories is a clone of Snapchat; and Facebook Live combines the best features of Meerkat and Periscope. Facebook tried mimicking WhatsApp but couldn’t gain market share, so it spent a fortune to buy the company (again acting on the Silicon Valley mantra that if stealing doesn’t work, then buy).
See also: Time to Rethink Silicon Valley?
America doesn’t realize how much things have changed and how rapidly it is losing its competitive edge. With the Trump administration’s constant anti-immigrant rants, foreign-born people are getting a clear message: Go home; we don’t want you.
This is a gift to the rest of the world, because the immigrant exodus is boosting their innovation capabilities. Let’s hope they don’t try raising their walls, too.