Intellectual Capital

I mentioned the history professor who said that the Roman Empire and British Empire had gone broke trading with China. How did that happen? This is a very old phenomenon.

China—like many other Asian cultures—is a master at playing the intellectual capital game. If they don’t invent it, then they find the invention, they figure out how to make the invention by copying it, and as they make it, they reengineer it, and they make it better. So, they are constantly looking to vacuum-clean everybody else’s intellectual capital and then reengineer to make it cheaper or better. China maintains a very high learning metabolism.

Their approach to the creation and theft of intellectual capital is at the heart of many of the disputes between China and the United States. Steve Bannon, the former assistant to President Trump, recently said:

China’s model for the past 25 years, it’s based on investment and exports. Who financed that? The American working class and middle class. You can’t understand Brexit or the 2016 events unless you understand that China exported their deflation, they exported their excess capacity. I want China to stop appropriating our technology. China is, through forced technology transfer and through stealing our technology, but really forced technology transfer, is cutting out the beating heart of American innovation. We’re not at economic war with China; China is at economic war with us.

One of the things that I would say to Bannon is that it hasn’t been going on for 25 years; it has been going on for 2,000 years. China has been operating on this intellectual transfer model forever. When I was in China negotiating database development deals in 1997, the legal and business models were organized to require investors and operators to transfer intellectual capital to local partners. Ultimately, the local partners would capture all of that intellectual capital and control the continuous improvements to it.

To help you understand this phenomenon, watch the video in the Movies and Documentary section from Wired on Shenzhen—the Pearl River Delta economic miracle. It addresses this issue of the West going slower because everything is entangled with trademarks and copyright and patents. China instead operates in a model where it depends on a higher learning metabolism. The reality is that it speaks to a very different culture and scientific and technological model. The two models are not compatible. The Chinese are masters at economic espionage and cyberhacking and doing everything they can to steal intellectual capital.

This is at the heart of whether or not the West will maintain economic dominance. If it falls behind on technology—information technology and space technology and weaponry technology—it’s in a pickle.

The reality is that the demographics of technological development are compelling. If China is graduating one-million-plus engineers a year and India is graduating one-million-plus engineers a year, and Americans are graduating 200,000, how will America stay current short of a massive immigration of professional talent from Asia? If China is not bothered with trademarks and patents but has a phenomenally higher innovation metabolism, how does that excellence work on a platform of global trade? You really want to watch the Wired video on Shenzhen to understand the dueling intellectual capital models.

Another issue that I would include under the Intellectual Capital topic is the question of what language we will speak. Right now, English is the language of business. Worldwide, you have approximately 400 million or more English-speaking people. People speaking English as a second language are even more. Combined, you have more than a billion people speaking English as a first or second language. Traditional China had many different dialects of the Chinese language. Now the Chinese are consolidating everything into Mandarin.

The speed at which Hong Kong switched to Mandarin is remarkable. When I lived there to study at the Chinese University of Hong Kong in college, everyone spoke Cantonese. Now, everybody down to the taxicab drivers speaks Mandarin. Imagine requiring all of the taxicab drivers in New York to learn a new language! And the Chinese people really went out and did it. The feat is quite remarkable.

Now the question is: Will we all be speaking English, or will we all be speaking Mandarin? It’s a serious question. The reality is that Mandarin is not computer-friendly at all. If anything, our argument to maintain English as the common global business language is the nature of the written language and the difficulty of Chinese translating to a computer-friendly world.

However, don’t underestimate the ability of 3.5 billion Asian consumers to decide what language we speak.

We just saw United and Delta airlines decide to stop showing Tibet and Taiwan on their schedules. So now, if you want to fly to Taipei, United and Delta will mark it as Taipei but they won’t mark it as Taiwan. That switch is so as not to insult China by implying that Taiwan is a country different from China.

If United and Delta are deciding to undermine Tibetan and Taiwanese sovereignty in 2018 so that they can have access to the Chinese consumer, what does it say about what language choices to make over the next 20 years?

Next Chapter: Financial Markets & Corporations