Sputnik moment, ten years delayed – From our Hong Kong Director
Ten years ago, at his State of the Union address, US President Barack Obama famously called on Congress to support “our generation’s Sputnik moment” by investing in research and development, particularly in breakthrough technologies. America has since spent the decade with this audacious goal largely overshadowed by other pressing national priorities. Now, the Sputnik moment appears to have finally taken centre stage, with the technological competition between the US and China heating up.
Both countries look to technological innovation to foster economic growth and job creation, as well as greater economic and national security; however, the economic challenges they each face are different. China, eager to escape the middle-income trap, address declining productivity growth and aging demographics, and combat what it perceives as an increasingly hostile international environment, wants to move up the value chain and increase levels of self-sufficiency in areas where it is dependent on foreign investment and imports.
At the core of China’s 14th Five-Year Plan is innovation-driven growth to be accomplished through measures like higher R&D spending and patent density, in specific sectors including quantum computing, artificial intelligence (AI), integrated circuitry, and biomedicine and life sciences. The plan makes clear that these goals will be accomplished with a state-led economic model.
For Hong Kong, the talk of state-led economic planning will hardly inspire young and entrepreneurial technological talent. However, Hong Kong has institutional and financial sector advantages that will enable it to play a differentiated role in China’s technological ecosystem, as well as focus on growth opportunities in nimble, research and design-driven, and low-volume technologies.
The US has faced a hollowing out of manufacturing jobs for almost two decades, due in large part to declining comparative advantage in labour-intensive production and displacement of routine jobs by automation. The US is also concerned about what it sees as over-dependence on China for key components in strategic manufacturing sectors. What it seeks is some degree of self-sufficiency, in addition to supply chain diversification away from China and greater collaboration with economies that are US allies, as highlighted in the Strategic Competition Act of 2021 with bipartisan sponsorship.
The Biden administration is rolling out policies with strong overtones of what is traditionally called industrial policy, with targeted support for industries including semiconductors, personalised medical equipment and advanced batteries, among others, and government procurement guarantees and requirements to buy domestic components. Government and private sector businesses would be working together to build this new industrial base and create “positive externalities” for the US economy.
It is not clear yet whether China or the US is more prepared to win the new Sputnik race. Getting there faster is not necessarily better. The original Sputnik crashed back to earth three months after launch. Technological innovation requires a talent pool valued and rewarded for its ability to create and disrupt, to challenge boundaries, and also allowed to fail along the way. The US still has an edge in global talent circulation and diversity. But technological innovation also requires patient capital and policy continuity. Given polarised public attitudes toward costly government initiatives and potential backlash during every election cycle in the US, China appears to have an edge in the continuous implementation of state-driven technological initiatives.
The danger for both countries is that it is unclear that the technological competition between the two nations will ultimately be competitive or anti-competitive. The former would mean better selection and products, leading to growth, while the latter could result in wasteful investment and protectionism that hamper productivity increases rather than boosting innovation in the longer term.
In 1975, the then-superpowers met in space in a joint mission to advance space rescue capabilities. Commanders of the US’s Apollo spacecraft and the Soviet Soyuz 19 spacecraft shook hands in space, signalling a peaceful and cooperative end to the Sputnik race. While tensions are rising and there is not yet an end in sight, perhaps there will be room for a handshake moment of the two current superpowers in areas of mutual interest for both economies. That would be a win for mankind.