1. The further you are up the chain of abstraction, the less “valuable” the export is as a form of power. Think of this as a spectrum between hard and soft assets — if you decline to sell advanced computing software to your rival, you may harm their ability to optimize crop yields, or whatever. But if you decline to sell them steel, or oil, you may decimate their energy supply and bring their economy to a halt.
So, generally speaking, harder assets have more “declination risk” for the purchaser than softer ones, because the softer ones are either a) at the tip of the value chain, or b) easier to clone and replace. China has done a great job of outright refusing US SaaS exports like social media companies, while “stealing” millions of Windows licenses from Microsoft.
Said differently, IP is fragile! If your opponent does not respect your laws, you can’t enforce them. Hard assets are the opposite, because you can more easily cut them off.
And again, they are usually at the bottom of the value chain, so everything else is dependent on them being available. No oil, no cloud computing. Not the other way around.
2. Great counterexamples. I think it depends on what you define as innovation, and perhaps more specifically what about innovation as a concept is important to you.
- There are “open” kinds of innovation that push humanity forward, grow global wealth and prosperity, and make everyone better off.
- There are also “closed” kinds of innovation that benefit only a particular group.
Generally speaking, open innovation is “fangless.” What I mean by this is that it does not greatly increase your geopolitical power. The Dutch, for example, own ASML, but this doesn’t really give them any power, because their tools are relatively “open”. Swiss companies own massive numbers of pharmaceutical patents, but that’s just a domicile on paper. If Switzerland were invaded tomorrow, their patent regime wouldn’t offer much protection.
By contrast, a more “closed” form of innovation (weapons manufacturing being the most extreme example) will dramatically increase your geopolitical power.
Think back to the atomic bomb. Now look to the future. If the US develops killer drone swarm technology, or genome-targeted bioweapons, or whatever else, that means we have the cards.
Once you have world (or space) domination technology, you can disproportionately benefit from it, and you can selectively enrich your allies by giving them access to it, like the US currently does with our weapons systems.
If you don’t vertically integrate, you can’t do closed innovation. And closed innovation is the only “hard money” — and perhaps the dominant power struggle in geopolitics.