Podcast: China’s Race to the Top: Authoritarianism in Technology and Global Affairs, With Keith Krach

China is taking an authoritarian approach in its quest to be a dominant power in technology and global affairs. Silicon Valley innovator and former Under Secretary of State Keith Krach has a unique perspective on both aspects. Rob and Jackie sat down with him to discuss how China is impacting global market competition and what it means for U.S. competition policy.

Mentioned

• Keith Krach, “Present your China contingency plan at the next board meeting,” Fortune Magazine, April 2022.

Related

• Robert D. Atkinson, “China’s ‘State Capitalism’ Is Not Capitalism” (ITIF, August 2021).
• Robert D. Atkinson, “A Remarkable Resemblance: Germany From 1900 to 1945 and China Today,” International Economy, January 20, 2021.
• Robert D. Atkinson, “Who Lost China?” (ITIF, July 2018).

Auto-Transcript

Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, Founder and President of the Information Technology and Innovation Foundation. We’re a D.C. based think tank that works on technology policy.

Jackie Whisman: I’m Jackie Whisman. I head development at ITIF, which I’m proud to say is the world’s top-ranked think tank for science and technology policy.

Rob Atkinson: This podcast is about the kinds of issues we cover at ITIF, from the broad economics of innovation to specific policy and regulatory questions about new technologies. Today, we’re going to talk about China’s authoritarian approach to both technology and world affairs. Our guest has a unique perspective here, having served in top levels of government as a leading CEO, and now a philanthropist focused on foreign affairs.

Jackie Whisman: Our guest is Keith Krach, a Silicon Valley innovator and former Under Secretary of State. He founded and led several companies, including Ariba and DocuSign. Most recently, for his work securing 5G and his advocacy on behalf of Taiwan, he was nominated for the 2022 Nobel Peace Prize. Today, he serves as chairman of the Krach Institute for Tech Diplomacy at Purdue, which we will talk about a bit later. Welcome.

Keith Krach: Well, thanks Jackie and Rob. I appreciate being on.

Jackie Whisman: I would love to start with you telling us a bit about your experience navigating China affairs while you’re at the State Department. This was 2019 thereabouts.

Keith Krach: Sure. It all started off when I was running DocuSign on my last trip to China. And I’ve been going to China since 1981. I’m a lover of Chinese history, culture, the people, and of course the food. That trip was different than all the rest. I could see how China’s market competition under General Secretary Xi amped up in a new form of techno economic warfare. I went on a two-week listening trip. I saw drone swarm technology. It was the first time I heard about One Belt One Road. It looked like a military supply chain to me. I met five of the top seven Politburo members.

And as I was coming back, I go, “All is I know is the guys with the best technology win the war and I wonder what the guys in Washington think about this.” And I’d never been involved in politics or anything like that. I ran companies that I built politically neutral. So I went out there a week later, and that’s when I was asked question of, “Have you ever thought about serving your country?” And I said, “Hey, that’s a dream I never knew I had before.” They said, “Can you move?” I go, “I can move anywhere in the world.” And that’s when I went to run economic diplomacy at the State Department. My mission was to develop and operationalize a global economic security strategy that would drive economic growth, maximize national security, and combat China’s economic aggression.

Now, I had grown up in the Midwest. My dad had a five-person machine shop, and I had seen how China’s weapons of mass production had gutted the heart of our economic engine, which is small-medium size manufacturers. When I was a VP at General Motors, I could see if you build a plant in China, you’re not just giving them the blueprints, you’re teaching them process engineering, training their people. When I was running Ariba, Alibaba stole our intellectual property. But I could tell you, what I saw at the State Department was beyond my imagination. I could see what their two objectives was, obviously, regime preservation, but also global world domination.

And I could see that they were playing a game of four-dimensional military, economic, diplomatic and cultural chess, and the crossroads for all of that and the main battlefield was really technology. And with little respect for sovereignty of nations, rule of law, respect for property of all kinds, respect for the environment, respect for human rights, respect for the press. And at that particular time, one of the urgent missions when I came in was it looked like China’s master plan to control 5G was unstoppable, and that was one of our missions.

Rob Atkinson: Keith, I’m really glad you framed it that way. I love that phrase, “Guys with the best technology win the war.” And I don’t think Washington fully understands that yet or we think we still have the best technology. We have a report coming out in a couple of weeks. I think it’s the first report anybody’s done where we’ve looked at seven key advanced industries like semiconductors, software, electronics and we looked at global share. And it looks like China actually out produces us now when it comes to these just in terms of volume.

And I remember I was in the Obama administration. The White House appointed me to be head of this US-China Innovation Experts Group. It was actually a great experience. I got to go to China with six, five other experts, and it was State Department officials who were hand showing the whole thing who worked just great. But we visited Chongqing and we went out to this Ford Motor company plant. And it was an R&D facility, so I said, “Oh, why is this R&D facility here?” They said, “Well, if you look over there, you’ll see the factory.” Well, the factory, which is a JV, under the conditions for China and for Ford to get into that market, they had to open up an R&D lab.” They didn’t have a choice. I mean, their choice was either do that or don’t be in the China market.

So you’re right about all that. And I look at China as largely predation. A lot of what they’re doing is predatory. And I have to say I thought the Trump administration was really the first administration to understand that and take that seriously. And I think because of that, it has changed the way Washington thinks about China. How did you see that evolving while you were in the administration?

Keith Krach: Well, I saw it finally drawing the line. It was interesting because my perspective coming in was from a businessman standpoint. So, Rob if you’re a Silicon Valley company and I’m a Chinese company, here’s what happens. If I could steal your intellectual property, if I don’t have to be transparent, if I can use slave labor, if I can use really low cost, coal-fired power plants, if I don’t have to be reciprocal with my market, if I don’t have to obey the law or in the law, I’m going to beat you every time.

And these are principles we call the trust principle that protect our freedom, and there are areas of collaboration. These are things that we honor in the United States and the free world, but China, an authoritarian regime is also like Russia. They don’t. They use it against us for their strategic advantage. So one of the things that we did, and this is how we defeated China’s master plan for 5G, is we took those very principles that really add up to trust and in one Jiu Jitsu move, we flipped China on their back. So we actually weaponized the very principles that protect our freedoms.

It was interesting when I was in my Senate confirmation hearing and Senator Coons asked me what my China strategy would be. And I said I would harness US’ three biggest areas of competitive advantage by rallying and unifying our allies and our friends, leveraging the innovation and the resources of the private sector and amplifying the moral high ground of democratic values because, if you look at what the Chinese do, we call that the power principle coercion, co-option, just total disregard for human rights.

And so this was really a big issue, and I could see before my very eyes at the State Department and in the interagency how that ship was really turned. And we could also see, once the pandemic hit, and I was responsible for infectious diseases, and I can tell you all roads lead to Wuhan. The emperor has no clothes on that one, but we could see how they amped up their aggression in all different areas. And I think one of the important things to keep in mind is that their unrestricted warfare is an integrated strategy. And in a business world, when you’re building category kings, those kind of things, an integrated strategy is really key.

So being able to take a look at it along all these different dimensions is absolutely critical, and I know you’ve written a lot of pieces in terms of funding the Chinese, and the average American citizen has no idea that their pension funds and all those kind of things are funding China’s military buildup and also their surveillance state, which enables the genocide, for example, that’s going on at Xinjiang.

Rob Atkinson: Yeah, it’s really striking because we found all this evidence. For example, I live in Maryland, and the Maryland State Pension Fund invests in Chinese venture capital firms that are building up these technology champions for China. We also found recently that state governments in the US have given over $2 billion in subsidies to Chinese firms. It’s just ridiculous. I’m glad you mentioned Senator Coons who’s ... And we love Senator Coons. He’s our honorary co-chair in the Senate along with Senator Young, Todd Young from Indiana. So I wanted to ask you, you’ve talked about tech diplomacy. You use that assertively to counter China particularly in the 5G space. How do you define tech diplomacy? Where do you see its future? Because it’s frankly a little bit of a new practice. We haven’t done it that much before.

Keith Krach: When I came into government, the State Department folks told me this was something unprecedented. I brought in 12 folks from Silicon Valley, technologists, entrepreneurs, results-oriented execs, and we combined that team with, I mean, some of the smartest people I’ve ever worked with in terms of their career, foreign service officers and civil servants, and we created this whole new area called tech statecraft, which is really the integration of high tech strategies. We call them Silicon Valley strategies, the type of economic warfare we practice out here, but we play by the rules because, if you don’t have your integrity, you don’t have anything, with foreign policy tools based upon this trust principle.

And our objective when we got the authorities to defeat China’s master plan for 5G was to create an enduring model that would be applicable to all areas of techno economic competition, and we built this Clean Network Alliance of Democracies that represented 60 countries. Two-thirds of the world’s global GDP, 200 telcos and a host of industry-leading companies. And we took the number of worldwide 5G deals they had from 91 probably down to less than a couple dozen. We also announced things like clean cloud, clean apps, clean carrier, clean cable, which is underwater cable. It’s really proved to be really effective.

And so at the Krach Institute for Tech Diplomacy, we’re teaching this area of tech statecraft, tech diplomacy to make sure that technology advances freedom, and it’s a great bipartisan effort. We have folks like former Secretary of Defense Leon Panetta on the board, Stan McChrystal, my predecessor, Bob Hormats, Mircea Geoana, deputy secretary general of NATO, just came on board. So this is really important, and this is something that we’re not just training our government folks on it, but also worldwide as well. And also the private sector. Because I think the biggest untapped opportunity in this all-of-society issue to protect democracy and freedom around the world is leveraging the innovation resources to the private sector. It’s really important that we rally the tech titans.

And I know you had Marc Andreessen on one of your recent shows. I mean, he’s a great example of a great patriot, and that was one of the things that I did back in June 2020. I brought together 36 of the top CEOs in Silicon Valley at my home in San Francisco. So many of them had been there before. It’s a safe environment. I kicked it off and said, “Let’s go around a room. Everybody, tell your China horror story.” I can’t really tell you what the contents for that, but I can tell you this, it was cathartic, it was enlightening, and it was frightening all in one.

And at the end of it, I said to the guys, I said, “Look, out here in Silicon Valley, we say corporate responsibility, social responsibility. It’s also national security, too. It’s global economic security. And not only is China a real emerging threat for our democracy, it’s a real emerging threat to your business because they don’t want to just compete. They want to put you out of business.”

Rob Atkinson: You raised a bunch of really good points there. One quick one is I think it’s time for ESG to include national security patriotism.

Keith Krach: I could not agree with you more. If you look at ESG, I really believe there should be no Chinese companies in any of these ESG funds and for three reasons called E-S and G. The environment, these guys are the biggest polluters in the world. They give a lot of [inaudible 00:13:46]. From S is social, that means no human rights abuses. And if you look at what they’ve done in Xinjiang with the Uyghurs, they export to all areas around China, slave labor. And then if you look at G governance, well, that means good governance practices in terms of transparency and accountancy and being audited and not one Chinese company can be audited. So they don’t apply under ESG. They should be actually none of them. I really feel strong about that. So I’m with you a hundred percent.

Rob Atkinson: Yeah. It frustrates. I was speaking at an ESG cover. They asked me to come up and talk about broadband. And the panels after me were all these wall street types bragging on ESG, and then talking about how they were investing in Chinese companies. And I was just like, “Do you not understand the cognitive dissonance that go on here?” I did want to mention though, I think this point, and it ties into your institute, which is to me a really critical enterprise you’ve engaged at. Last fall in December a group in Korea called the Cha Institute and it’s a President Park who used to be the Korean Ambassador to the US, he set up this think tank and he organized this small sort of 90 people conference out at a nice resort, the Salamander and it was basically Japanese officials, Korean officials, and USG officials and others like myself.

And what I was really struck by was a number of the US government officials who had held very high level diplomatic positions almost to a person. They said, “If I was advising somebody today, who’s at Georgetown School of Foreign Affairs, foreign service or wherever, I would advise them to learn technology.” This is what they said, “I didn’t learn technology and now I realize I should have.” And it sounds to me, that’s exactly what you are trying to do there is to fill that gap.

Keith Krach: By the way, absolutely. And as I mentioned, this is the battlefront. This is the main battlefield, and this is the intersection in terms of all these different dimensions of China’s unrestricted warfare. And it was interesting for me because in the government, I think there was one other person that even came close to my level from Silicon valley. There’s not a lot of them, but I don’t know if any of them actually in the Biden administration. Mike Brown was going to be headed over there. And this whole area of tech state craft I mean, is not taught at the state department, commerce department, DOD treasury trade. So this area of technology is really key.

And that’s also why I’m such a big proponent for getting my fellow brethren in the high tech industry to go serve the country and [inaudible 00:16:37] back this great nation, that’s done so much for them because we need that. And we need that private sector influence. And when I say private sector, I’m not talking about the wealth transfer industries, like investment banking or law. I’m talking about value creation, industries like manufacturing and like high tech. And it’s critical that we infuse that DNA into our federal government.

Rob Atkinson: It’s so sad that Mike Brown, who used to be CEO of Symantec and now is a DIU. I’m not going to the detail. I was very disappointed that he didn’t get that position in DOD. I thought he would’ve in a fantastic edition, but water under the bridge.

Jackie Whisman: Well, let’s talk a little bit more about the Krach Institute. How is it different from existing think tanks focused on global security, international relations?

Keith Krach: I think the Institute’s probably more of a action tank than anything.

Jackie Whisman: I love that.

Keith Krach: We consider it a think tank. There’s a number of things that will be announcing pretty shortly. We’ll be announcing a global technology security commission that will be comprised of private sector and government leaders from the 15 top technological organizations. We’ll also be announcing a joint venture in the area of microfinance to close the digital divide in low income countries and to do that with trusted technology. The other big thing obviously is we’re leveraging Purdue Prowess as the largest engineering school in the country, their track record of innovation, their global reach.

One of the things that just happened at Purdue is that we got a $500 million grant from Rose Royce in terms of research and development in hypersonics. So we’re able to leverage, we talk about those 17 key security sectors, which by the way, we’ll cover in that technology security strategy produce a leader or one of the leaders in many of those areas. Purdue just announced the first degree in semiconductor engineering. For example, it has super advanced wind tunnels, clean energy, 6G communications, all that kind of stuff.

So that’s what really makes the Institute for tech diplomacy at Purdue, really in a league of its own. And it’s really fast quickly becoming I think the global authority in terms of tech state craft and building a global trust network around the world.

Rob Atkinson: That’s fantastic. You mentioned Keith also working with us, some other countries that maybe aren’t as sophisticated or large, or has developed, we get delegations all the time from various countries coming in wanting to learn about tech policy, talk about tech policy. And I’ve been struck in the last six months, and I won’t say who they are, but a number of smaller countries, they’re not super super poor, but they wouldn’t be in the OECD let’s say, and they’re doing two things that I think ... One is they’re doing some really interesting innovative things around tech in their countries. But secondly, they’re being whip sided because at one level, the US is not, as far as I can tell the US isn’t helping them and helping to guide them in our direction.

And yet there’s Chinese money coming in. And, “Oh, if you do this you buy the Huawei or ZTE network.” And I know states doing things, you got the digital attaches and we beefed it up more, but I feel like that’s one of the things we should really do. Remember in the old days in the cold war, there are these unaligned states. And I feel that’s where we are today, particularly around tech. There are these unaligned countries around tech, and we need to get them into because our model’s the right model. It’s the best model. And we need to sell that model. I know, just being curious your thoughts on that,

Keith Krach: Rob, you are so spot on by that. As I was going around building this Clean Network Alliance of Democracy, 60 countries and in so many of these nations as you said, ones that are not in the top 10. What these guys want more than anything else, is they want United States, private sector investment in their countries. And the kind of investment they want is they want the innovation side. And so this is something that we did a lot at the US state department where we teamed up with private sector companies, whether it was a Microsoft or a Google or a Cisco or IBM and we go in there jointly, that’s key.

I was also chairman of the development finance corporation. And this was a big focus for ours in terms of where we’re going to spend that 60 billion dollars. And it’s really the combination of the two. And if you look at, for example, this whole joint venture, the Krach Institute for Tech Diplomacy is going to do with opportunity international, this area of microfinance and trusted technology is really aim at bringing in that trusted tech. So this is something, when I talk about leverage innovation and resource to private sector, you just gave a perfect example of that.

Rob Atkinson: It’s funny, it’s a win-win for us and for them. It reminds me, you said you had a bunch of the CEOs in your house. They’re talking about China. I won’t say who this was, but this was a private meeting, but a fairly senior Silicon Valley company president who had retired and he was talking about his experience in China which was not a good one. And he said, I never heard this it crack me up. He said, “In China, they used the word we want to win-win situation.” And he said, “In China, it means that China wins twice.”

Keith Krach: Yeah. Just on Monday, I was doing a fireside chat for my good friend, John Chambers who ran Cisco for 25 years. He had a lot of experience of that. And we all were fooled because these guys are master’s of concealment and deception. They dangle that big market out in front of you. They say they’re going to play by the rules, but they don’t. We did an analysis at the state department. We didn’t find one agreement, not one that China honored that didn’t suit their purposes. They look at an agreement as a one way agreement. We sign it, they sign it, they know we’ll honor it, they won’t unless it just works to their favor.

So now I think, and I could also see this as I always traveled around the world, building the Alliance of democracies that the world has woken up to what I call China’s 3Cs, the third 3Cs doctrine, a Concealment Co-option Coercion. And I think citizens understand now the pandemic as a result of the concealment of the virus. Regardless of where you think it came from. And people saw the coercion of Hong Kong and how it eviscerated citizens’ freedoms. And people are realizing now that that coercion in Xinjiang has resulted in a punishable genocide and citizens don’t like it.

And so now it’s beginning to give the political will to government leaders and CEOs around the world to stand up to that China bully. And it’s probably what the most unified bipartisan issue on Capitol hill. And we’ve all probably had experiences with bullies one point our lives. And all is I know is when you confront a bully, they back down and they really back down if you have your friends by your side. So that was the beauty of this approach in terms of building alliances is that there’s strength in numbers and there’s power in unity and solidarity because what China’s strategy is all about is dividing conquer and pick off the weak gazelle from the herd. And this is the only way that we’re going to be able to protect our democracy.

And now when you see what’s going on with Russia’s invasion in Ukraine, that’s heightened everything. And I just wrote an article in Fortune Magazine about what I’m seeing, some of the most prominent and most well respected board members are asking their CEOs for their China contingency plan at the next board meeting, because the heightened risk of a China Taiwan conflict, and they saw how off guard they were caught with what happened in Russia and pulling companies out of Russia and how much that cost. There were no plans sitting on these shelves for anything like that. And so we’re seeing that now because board members, fiduciary responsibility shareholders is to mitigate a dramatic risk like that. And that is a real probability.

Rob Atkinson: Man, we could do this for a long time. This is fascinating, but we need to unfortunately stop. I just mentioned one quick thing to reinforce your point. When I was on this US-China Innovation Experts Group, we were over there partly through the strategic and economic dialogue meetings. And so we had an innovation dialogue. We had lunch with senior Chinese officials. I think this official was from NDRC and I was chatting with him and I said, “Aren’t you worried about the US?” He goes, “No, we think we can go toe to toe with you. What we’re really worried about is the G2.” And I said, “What do you mean?” He goes, “What we’re really worried about is the US and Europe or US and Japan ganging up on us. We can handle one country at a time, but we can’t handle countries combining.” And it’s to your point, a bully picks off one weak person at a time. But if you stand together against the bully, they back down.

Keith Krach: Yep. I mean, I think that is really the big point and that is the direction that we need to take it. And by the way, that’s obviously a key part of the art of tech diplomacy and that is rallying those allies and our friends. What was interesting, the reason why all previous US efforts were failing in this 5G thing, I mean, before I came in government officials going around the world, banging on the table, saying, “Don’t buy Huawei.” And no country or telco CEO likes to be told what to do. So we came in, we just said something, this is another one where guys at the state department said, “Wow, we never thought.” And we just said, “Well, why don’t we treat these countries and these companies like customers?” Nobody likes to be told what to do. The customer is always right. So we need a value proposition. And so that’s, I think what it’s really all about. It’s a different mindset and we can do this, but we need our allies and our friends.

Rob Atkinson: Yeah. That goes back exactly to tech diplomacy. Keith, this was really fantastic. Thank you so much, really appreciate you being with us.

Keith Krach: Well, thank you so much. I wish you guys all the best and thank you for your service and what your foundation and your innovation group is doing, because it’s just absolutely great work.

Rob Atkinson: Thanks, Keith.

Jackie Whisman: And that’s it for this week. If you liked it, please be sure to rate us and subscribe. Feel free to email, show ideas, or questions to [email protected]. You can find the show notes and sign up for our weekly email newsletter on our website, ifif.org and follow us on Twitter, Facebook, and LinkedIn @ITIFdc.

Rob Atkinson: And we have more episodes and great guests lined up. New episodes, drop every other Monday so I hope you will continue to tune in.