In global technology race, Virginia holds the key
This article was originally published in Richmond Times-Dispatch with Joshua de Salis Soprhin.
The recent congressional hearings over TikTok underscore the growing bipartisan concerns about the Chinese Communist Party (CCP) and how the United States’ technological exposure to Chinese interests could impair national security. But national security is also impacted by economic competitiveness, particularly in strategic industries that have dual-use applications in both the private and public sectors. If the U.S. is to maintain its competitive edge against the CCP and stand as a source for freedom in the world, it needs a compelling industrial policy.
Fortunately, there is growing bipartisanship behind certain elements of industrial policy, which led to the passage of the CHIPS and Science Act in 2022 that was designed to help promote the U.S. semiconductor industry and its competitiveness across the globe, especially with China. However, more work is needed to develop regional partnerships and clusters between innovators in the private sector and the national security funding and technology apparatus.
Semiconductors are the fourth-largest U.S. export, and the industry directly employs 300,000 Americans and touches an additional 1.6 million, according to a 2022 report by the President’s Council of Advisors on Science and Technology. Furthermore, the global semiconductor industry grew by more than 300% from $139 billion in sales in 2001 to $573.5 billion in 2022, and unit sales of semiconductors grew by over 290%. Demand grew substantially during the height of the COVID-19 pandemic due to the increase in consumption of digital goods and services. However, the sector struggled to meet demand due to fragmented and thin supply chains. Although Taiwan and South Korea are both large producers of semiconductors, China committed $150 billion over a 10-year period to the sector and has been aggressively making inroads to monopolize the industry by 2030.
In 2023, Virginia will receive over $8 billion in infrastructure investments to build on that technological cutting edge. This investment will include $6.22 million for increased access to broadband internet in rural areas to provide everyone with the tools they need to succeed. In addition, Virginia will receive $106 million to create a new electric vehicle charging grid, in addition to other investments in smart infrastructure. All Virginia residents will gain access to new opportunities through these programs even if they do not work in tech directly.
Clearly our adversaries are aware of the sector’s strategic importance, and they have publicly proclaimed it. While there are many tools at our disposal to promote innovation, the U.S. must choose carefully how to respond to risk over escalation and a spiral of reactionary policies.
Every state has a role to play in confronting this challenge, but perhaps the most obvious is Virginia because of its proximity to the national security community in Washington, D.C. Virginia can contribute to safeguarding the U.S. semiconductor industry and its role in ensuring our national security by mapping its economic activities to similar efforts and applying CHIPS Act federal funds toward initiatives that drive the further development of capabilities in the design and manufacturing of chips. However, further investments — and not just financial — are needed.
The national security community has long acknowledged the challenge of engaging and supporting smaller R&D groups that have high-impact, but operate independently. Despite the best efforts, these groups still struggle and are not able to easily tap into federal awards for emerging technologies that traditionally go to the more established incumbents. To remain innovative and competitive, the federal government will need to support these smaller organizations and overcome the “valley of death.”
1. Build a protected sandbox where only small businesses can initially participate — and not simply as subcontractors to larger groups that have already received an award — with further refinements to the system for the award management (SAM) registration process. We must build up confidence and provide trust by incentivizing the Small Business Administration and allied federal agencies to move more quickly and efficiently.
2. Eliminate the practice of government agencies using requests for information and requests for proposals as purely a market-intelligence exercise. Using these as mechanisms to survey cutting-edge technologies not only wastes the time of entrepreneurs and small business owners, but also undermines trust when the perception of having a chance at winning an award is yanked out from under them. Leveraging local proximity and innovation clusters in Virginia to cultivate relationships, rather than relying on highly formal and impersonal communication patterns, would motivate entrepreneurs.
3. Establish a better contracting infrastructure that focuses on continuous development and delivery and avoids generational gaps over long-term investment cycles in how technology innovation is made available to the government. Too often, one contractor may provide a generation 1 technology and then separate software is released that needs generation 4 technology, but there is no support for the government to run the new software and it translates into a multimodal failure in implementation. This is especially relevant in production of semiconductors where there is a longer timeline for development of both the hardware manufacturing facilities and machining capabilities, which are in turn tightly integrated into the contemporary or future design of chips as part of hardware/software co-design methodologies.
As we navigate the intricacies of our contemporary foreign policy with the CCP and its impact on our nation’s ability to compete globally, states like Virginia hold the essential physical and human capital resources to strengthen the U.S. industrial base and catalyze a resurgence of domestic manufacturing capabilities. While the CHIPS Act is an important start, implementing and maintaining a long-term strategic effort will require further educating state, federal and local leaders to have a more holistic and better understanding of the disparate array of economic, technical inputs that need to be continuously balanced in order to ensure the national security position of the U.S. well into the future.
Dr. Christos A. Makridis is a professor, entrepreneur and adviser, and holds doctorate degrees in economics and management science and engineering from Stanford University. Contact him at cmakridi@stanford.edu.
Joshua De Salis Sophrin is the owner of Delaware-based JDSS, a family business that invests in technology and infrastructure. Contact him at information@assoc.jdss.com.