Who Is More Technologically Advanced The USA Or China?

Short answer: The US.

Most things that make it not nice to build a business, aren’t features of the country (China) but of the ambient environment around it that make it undesirable to live and build a tech startup.

More specifically:

I. COPYCAT CULTURE

Is there any wonder, then, that the Chinese are widely regarded as not being creative? Yes, they file a lot of patents, but the quality isn’t great.

In my view, there’s not yet much terribly impressive about China’s technology achievements. A calm look at China’s technology achievements should pick up strengths as well as weaknesses. There are certain lights under which Chinese technology efforts look spectacular. China is the only country other than the US to have been able to develop internet giants, which can look upon their Silicon Valley counterparts as peers and puts it in a good position to continue developing digital technologies. The Chinese mobile internet experience certainly is far more fun than what consumers in the US are able to play with. It’s true that the country leads on 5G, the consumer internet like social network, mobile payments, and e-commerce, as well as the buildout of certain industrial technologies that include solar energy generation, mobile infrastructure equipment, and high-speed rail. They’re also making good inroads in consumer electronics, from smartphones to drones. And Chinese firms have a plausible shot at leading in emerging technologies like artificial intelligence and quantum computing. These however have more to do with differences in the social environment and regulatory regime. These are not trivial achievements. But neither are they earth-shattering successes.

I find it bizarre that the world has decided that consumer internet is the highest form of technology. It’s not obvious to me that apps like WeChat, Facebook, or Snap are doing the most important work pushing forward our technologically-accelerating civilization. To me, it’s entirely plausible that Facebook and Tencent might be net-negative for technological developments. The apps they develop offer fun, productivity-dragging distractions; and the companies pull smart kids from R&D-intensive fields like materials science or semiconductor manufacturing, into ad optimization and game development. I wish we would drop the notion that China is leading in technology because it has a vibrant consumer internet. A large population of people who play games, buy household goods online, and order food delivery does not make a country a technological or scientific leader. These are fine companies, but in my view, the milestones of our technological civilization ought to be found in scientific and industrial achievements instead.

Although Alibaba and Tencent may be technically impressive on software development, their business success is mostly a function of the size of the market and the social, regulatory environment. On the demand side, a huge and dynamic market will pull forward domestic capabilities. The ubiquity of mobile payments is due not just to technological innovation (substantial though that might be), but also the financial regulatory regime and the leapfrog over credit cards. In China they had the “good fortune” of basically being behind in so many things so they could leapfrog into a mobile world, go straight to mobile payment skipping credit cards, and now leapfrogging into online retail skipping the shopping malls, and so on. An industry’s legacy is hard to dump because it creates bad habits that are hard to change and baggage that is hard to leave behind. E-commerce works great because China has built first-rate infrastructure and because many migrant workers are available to deliver goods in dense urban areas. These are fine companies, but in my view the milestones of our technological civilization ought to be found in scientific and industrial achievements, not the creation of consumer internet companies. Now even if one did want to consider consumer internet the be the most important sector, the US still looks good. A rough rule-of-thumb comparison: market caps of the five biggest US tech companies (Apple, Microsoft, Google, Amazon, and Facebook) add up to US$5tn at the time of this writing, while the two Chinese internet giants (Alibaba and Tencent) add up to US$1tn. This 5:1 advantage to the US feels intuitively right to me as a measure of relative capabilities.

China has developed credible brands in certain hardware technologies, like the smartphone, and many types of industrial goods. They’re building good consumer products, although bad at creating global brands. It has a strong position when it comes to manufacturing industrial goods. A few firms have staked out leading positions in industries that include steel, solar power generation, and telecommunications equipment. The bulk still has a long way to go however before they can really be considered the peers of German, Japanese, Korean, and American giants. In fact, I suspect that Chinese firms should be considered underperformers as a whole. Few domestic firms have become globally-successful brands, and Chinese firms are still far behind more technologically-sophisticated industries involving R&D-intensive technologies like automotives, semiconductors, and aviation. They have a weak position even in the domestic market. As a rule of thumb, it’s harder to name global Chinese brands than Japanese and Korean ones, even when they were close to China’s current level of per capita GDP. The lack of success in global brand building shows that Chinese firms (not foreign firms producing in China) are actually poor exporters. Shouldn’t we expect more from the world’s second-largest market?

How about emerging technologies like AI, quantum computing, facial recognition, biotechnology, and hypersonics, and other buzzing areas? The fact that data so easily aggregates creates business models that are profitable because if it works in one city it can work in a hundred big cities; if it works with one demographic, then it applies to all demographics. Also, the market size is an even larger advantage in AI where so much data is needed; the more data, the better it works. But I think there’s no scientific consensus on China’s position on any of these technologies, but let’s consider it at least a plausible claim that Chinese firms might lead in them. So far however these fields are closer to being speculative science projects than real, commercial industries. AI is mostly a vague product or an add-on service whose total industry revenue is difficult to determine, and that goes for many of the other items. In my view, focusing the discussion on the Chinese position in emerging technologies distracts from its weaknesses in established technologies. Take semiconductors, machine tools, and commercial aviation, which are measured by clearer technical and commercial benchmarks. They are considerably more difficult than making steel and solar panels, and Chinese firms have a poor track record of breaking into these industries.

The focus on speculative science projects brings to light another issue around discussions of China and technology: an emphasis on quantifying inputs. So much of the commentary focuses on its growth in patent registrations, R&D spending, journal publications, and other types of inputs. One can find data on these metrics, which is why measures of “innovation” are often constructed around them. But these inputs are irrelevant if they don’t deliver output, and it’s not clear that they often do, neither in China nor anywhere else. Wonderfully asymptoting charts on Chinese patent registrations and R&D spending suggest that Chinese firms might overrun the rest of the world any day now. So far however the commercial outputs are not so impressive.

In many ways, China’s technology success is too much like a paper tiger, impressive in appearance but in reality not so powerful.

Why?

Because much of China’s technology stack is built on American components, especially semiconductors. China owns very few patents featuring originality and high or core technology. In fact, Chinese innovation relies on the modification of existing technologies, like putting together a cell phone and a cigarette case. Chinese engineers are trying only to replace existing technologies, which is relatively simpler than inventing them de novo. These creations are fun, but they lack depth.

China works to beat America.
America works to get the best of the world.

There’s a matter of will. Chinese aspirations to replace US technology has long been a whimsical task. All the research on this topic will end up into this.

Competition comes from the perception of scarcity while creativity comes from and leads to abundance. If you can create you don’t need to worry about competition. When you’re competing with people, it’s because you’re copying them. No one can compete with you on being you. Copycatting is a part of Chinese culture. Ten years ago, Shenzhen was 90% about copycatting and 10% innovation. Now, it’s 70% innovation and 30% copycatting.

We tend to look to models of success — be they companies, prescriptions, or people and we attempt to blindly copy them without understanding the role of skill versus luck, the ecosystem in which they thrive, or why they work.

We want the shortcut. We want someone to give us the map without understanding the terrain.

I can’t tell you the number of times I’ve seen companies attempt to solve innovation — as if it were a mathematical formula — with a version of Dragon’s Den or 20% innovation time. It doesn’t work.

It’s easier to copy a model than to make something new. Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.

There are two kinds of evolution: the genetic kind and the cultural kind. Both shape our behavior and mindset, and the cultural kind has gotten a lot faster.

You don’t need a totalitarian figure to realize that you are oppressed. Oppression is manifested in different ways. You are oppressed through social norms, through limiting beliefs, through facile and prosaic views. Human tendency to conform, especially when in large groups, is terrifying. Propaganda machines leverage this throughout human history. Only awareness and intellectual depth can battle this. The way out is to think freely, detached from the divisive narratives of the day that masquerade as universal truths. This often feels lonely.

The culture is kind of an operating system, and the operating system stays intact even as you put different programs through it.

Few of us are immune to the values of the people around us. The culture is so strong that people are absorbed into it and become part of it and do it willingly, and if someone is not willing, then the guys around them are so strong that they will pull them into the culture.

One of the most important things I’ve come to understand is that Eastern culture, which values sustainability, safety, community common good, rules & system, is best at value preservation (aka you’re already doing well and just want to make sure nothing gets screwed up).

In Asia, stability is prized. Inequality is much less tolerated. There’s a culture of sharing. People aren’t so cutthroat. It’s something in the culture that’s made Asian/Chinese people become a creature of convention, shun failure and variation, more risk-averse, scared to take ambitious swings to be themselves, extreme lack of critical thinking, deferring to groupthink, and perceive human engagement as competition rather than collaboration.

Western culture, which values risk-taking, personal freedom and citizen empowerment, is best at value creation (aka creating value from scratch).

Guess which culture does better in innovation?

* There is plenty of evidence:

For decades, the online infrastructure — from design to programming languages to wireless protocols — came from the West. China has long been known for cyber and intellectual property theft and protectionist regulation. We only need to look at the amount of money paid by Chinese companies to Western companies for the license of technology, intellectual property, plans, designs, formulas and so forth.

In 2007, agents of the Chinese military hacked the aerospace firm Lockheed Martin and stole tens of millions of documents related to America’s most expensive weapons system, the F-35 Joint Strike Fighter. A notably similar Chinese plane, the J-31, appeared soon thereafter. (China denies stealing the plans.)

The Chinese hacking of American businesses exposed a deep clash of perceptions: America was starting to see China as a near-peer, intent on flouting rules laid down mostly by the West. But China still regarded itself as a scrappy latecomer, using whatever tools it could to protect and improve the lives of a vast population.

That clash extends far beyond hacking: China has invoked its status as a “developing country” to erect barriers against foreign competitors, and to coerce American companies into sharing technology. Eventually, those practices turned some American businesses from ardent advocates for good relations into fierce critics. When China joined the World Trade Organization, in 2001, it agreed to a schedule for dropping tariffs and opening markets. But that schedule ended in 2006, and so did the momentum toward opening.

Chinese hackers at the behest of various agencies — military, intelligence — roamed farther and wider. In 2014, they stole the private records of twenty-two million U.S. government employees and their relatives from a server at the Office of Personnel Management. It was more alarming than the usual breach; foreign spy agencies could use those records to identify people who work covertly as U.S. employees, or have secrets that would make them vulnerable to blackmail. The following year, Xi promised Obama to curtail hacking, and it briefly died down, but China’s cyber attacks have since resumed, including “widespread operations to target engineering, telecommunications, and aerospace industries,” according to a 2018 report by the U.S. intelligence community.

In recent years, the FBI frequently arrests Chinese nationals for stealing research-and-development secrets. The U.S. government estimates that China’s intellectual-property theft costs America as much as $500 billion a year, or between $4,000 and $6,000 per U.S. household.

The U.S. has prosecuted at least half a dozen Chinese students and scholars for spying or for stealing scientific research. In 2017, four Chinese intelligence officers of the People’s Liberation Army’s 54th Research Institute stole trade secrets and hacked credit-reporting giant Equifax, which compromised the personal data of nearly 150 million Americans. The group ran approximately 9,000 queries while routing traffic through 34 servers to secretly obtain names, birth dates, social security and driver’s license numbers for nearly half of all American citizens, before compressing and exporting the data. In 2018, Ji Chaoqun, an electrical-engineering student at the Illinois Institute of Technology, was charged with acting as an agent for China’s Ministry of State Security, and accused of trying to recruit spies among engineers and scientists. (Ji has pleaded not guilty.) Christopher Wray, the director of the F.B.I., warned the Senate Judiciary Committee that China has enlisted “nontraditional collectors” of intelligence to steal their way up the economic ladder at our expense. Federal law enforcement agencies also announced charges against a Chinese national who is accused of working with the Chinese army while she was allegedly a student at Boston University. Yanqing Ye, an alleged lieutenant in the People’s Liberation Army, conducted research for China’s National University of Defense Technology while she attended Boston University from October 2017 to April 2019. She is also charged with granting a military researcher in China access to her BU virtual private network login so the researcher could conduct web searches from overseas without detection. She is said to have left the country before charges could be unsealed. Until the head of Harvard’s Chemistry Department was arrested in 2020, China was allegedly paying him $50,000 a month as part of a plan to attract top scientists and reward them for stealing information. Federal prosecutors charged him with lying to the Department of Defense about his work for a Chinese-run The Thousand Talents program that tries to recruit experts from Western universities to work in China and ramp up its progress in science and technology. The FBI said the program has rewarded individuals for stealing proprietary information and violating export controls. China is also behind recent breaches US officials, including at a US federal gov office, the hotel chain Marriott, and the health insurer Anthen. The professor has pleaded not guilty to making false statements to U.S. authorities. Three scientists were ousted in 2019 from MD Anderson Cancer Center in Houston over concerns about China’s theft of cancer research.

China’s first-generation Internet entrepreneurs unabashedly created copies of successful American start-ups Yahoo, Amazon, Facebook, Google and eBay. China’s powerful BAT companies — Baidu, Alibaba, and Tencent are Chinese equivalents of Apple, Alphabet, Microsoft, Amazon and Facebook. People call Baidu as the Google of China, Sina as the Yahoo of China because they’re pretty much US ideas. Microsoft for many years complained of the piracy of their intellectual property in China. Though now Chinese technocrats are breaking boundaries with their own business models and disruptive innovations.

For years, the copycat products that emerged from China’s cultural stew were widely mocked by the Silicon Valley elite. They were derided as cheap knockoffs, embarrassments to their creators and unworthy of the attention of true innovators. That’s why it’s very difficult for any Chinese company to go to the US market. There was this parallel universe of Chinese companies that pretty much only were offering their services in China. And we had Tencent who was trying to spread some of their services into Southeast Asia. Alibaba has spread a bunch of their payment services to Southeast Asia. Broadly, in terms of global expansion, that had been pretty limited, and TikTok, which is built by this company Beijing ByteDance, is really the first consumer internet product built by one of the Chinese tech giants that is doing quite well around the world. It’s starting to do well in the US, especially with young folks. It’s growing really quickly in India. I think it’s past Instagram now in India in terms of scale. So yeah, it’s a very interesting phenomenon.

These days, the most acute standoff between the two countries is over who will dominate the next generation of technologies. Under a plan called Made in China 2025, Beijing has directed billions in subsidies and research funds to help Chinese companies surpass foreign competitors on such frontiers as electric vehicles and robotics. A Pentagon report commissioned under Obama warned that the U.S. was losing cutting-edge technology to China, not only through theft but also through Chinese involvement in joint ventures and tech startups. It prompted Congress, in 2018, to tighten rules on foreign investment and export controls.

The technology dispute escalated later that year, when the Trump Administration expanded an attack on Huawei, the world’s largest manufacturer of fifth-generation (5G) networking equipment, warning that the Chinese government could use the equipment for spying and hacking. Recently, the Justice Department unveiled new charges against the Chinese telecom company and its subsidiaries. The charges include racketeering conspiracy and conspiracy to steal trade secrets from US companies for over two decades. The DOJ accuses Huawei of stealing and copying US intellectual property (think: robots, cellular tech), and selling it in products around the world.

But those outsiders missed what was brewing beneath the surface. The most valuable product to come out of China’s copycat era wasn’t a product at all: it was the entrepreneurs themselves.

China is watching Silicon Valley. That’s why Chinese founders usually have comprehensive knowledge about their US competitors, listing off minute product features and the latest numbers on their size and traction.

Chinese people clearly stay on top of Silicon Valley. I can count at least ten Chinese publications that focus solely on Silicon Valley news. On 36Kr, a mainstream Chinese tech news outlet (think of it as the TechCrunch of China), close to half of the articles every day cover FAANG (Facebook, Apple, Amazon, Netflix, Google).

When Facebook reported its security incident, related posts flooded my WeChat Moment timeline even faster than my Twitter feed. Once, I sent an English article about Instagram’s latest product change to a friend living in China, thinking that this would be news to her. She replied and said: “I read about this on Chinese sites three days ago. Have you been living under a rock?”

One thing is clear: people in China–at least those in the tech circle–are not living under a rock. Every time you go to China, you would be humbled by people’s extensive knowledge of entrepreneurs and companies across the Pacific. I have met Chinese people who can recite Paul Graham’s essays, Ray Dalio’s principles, and Elon Musk’s latest tweets. The Chinese version of Crunchbase maintains extremely up-to-date–even encyclopedic–coverage of US startups’ fundraising activities. Chinese people do not need anyone to tell them how the US works.

On the other hand, when you ask founders in Silicon Valley about Company Z in China, they often have no idea about its existence.

Many well-educated Americans can’t name a single Chinese entrepreneur beyond Jack Ma. Even though China has become home to around a hundred unicorns (as many as the US), people in Silicon Valley struggle to name even one. It is rare to encounter American entrepreneurs who have set foot in China, whereas many Chinese entrepreneur have traveled to Silicon Valley. Many in the US are unaware that some of the world’s most innovative products come from China, and I believe that China remains under- and poorly covered in most Western media outlets.

It makes me wonder how there can be so much information asymmetry in the tech world between the US and China.

What explains this knowledge gap?

The word “hunger” often comes up when they describe the Chinese entrepreneurs they meet. Why? Because if you are an entrepreneur in China, you are living a hunger game. Chinese people have a strong desire to copy American innovations and beat them in their game. It is a middle-income country with a well telegraphed desire to become the world’s pre-eminent power over the course of the next few decades. The Chinese market is so brutally competitive that if you don’t do everything it takes and learn all the best practices to win, you will almost certainly lose. It’s part of the reason why Chinese founders are like sponges in water–always absorbing knowledge and learning what’s working in other markets, so that they can improve their products and themselves. This “hunger” is something I see more of in China (and other emerging markets) than in the US, and it is my best explanation for the knowledge gap.

Of course, language gap is another big factor–almost every Chinese entrepreneur I meet can speak English to some degree, whereas the number of American entrepreneurs who can speak Chinese can be counted with one hand. Granted, this has to do with the fact that English is a global lingua franca and Chinese is not. But I would argue that language proficiency is a function of hunger as well–if you are not hungry to learn about the outside world, you would not be motivated to take the time and effort to learn a foreign language.

Having got to know about Silicon Valley for a while now, I see how easy it is to think that they are sitting in the mecca for world-class technology, that America still has the monopoly on real innovation, or that a VC can learn everything there is to know about tech without traveling much outside of Menlo Park.

* What explains this copycat culture?

The idea of progress itself is a relatively new. Before then, most cultures had the opposite idea of ancestor worship: that our ancestors were the greatest people who ever lived, that all the important knowledge was revealed to them, and all we should do is study them.

There’s a tendency for most of us to be scared of not having someone tell us what to do. Being told what to do can be comfortable. It can feel safe because ultimately, you never feel entirely responsible for your fate. You’re just following the game plan.

Dependence on authority, like focusing on performance over purpose, is a vestige of our industrial history. Obedience was a major societal value 100–200 years ago. It was necessary for society to thrive.

Silicon Valley’s and China’s internet ecosystems grew out of very different cultural soil.

When people ask, ‘Why does Silicon Valley win?’ The simplest and dumbest and best explanation is that “it is a culture where making things is seen as high status.” The United States is a nation of explorers. Silicon Valley is a distillation of the human spirit of exploration.

Entrepreneurs in the valley are often the children of successful professionals, such as computer scientists, dentists, engineers, and academics. Growing up they were constantly told that they — yes, they in particular — could change the world. Their undergraduate years were spent learning the art of coding from the world’s leading researchers but also basking in the philosophical debates of a liberal arts education. When they arrived in Silicon Valley, their commutes to and from work took them through the gently curving, tree-lined streets of suburban California.

It’s an environment of abundance that lends itself to lofty thinking, to envisioning elegant technical solutions to abstract problems. People are taught that crowds can be wrong, and that it’s a duty to stand apart if you disagree. Maybe these frequent exhortations to avoid groupthink increases independent thinking on the margins. Throw in the valley’s rich history of computer science breakthroughs, and you’ve set the stage for the geeky-hippie hybrid ideology that has long defined Silicon Valley. Central to that ideology is a wide-eyed techno-optimism, a belief that every person and company can truly change the world through innovative thinking. Copying ideas or product features is frowned upon as a betrayal of the zeitgeist and an act that is beneath the moral code of a true entrepreneur. It’s all about “pure” innovation, creating a totally original product that generates what Steve Jobs called a “dent in the universe.”

Startups that grow up in this kind of environment tend to be mission-driven. They start with a novel idea or idealistic goal, and they build a company around that. Company mission statements are clean and lofty, detached from earthly concerns or financial motivations.

In stark contrast, China’s startup culture is the yin to Silicon Valley’s yang: instead of being mission-driven, Chinese companies are first and foremost market-driven. Their ultimate goal is to make money, and they’re willing to create any product, adopt any model, or go into any business that will accomplish that objective. That mentality leads to incredible flexibility in business models and execution, a perfect distillation of the “lean startup” model often praised in Silicon Valley. It doesn’t matter where an idea came from or who came up with it. All that matters is whether you can execute it to make a financial profit. The core motivation for China’s market-driven entrepreneurs is not fame, glory, or changing the world. Those things are all nice side benefits, but the grand prize is getting rich, and it doesn’t matter how you get there.

Jarring as that mercenary attitude is to many Americans, the Chinese approach has deep historical and cultural roots. Rote memorization formed the core of Chinese education for millennia. Chinese education system emphasizes memorization, rather than solving the problem. Entry into the country’s imperial bureaucracy depended on word-for-word memorization of ancient texts and the ability to construct a perfect “eight-legged essay” following rigid stylistic guidelines. While Socrates encouraged his students to seek truth by questioning everything, ancient Chinese philosophers counseled people to follow the rituals of sages from the ancient past. Rigorous copying of perfection was seen as the route to the true mastery.

Layered atop this cultural propensity for imitation is the deeply ingrained scarcity mentality of twentieth-century China. Most Chinese tech entrepreneurs are at most one generation away from grinding poverty that stretches back centuries. Many are only children — products of the now-defunct “One Child Policy” — carrying on their backs the expectations of two parents and four grandparents who have invested all their hopes for a better life in this child. Growing up, their parents didn’t talk to them about changing the world. Rather, they talked about survival, about a responsibility to earn money so they can take care of their parents when their parents are too old to work in the fields. A college education was seen as the key to escaping generations of grinding poverty, and that required tens of thousands of hours of rote memorization in preparing for China’s notoriously competitive entrance exam. During these entrepreneurs’ lifetimes, China wrenched itself out of poverty through bold policies and hard work, trading meal tickets for paychecks for equity stakes in startups.

The blistering pace of China’s economic rise hasn’t alleviated that scarcity mentality. Chinese citizens have watched as industries, cities, and individual fortunes have been created and lost overnight in a Wild West environment where regulations struggled to keep pace with cutthroat market competition. Deng Xiaoping, the Chinese leader who pushed China from Mao-era egalitarianism to market-driven competition, once said that China needed to “let some people get rich first” in order to develop. But the lightning speed of that development only heightened fears and concerns that if you don’t move quickly — if you don’t grab onto this new trend or jump into that new market — you’ll stay poor while others around you get rich.

Combine these three currents — a cultural acceptance of copying, a scarcity mentality, and the willingness to dive into any promising new industry — and you have the psychological foundations of China’s internet ecosystem.

The reason for this is they have an economic system that can’t deliver.

In a socialist economy, you get a one-size-fits-all adjustment. Every adjustment needs to be commanded. Communicate it down and get everybody to do the right thing. That’s impossible. You miss out on this learning process where entrepreneurs copy others when they see things successful and stop doing it when it’s not. In a market economy, everybody’s little adjustments get tested, and we get to see what works.

This is not meant to preach a gospel of cultural determinism. Birthplace and heritage are not the sole determinants of behavior. Personal eccentricities and government regulation are hugely important in shaping company behavior. Maybe taxes and regulations matter more after all; I also don’t want to pass over cultural norms that stigmatize failure. If the limiting factors to great entrepreneurship is independent thinking combined with courage (courage is in shorter supply than capital or genius), then maybe it’s better to be away from innovation. After all, policies are easier to fix than the social environment. (See II below)

In Beijing, entrepreneurs often joke that Facebook is “the most Chinese company in Silicon Valley” for its willingness to copy from other startups and for Zuckerberg’s fiercely competitive streak. Likewise, I saw how government antitrust policy can defang a wolf-like company. But history and culture do matter, and in comparing the evolution of Silicon Valley and Chinese technology, it’s crucial to grasp how different cultural melting pots produced different types of companies.

* Copycat culture could mean fragility for China’s technology. Here’s how:

Today blind obedience causes more problems than it solves. It kills creative thinking. It promotes mindless parroting and inane certainty. It keeps crap TV on the air.

Without critical thinking or thinking for yourself, someone can be easy to be imprisoned by the thoughts of others and become a product of the environment around them.

We are unique, as a matter of fact. We are the only animals that build by creating something new.

Other animals are instinctively driven to build things like dams or honeycombs, but we are the only ones that can invent new things and better ways of making them. Humans don’t decide what to build by making choices from some cosmic catalog of options given in advance; instead, by creating new technologies, we rewrite the plan of the world. These are the kind of elementary truths we teach to second graders, but they are easy to forget in a world where so much of what we do is repeat what has been done before.

Traditions are just peer pressure from the past. It was understandable back in the Middle Ages to look at the pyramids, or the ruins left from the ancient Romans and believe they were the peak of civilization, and that we wouldn’t be us without those who walked the path before. Ancestor worship had to be challenged and overturned to have the scientific and industrial revolutions and be forward looking. A life in the past cannot be shared with the present. Each person who gets stuck in time gets stuck alone.

Studying atrocities committed by our ancestors isn’t an indictment of you. It’s a lesson for us. Acknowledging the horrors of our history isn’t a source of division. It’s a force for unity. Recognizing yesterday’s oppression aligns us to pursue tomorrow’s freedom.

When parents raise a child, they install elements of their psyche in them. When one of those elements is damaged, the damage is usually passed on. So self-improvement is not selfish — it’s repairing the “family psyche”, which improves the lives of all the generations downstream.

Human tendency to conform, especially when in large groups, is terrifying. Propaganda machines leverage this throughout human history. The way out is to think freely, detached from the divisive narratives of the day that masquerade as universal truths. This often feels lonely.

Too many people spend their lives being dutiful descendants instead of good ancestors. The responsibility of each generation is not to please their predecessors. It’s to improve things for their offspring. It’s more important to make your children proud than your parents proud.

You can’t mandate innovation from the top. Vision statements aren’t enough. Ad hoc initiatives fizzle fast. To infuse an immediate and lasting entrepreneurial spirit into each person, you first need to disrupt the culture.

That doesn’t mean authority is always harmful. It doesn’t mean that authority serves no purpose. Authority will always exist and will always be necessary for a well-functioning society.

But we should all be capable of choosing the authority in our lives. Adherence to authority should never be compulsory, and it should never go unquestioned – whether they’re your preacher, your boss, your teacher or your best friend. No one knows what’s right for you as well as you do. And not letting people discover that fact for themselves may be the biggest failure of all.

The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane. If you really wanted to be successful, happy, all those external metrics, you’re looking for a non-average outcome. You can’t be doing the average things, to your point.

The more neatly you fit into society, the less free you actually are. Mimicking the herd invites regression to the mean. Here’s a simple axiom to live by: If you do what everyone else does, you’re going to get the same results that everyone else gets. This means that, taking out luck (good or bad), if you act average, you’re going to be average. If you want to move away from average, you must diverge. You must be different.

Progress comes from monopoly, not competition. Competition can make you play the wrong game. Sometimes you get trapped in the wrong game because you’re competing. Competition automatically leads towards copy-catting and often towards just playing completely the wrong game.

If you’re forever looking around for validation, you’ll never be able to make anything that’s completely your own. Because you don’t even know what you think. You don’t know what is good and beautiful outside of what is culturally dictated to be good and beautiful. We believe that desire is mimetic, but we forget that the people who inspire real desire are always people who are redefining it — who give us something new to look at, allow us to escape groupthink. There’s nothing more powerful than separating signal from noise, spotting a phenomenon no one else has recognized yet. But to do that you need your own separate thoughts.

A major cause of business failure is the inability to see beyond the conflicts of mimetic desire. Inside a firm, people become obsessed with their competitors for career advancement. Then the firms themselves become obsessed with their competitors in the marketplace. Amid all the human drama, people lose sight of what matters and focus on their rivals instead. Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.

Rivalry causes us to copy the past. Marx and Shakespeare provide two models that we can use to understand almost every kind of conflict.

According to Marx, people fight because they are different. The proletariat fights the bourgeoisie because they have completely different ideas and goals (generated, for Marx, by their very different material circumstances). The greater the difference, the greater the conflict.

To Shakespeare, by contrast, all combatants look more or less alike. It’s not at all clear why they should be fighting since they have nothing to fight about. Consider the opening to Romeo and Juliet: “Two households, both alike in dignity.” The two houses are alike, yet they hate each other. They grow even more similar as the feud escalates. Eventually, they lose sight of why they started fighting in the first place.

In the world of business, at least, Shakespeare proves the superior guide. Inside a firm, people become obsessed with their competitors for career advancement. Then the firms themselves become obsessed with their competitors in the marketplace. Amid all the human drama, people lose sight of what matters and focus on their rivals instead. People are all the same. Or, at least, if they are not the same, it is because certain people are more capable of harnessing their intellectual potential. (That some people lack the natural intelligence or affinity for harnessing such potential goes unaddressed.)

Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.

The problem with a competitive business goes beyond lack of profits. Imagine you’re running one of those restaurants in Mountain View. You’re not that different from dozens of your competitors, so you’ve got to fight hard to survive. If you offer affordable food with low margins, you can probably pay employees only minimum wage. And you’ll need to squeeze out every efficiency: That is why small restaurants put Grandma to work at the register and make the kids wash dishes in the back.

Creativity begins to die when we fail to celebrate curiosity. We reward students for getting the right answer, but not for asking good questions. We promote managers for delivering results, but not for developing new ideas. Encouraging imagination is the mother of invention.

The startup model is an integral part of human flourishing and freedom. People learn, by doing — not simply by listening to proponents of disembodied knowledge, or by accepting the authority of people with no “skin in the game,” such as professors “disconnected from reality”. The idea that human progress is driven by the creativity and bravery of a few and stymied by ossified ways of doing things — is ubiquitous among entrepreneurs and permeates many startups.

I’m skeptical of copying things. To the extent you’re trying to copy something, you’re ready putting yourself in some in a weird derivative position. You know, you don’t want to be the Harvard of North Dakota. The something of somewhere is often the nothing of nowhere.

We are all searching for the elusive formula — the things that if only we’d do them we’d become successful. This is why we flock to the bookstore to learn about how Google innovates only to find that blindly applying the same prescription results in no more success than taking a polar bear and putting it in the desert. There simply is no formula for success. Giving up that notion might be the most helpful thing you can do today.

The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative. Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.

In his wonderful book of Fragments, Heraclitus writes: “No man ever steps in the same river twice, for it’s not the same river and he’s not the same man.”

Each moment in business happens only once. If every moment happens only once, where does this leave us? These are the questions we must explore.

The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.

Creativity means thinking outside the bounds and strictures of failed institutions, including academic credentials, freeing us from resentment, and opening new paths of progress, technology, and positive change.

The creation of a remarkable, cutting-edge company shouldn’t just be about amassing personal wealth for its founders. It should also be about remaking the world — transforming personal potential into a technological reimagining of human life. By contrast, the stasis of mimesis, driven by human resentment, leads to political mediocrity and technological anhedonia. To disrupt, insofar as it means to disrupt the mimetic system, is thus a liberating act.

And when radical human potential is unleashed upon the world, it demands — and deserves — proliferation. So long as the company is creating genuinely new, life-improving technologies to earn its outsize profits.

The meaning of life is to make something new so we’re not stuck in the past. We can make something new from nothing [and] that changes the nature of reality. When resentful people see the world as a zero-sum place, they start redistributing assets, assigning guilt and blame to scapegoats.

Techno-capitalism-as-miracle: the notion that a few brilliant individuals can radically reshape the limits of human reality, which are revealed to be in part the product of intellectual sluggishness and moral fear. A human being can conjure an idea for reshaping prestigious education. Old things must pass away, one way or another.

A monopoly like Google is different. Since it doesn’t have to worry about competing with anyone, it has wider latitude to care about its workers, its products and its impact on the wider world. Google’s motto — ”Don’t be evil” — is in part a branding ploy, but it is also characteristic of a kind of business that is successful enough to take ethics seriously without jeopardizing its own existence. In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can’t. In perfect competition, a business is so focused on today’s margins that it can’t possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.

So a monopoly is good for everyone on the inside, but what about everyone on the outside? Do outsize profits come at the expense of the rest of society? Actually, yes: Profits come out of customers’ wallets, and monopolies deserve their bad reputation — but only in a world where nothing changes.

Monopolies deserve their bad reputation — but only in a world where nothing changes. In a static world, a monopolist is just a rent collector. If you corner the market for something you can jack up the price, others will have no choice but to buy from you. Think of the famous board game: Deeds are shuffled around from player to player, but the board never changes. There is no way to win by inventing a better kind of real-estate development. The relative values of the properties are fixed for all time, so all you can do is try to buy them up.

But the world we live in is dynamic: We can invent new and better things. Creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better.

Corporations reward conformity, but the Internet rewards people who are unique. If you work in a creative field, strive to be the only person who does what you do. Find your own style, then run with it. I call this a Personal Monopoly.

China’s technology foundations are fragile, which the trade war has made evident.

The trade war produced the clearest evidence that China’s technology foundations are fragile. When the US government decided to restrict technology exports to particular firms, it drove ZTE to near bankruptcy, crippled the operations of Fujian Jinhua, and has at least dealt a major blow to Huawei. US sanctions have revealed that most Chinese firms engage in only a thin layer of innovation, and that Chinese firms in general have not had serious success mastering more foundational technologies. The most important of these is the semiconductor. Without particular chips like CPUs, GPUs, and FPGAs, which for the most part come from American providers, even a firm as large as Huawei can struggle.

The US has the policy tools in place to slow down China’s technology progress, at least in the short term. Creating hassles for large companies slow down the entire ecosystem, because leading companies spend the most on R&D and serve as downstream buyers. The US can escalate the use of export controls in still more ominous ways, and in some cases also prevent other countries from shipping goods to China. CFIUS will make it more difficult for Chinese firms to engage in technological learning through equity investments. And if US tariffs stay on for an extended period, Chinese firms will not be able to learn to improve their products in the world’s largest market of sophisticated consumers. The medium-term outlook for China’s technology progress is in my view not so cheerful.

Failure to develop more foundational technologies has meant that the US has had an at-will ability to kneecap major firms, and to be able to impose at least significant operational hassles on Huawei. Over the medium term, US controls will disrupt the ability of Chinese firms to acquire leading technologies. And so long as substantial US tariffs stay in place, Chinese firms will have worse access to the world’s largest and best consumer market, meaning that they’ll be exposed to less export discipline.

It’s now a matter of national security for China to strengthen every major technological capability. The US responded to the rise of the USSR and Japan by focusing on innovation; it’s early days, but so far the US is responding to the technological rise of China mostly by kneecapping its leading firms. So instead of realizing its own Sputnik moment, the US is triggering one in China.

The most frightening aspect of this crisis is not the short-term economic damage it is causing though, but the potential long-lasting disruption to supply chains.

China is losing its prowess as the only game in town for whatever widget one wants to make was already under way. It was moving at a panda bear’s pace, though.

Under President Trump, that slow moving panda moved a little faster. Companies didn’t like the uncertainty of tariffs. If Trump wins re-election, it will only speed up this process, as companies will fear what happens if the phase two trade deal fails.

After US sanctions started taking down giants, private companies are thinking more carefully about how to maintain continuous access to supplies. US political actions are now as unpredictable as major earthquakes, and have the same effects on supply chains. Every company has to cultivate non-US, and ideally Chinese alternatives. That task is taken most seriously by the technology sector, since the lack of only a few components can defeat a system as complex as a smartphone or base station.

* What’s the solution?

China’s technology foundation has been fragile, but it will patch up now that everyone has realized it.

Over the longer term, I expect that China will stiffen those foundations and develop firms capable of pushing forward the technological frontier, and Chinese firms will build strong technological capabilities, with companies that will reach the leading edge and push it forward.

I am constructive for China’s longer-term industrial development. I think that long-term prospects are bright. In my view, Chinese firms face favorable odds first in reaching the technological frontier and next in pushing it forward. The country still feels like a highly optimistic place. International survey results consistently show that Chinese rank at the top of feeling optimism for the future. If you’re optimistic, the future will take care of itself. If you’re pessimistic, we’re headed the apocalypse. And in my view, government institutions are organized around the ideas of adaptation and progress. Consider a few of their names. In 2003, the economic super-ministry renamed itself from the State Planning Commission to the National Development and Reform Commission. The most important government body is the Central Commission for Comprehensively Deepening Reform. “Development” and “reform” are splendidly Hegelian ideas: both are forward-looking and without end. Surely it’s better to be a developing country than a developed one, for the latter means that everything is done and finished. The implication behind developed being that there is no more growth to go. And a commitment to continuous “reform” recognizes the impossibility of overcoming every contradiction entailed by modernization, and therefore institutions need to be perpetually adaptive. Incantation alone cannot make something true, but getting names right is a nice part of institutional success.

Companies were doing what they always do — search the world with the lowest costs of production. Maybe that meant labor costs. Maybe it meant regulations of some kind or another. They were already doing that as China moves up the ladder in terms of wages and environmental regulations.

No country has the logistic set up like China has. Few big countries have the tax rates that China has. Brazil surely doesn’t. India does. But it has terrible logistics.

I consider two advantages to be important: First, Chinese workers produce most of the world’s goods, which means that they’re capturing most of the knowledge that comes from the production process. Second, China is a large and dynamic market. On top of these structural factors, Chinese firms have stiffened their resolve to master important technologies after repeated US sanctions.

I believe that technology ultimately progresses because of people and the deepening of the process knowledge they possess, and that the creation of new tools and IP are the milestones of better training. We should distinguish technology in three forms: tools, direct instructions (like blueprints and IP), and process knowledge. The third is most important: Process knowledge is hard to write down as an instruction: you can give someone a well-equipped kitchen and an extraordinarily detailed recipe, but absent cooking experience, it’s hard to make a great dish.

On the supply side, Chinese workers engage in a greater amount of technological learning than anyone else, for the simple reason that most supply chains are in China. Chinese workers are working with the latest tools to produce most of the world’s goods; over the longer term, my hypothesis is that they’ll be able to replicate the tooling and make just as good final products. They can do so because the domestic market is huge and dynamic. China today has a large industrial system with few missing backwards and forward linkages, which means it’s a mostly complete learning loop. The government and businesses are motivated by a sense of urgency to master most technologies. I expect that as China’s economy grows more sophisticated, its absorptive and learning capacity will improve.

As a long-term strategy, our best hope lies in access to quality education, specifically an education that reinforces the autonomy of the individual by creating a culture that encourages long-term innovation, cultivating self-awareness, CRITICAL/INDEPENDENT THINKING, problem-solving, and emphasizing academic freedom. Education’s purpose is not to give you the answer (the What) and shove information in, but to stoke curiosity and fuel discovery, teach you how to be more self-aware (mission-driven), how to think, take risk, embrace failure and variation (the Why & How a.k.a. the Principles). Traditional school fails you on this point miserably. The problem is not people being uneducated. The problem is that we are educated just enough to believe what we have been taught, and not educated enough to question anything from what we have been taught. Schools educate us just enough to believe what we’ve been taught and not enough to think for ourselves. The problem with school is that you often become what you study instead of OWNING what you study.

On the demand side, a huge and dynamic market will pull forward domestic capabilities. Technological learning in the labor force is a supply-side factor pulling forward the capabilities of Chinese firms. They benefit also from a demand-side factor: the domestic market is really big. People tend to forget that fact. China can become strong because of the tenacious entrepreneurs and the huge domestic market size of a homogenous country where everyone speaks the same language, the same culture, and there is a huge population (it has a population that is bigger than the combined population of Europe and America. It is more than four times as big as that of the US) without any competitors from the outside. In addition, China has developed an ecosystem with VCs and entrepreneurs and companies really helping each other grow iteratively. It’s true that Chinese firms haven’t yet had much success in creating global brands, but perhaps they can be forgiven for focusing on the world’s fastest-growing large market. The size of the market can overwhelm many deficiencies, like problems with the education system stifling creativity. And although consumer internet companies are not strategically so important, they buy upstream components, and are in a more credible position than European and Japanese firms in developing future digital technologies. China today is a huge internal market made up dynamic firms, ingenious workers, and a strong interest in technology. That’s rather like the US in the second half of the 19th century, which built the largest firms in the world mostly by relying on domestic demand.

But I also recognize that this case is highly theoretical and a priori. There are many things that can get in the way. Perhaps workers fail to understand the tools they work with well enough to replicate it and invent the next iteration. Although the domestic market is large, policy distortions restrict competitive pressures. Productivity growth has been slowing down for a decade. And perhaps the market conditions aren’t yet right for engagement in high technology; it’s hard to see the case for investing in the development of the world’s best software and robotics systems when Chinese labor is still so much cheaper than developed levels. So let’s see how the constructive case runs against these practical challenges.

II. AUTHORITARIAN SYSTEM

Political system is one of the consequences of the culture.

In the seven years since the president came to power, the Chinese state has become significantly more authoritarian.

Chinese political values have long been at odds with the rest of the world’s. You can look at authoritarian societies see they didn’t adopt what we view as universal values around freedoms. There is very little social redeeming value in the present governments in authoritarian countries.

Its government is deciding which features of the global status quo to preserve and which to reject, not only in business, culture, and politics but also in such basic values as human rights.

The treatment of Xinjiang is often cited as a sign of how far Beijing will go to repress freedom, fundamental human rights (free speech, free market, free enterprise system, free privacy, free religion and belief, freedom of assembly and freedom to petition the government) and crush cultural and regional diversity. And that’s their weakness.

China is ranked the #113th in the annual Economic Freedom of the World 2019 (EFW) report.

1. Strict Government Internet Censorship

China is the friend we like, but whom we don’t respect.

They are friend who is rude and then complains that everyone else is rude. They want to play with everyone else, but want to change the rules to suit them. We would invite them to parties but they will sit in a corner not talking to others and then complain that everyone else is not very nice.

Although China has some government advantage: building infrastructure, providing investments, and setting the countrywide direction, but starting 1996, the Chinese government began building great firewall to block out anything it did not want its people to know.

The Great Firewall of China refers to the country’s online censorship system that blocks a range of foreign websites and slows down Internet traffic as it crosses the border. It’s why Chinese users can’t access Facebook, Twitter or YouTube. China’s Great Firewall is already unique in its sophistication in enacting nationwide censorship. But as interesting as its history is, its future is equally fascinating and frightening. China wants this “cyber sovereignty” to become an international norm, and it’s already using AI to tighten the screws on the few people left who bother trying to climb the wall.

China’s Great Firewall is more than just the reason people in the country can’t access Facebook or YouTube. It has also played a huge role in shaping the country’s Internet landscape, allowing giants like Baidu to emerge in the absence of Google. The Great Firewall has stifled innovation and creativity in China. But it’s also been said to help local tech companies by cutting off competition, leading to the rapid growth of homegrown tech giants like Baidu, Tencent and Alibaba, among a variety of other unique technology products that cater to domestic users. By setting up their firewall, they created an environment where their tech babies can grow up without being beaten up in the battle with the big boys. Thanks to China’s Great Firewall, Chinese tech companies don’t need to worry about competing with cash-flush American tech giants at home. They created copies of successful American start-ups in an existing market where they know there’s high demand and also there’s no competition. US tech companies that refused to help with censorship are gradually forced out or banned, and China’s Internet became kind of isolated island. Some American companies are worried that they will not be able to compete with China in its home market. That market has been mostly closed to foreigners. China can remain rich simply because it has a population that is bigger than the combined population of Europe and America (China’s population is more than four times as big as that of the US), so it has a big domestic market without any competitors from the outside.

One way to get into China is to develop your product with a Chinese partner — creating the old capitalist/communist Frankenstein.

* There is a lot of evidence:

X Box and PlayStation were banned until 2014, for example. In Silicon Valley, some companies concluded that entering China had become all but impossible. Last year, Facebook, which had been asking China for years to let it operate there, abandoned the effort. Reed Hastings, the C.E.O. of Netflix, acknowledged the barriers before him, saying, “We will be blocked in China for a long time.” By then, the Chinese gamers had grown accustomed to mobile and PC games. Google left China to avoid censorship.

In this place the Chinese company Baidu has become the largest search engine in the country. Alibaba has more sales than eBay and Amazon combined. There’s no Facebook in China, and the social messaging platform WeChat now has the user base the size of the entire population of North and South America. Chinese companies are already competing head to head with Silicon Valley and also markets like India, Japan, Southeast Asia, and South America.

* What explains this censorship system?

The desire to censor has always been a hallmark of intellectual insecurity. Those who can defend their ideas in a free marketplace of ideas don’t need to rig the game.

As the Party returns to the idea that its absolute power is the only thing standing between China and chaos, the United States, and the embrace of markets, is increasingly seen as an enemy.

China’s current leader casts himself as a defender against humiliation and threats from the outside. Xi Jinping promotes the view that China’s system presents an alternative to free-market democracy — what he has called “a new option for other countries and nations who want to speed up their development while preserving their independence.”

Every city prizes security, but in Xi’s country it has been elevated to a state religion as his country fends off Western influence.

The government had issued an unprecedented order, directing public institutions to remove all foreign computer equipment and software within three years.

Instead of city walls, the Party relies on digital defenses; day by day, censors purify the Internet of subversive ideas, and facial-recognition technologies track people’s comings and goings.

The simplest answer with which to start is: Because Beijing can.

The Chinese probably believe that, even if their system is not fully accepted, history shows there will be little price to be paid for that. From Mao’s Great Leap Forward to Tiananmen Square, and from the internment camps of the Uighurs to the crackdown in Hong Kong, China’s leaders have seen time and again that foreign leaders and businessmen will still want to do business with them regardless of the scale of the atrocity. In recent years, there has been an obvious change in how many in the West view China. But one has yet to see a fundamental reordering of relations with Beijing in Berlin, Paris or London despite that change. Even in the case of Washington, there is a question of just how far America will be willing to go in disengaging from the Chinese market.

* Here’s what this censorship system could mean for China’s economy — and the world:

Censorship is a fatal error, as it destroys the means of error correction.

There’s no such thing as true censorship. Censorship creates two classes — the censors, who get to see everything, and the rest of us, who only get to see and say what they permit.

Interesting to see how many people claim their believe in “science” yet also advocate for censorship, which is the ultimate anti-science position.

Free speech and free market protect right to engage in criticism of the status quo. Science challenges the status quo. If you don’t protect free speech and free market, you are by definition anti-science (aka ‘progress’).

The only two ways to coordinate human societies at scale are free markets and physical power. Any ideology rejecting free markets is just advocating for power. Socialism, communism, and fascism all converge to the same endpoint — rule by the biggest thug.

This is bad news for the U.S. and other democratic nations. Visits to China, interactions with Chinese officials, and other such exchanges offer valuable insights into Beijing’s ambitions and behavior. What Beijing doesn’t seem to realize is that this is also bad news for China.

After you compete and get a sense of how competitors behave and how strong they are, it actually makes sense to explore strategic investments and be able to partner. The more you’re willing to partner, that should grow the pie bigger as well.

A country that still needs foreign investment and technology will not benefit from making foreign CEOs wonder whether they or their employees should take the risk of traveling there. A country that harps on how it is misunderstood and mistreated by the West will not benefit from constricting critical channels of communication. NGOs, journalists, and diplomats all play a role in connecting China to the wider world. The alternative is a China that is isolated, poorly understood, and cut off from important ideas and conversations.

(*) The Great Firewall also is effective in another way: It promotes self-censorship.

Concerns about getting blocked in China, or for Chinese netizens, getting a visit from the police, results in people not talking about certain topics or seeking out certain types of information.

China maintains one of the most controlled, most oppressive, least free information spaces in the world. It’s hard to exercise political freedom if you don’t have economic freedoms. If you’re dependent upon the state for your livelihood, you lose your ability to use your voice to oppose (the state) because you can be punished.

China is a top-down system, to put it mildly. Xi Jinping is both “grandpa Xi” and the country’s boss. Xi has cracked down on bad news leaking out from the mainland, so even if you could complain, it’s officially frowned upon. When stupidity is considered patrotism, it is unsafe to be intelligent.

Mountains of information about China are hidden behind a language barrier, non-agreement to the Hague Convention on legal proceedings, a time difference, opaque ownership of Chinese companies, industrial secrecy, regime secrecy and a lack of those basic freedoms that allow the truth to come out. People in the West do not have much documentary evidence or sworn testimony in their hands, because China is still shrouded in secrecy, but it is obvious for the world to see.

One rule for understanding authoritarian systems is that “you want to look at what they do and not what they say.” Authoritarian systems tend to hide internal problems from the rest of the world. Only a true emergency would force them to change their public messaging. For example, if a country like China, after downplaying the severity of the virus early on, is closing down a city of 11 million, this is a big deal. It is spreading. It is deadly. And we’re going to get hit.

Another principle called the “principle of embarrassment” when trying to understand the historical accuracy of stories from authoritarian systems, is that “if a story is really embarrassing to the teller, you kind of think they might be telling the truth”. Because otherwise, it’s the kind of thing that people don’t usually admit about themselves, or institutions. For example, when China was telling us after January 20th that it was spreading during the incubation period from people that didn’t have symptoms, that was actually making it look very bad. Even then, many public health experts in the United States thought the Chinese were wrong, or lying, when they warned that the virus was spreading through asymptomatic transmission. China just really wants to prevent the pandemic because they covered it up for too long. Now it’s going to spread to the world. And they’re going to get blamed for it. It isn’t until a high‑stakes decision goes horribly wrong that people pause to reexamine their practices. So I had a completely different sense of what they said before January 20th when they lied and covered it up. And it was kind of not treated with the correct suspicion compared to what they said afterwards.

It’s troubling that as the PRC [People’s Republic of China] restricts outlets and platforms from operating freely in China, Beijing’s leaders use free and open media environments overseas to promote misinformation.

The reason I’m telling you all this is, there’s these ways in which even if you don’t necessarily have direct evidence on the medical or political side, if you kind of understand how institutions and authoritarians work, there’s a way in which you get more information about their claims.

It seems people in China do what they are asked to do. They follow the leader, so long as the leader is providing them with safety, employment and, for the higher educated, Western-style opportunities. It’s difficult to get a man to understand something when his salary depends on his not understanding it. I wasn’t there long enough to get a sense of people’s disdain for Xi, or the Communist Party. The country is slowing, but it is growing. If you had to chose a side, for or against Beijing, people are mostly pleased with what their country has become in this hybrid capitalist/communist system of theirs.

As they should.

There is no space for speech freedom in China now. Prescribed media guidelines are not unusual in China, where reporters and private newspapers and magazines operate within a heavily-censored environment that is tightly controlled by Communist authorities. We’re increasingly seeing laws and regulations in China that undermine free expression and people’s human rights. These local laws are each individually troubling, especially when they shut down speech by punishing dissent in places where there isn’t democracy or freedom of the press. Free speech has been further restricted; civil rights lawyers have been locked up and non-governmental organizations have been closed down. Since he took power in late 2012, Xi has tightened ideological control and suppressed civil freedoms across the nation, reversing a trend under his predecessor to give Chinese media some limited scope to expose and report regional corruption and lower-level officials’ misdeeds. Even within the Communist party, cadres are threatened with disciplinary action for expressing opinions that differ from the leadership. The impacts on the individuals are multi-faceted. Economically, they would cut off your livelihood [academics get fired, writers can’t publish and no one dares hire you]. You would get sidelined by mainstream society, you’d lose friends and, worse than that, you might lose your personal freedoms, so a number of intellectual elites have chosen to leave China. Under Xi’s crackdown on speech and academic freedoms, a number of prominent liberal intellectuals, journalists, rights lawyers and NGO workers have either been silenced, jailed or escaped abroad.

But it’s even worse when it tries to impose their speech restrictions on the rest of the world. Chinese censorship is also spreading beyond its borders. Now, China is seeking to control not just what is said in China but what is said about China, too. China is not exporting a state ideology in the manner of the Soviet Union. But it wants to make the world more amenable to its ideology, so it has demanded extraterritorial censorship, compelling outsiders to accept limits on free speech beyond its borders. The increasingly Kafkaesque legal system of mainland China stands in stark contrast with the world’s rule of law. But during the Xi period, the mainland’s intolerance for free speech and thuggish attitude towards the law has seeped into other countries.

The Chinese president is sincerely indifferent about whether a foreign country is a dictatorship or a democracy. Insisting that countries cannot have views on each other’s internal political systems is a vital defense mechanism for the Chinese Communist party as it fends off outside pressure on human rights or the rule of law. Beijing argues that foreigners who express views on a sensitive topic, such as Hong Kong, are interfering in China’s internal affairs. And this is where it crosses over into interference in free speech in the west. This is much more than an effort to stop foreigners standing in Tiananmen Square and shouting “freedom for Hong Kong”. China’s efforts to control and censor speech at home are gradually being internationalized, reaching into foreign corporations, the international media, the seminar rooms and campuses of western universities, and the statements and policies of foreign governments.

China feels perfectly entitled to interfere when foreigners express views that displease Beijing. The increasingly tough tone of the Chinese media is part of Beijing’s efforts to inflame nationalism at home and intimidate multinational companies into toeing the party line. The Communist state is becoming more and more aggressive in pressuring foreign companies to choose between self-censorship and the loss of access to what will soon be the world’s largest market. It showed the government’s eagerness to punish foreign companies until they embraced the party’s point of view wholeheartedly. If you show your willingness to back down and kowtow to the party, the party considers you a pushover. They will increasingly encroach on your bottom line.

When it comes to the media and academia, Beijing uses both visas and market access as a weapon. China specialists who are barred from the country can have their careers blighted. So the pressure to self-censor is huge.

This raises a larger question about the future of the global Internet. China is building its own Internet focused on very different values, and is now exporting the authoritarian social values and visions of its tightly-controlled internet culture to other countries. Until recently, the Internet in almost every country outside China has been defined by American platforms with strong free expression values. There’s no guarantee these values will win out. A decade ago, almost all of the major Internet platforms were American. Today, six of the top ten are Chinese.

Obviously, China wants to be the dominant economic and military power of the world, spreading its authoritarian vision for society and its corrupt practices worldwide.

So far this century, democracy and free speech only exist in America.

* There is a lot of evidence:

The country is expelling three reporters from The Wall Street Journal. Earlier this month, the outlet published a coronavirus-related opinion piece with a headline that China called racist. In response, it’s now revoking three reporters’ press credentials — though it seems none of them contributed to the opinion piece. And it’s calling on the Journal to apologize and “hold the persons involved accountable.” China has long tried to silence critics at home. But this is seen as an escalation to do that abroad, as it’s rare for China to expel a foreign correspondent.

We’re beginning to see this in social media. While WhatsApp is used by protesters and activists everywhere due to strong encryption and privacy protections, on TikTok, the Chinese app growing quickly around the world, mentions of Hong Kong protests are censored, even in the US.

A pro-Hong Kong tweet from the general manager of the Houston Rockets about his support of the Hong Kong protests led to a clash between China and America’s National Basketball Association, which resulted in NBA games being pulled from Chinese state television. This row was unusually high-profile because it featured the US and sport. But it fits a familiar pattern. Foreign countries and companies now have to cope with Chinese efforts to police their speech on an ever-widening range of taboo subjects, including Tibet, Taiwan, Xinjiang, Hong Kong, recent Chinese history, human rights and Beijing’s territorial claims in the South and East China Seas.

Last year, the Chinese government demanded that foreign airlines remove references to Taiwan from their websites, because China views Taiwan as a renegade province. Other companies that have bowed to pressure from Beijing include Marriott hotels and United Airlines, both of which were accused of encouraging the idea that Taiwan is a separate country.

People’s Daily, the flagship newspaper of the Chinese Communist Party, and the Chinese Ministry of Foreign Affairs took aim at Apple, accusing it of serving as an “escort” for “rioters” in Hong Kong by providing an app that allows protesters to track police movements.

Months earlier, at the request of the Chinese government, Shutterstock had begun censoring a few searches by users based in China for politically volatile subjects like “Taiwan flag.”

China has placed similar pressure on the Italian company Versace; German companies, including Mercedes-Benz; and airlines from around the world.

The BBC’s World News television channel has been officially banned from broadcasting in China. BBC World News has never been allowed to broadcast into Chinese homes, having been blacked by censorship rules. It was previously possible to view the news channel only at certain international hotels.

* Why does China want to repress free speech?

Overlapping the desire to look more successful in handling issues is Beijing’s goal of preserving Chinese President Xi’s reputation as an effective leader. Although it is correct to see Xi Jinping as perhaps the most powerful PRC leader since Mao, or at least Deng Xiaoping, that power has come at the expense of the more typical consensus-style rule that preceded him. Xi has consolidated his sway not by accommodating his rivals but by squeezing them through intimidation and arrests in the guise of cleaning up the Party. Given how much corruption there was — and because it was an essential element in leading party members to be “loyal” to the existing regime — Xi’s anti-corruption effort has both increased his power by cowering or eliminating pockets of competitors within the Party and, at the same time, likely narrowed his base of support within the Party. As long as Xi is seen as being successful, there is little room to challenge his rule. Should that assessment change, however, it is not hard to imagine grudge-holding party members attempting to coalesce in an effort to challenge him.

* What could self-censorship mean for China?

China has some of the most severe restrictions on media and internet freedoms across the globe, and this step will only damage China’s reputation in the eyes of the world. Nationalism could get out of hand and hurt China’s global image. Beijing’s way of dealing with criticism is eroding its soft power.

Leaders who refuse to hear criticism choose not to learn. The higher you climb, the more people hesitate to challenge you. Silencing dissent is a step toward becoming a dictator.

Leaders who put power above people make themselves weaker. Oppressed groups underachieve. Leaders who serve a higher purpose make people stronger. Empowered groups overachieve.

None of this is good news for China’s long-term international aims. Beijing has plenty it can offer the world, even to advanced nations such as Sweden. But being seen as bullying is no way to bring them willingly onside.

While popularity alone cannot secure long-term influence, alienating countries with what they perceive to be threats is not the way to prove a country’s global leadership qualities.

China fully understands that it needs to boost its soft power to achieve its ultimate aim of total rejuvenation. Trust and respect are two fundamental pillars of this soft power and, although there will be many in China who deny it, it is clear that these pillars are being chipped away by Beijing’s way of dealing with criticism.

It really is insane for anyone to hope for more regulation on speech. It’s completely unprincipled. The worst thing that can happen to a socialist is to have his country ruled by socialists who are not his friends. You need to imagine your enemies in control of those tools. That should include the politicians you think are lying and the opaque media companies you already don’t trust.

Freedom of speech is detestable only to those who have no desire to think for themselves.

Diversity of thought makes us stronger, not weaker. Without diversity, we die off as a species. We can no longer adapt to changes in the environment. We need each other to survive.

The most contrarian thing of all is not to oppose the crowd but to think for yourself. The key to doing something great is to uncover insight hidden from popular opinion, or in other words to think for yourself. Great things are built by people who discover secrets hidden by conventional opinions.

If you do not learn from others, you are functionally illiterate and you will be incompetent because your personal experiences aren’t broad enough to sustain you. Your personal experiences make up maybe 0.00000001% of what’s happened in the world but maybe 80% of how you think the world works. The most successful people are all huge learners.

Silencing “wrong” ideas will eventually destroy their ability to discover the truth.

When stupidity is considered patriotism, it is unsafe to be intelligent.

Shielding people from uncomfortable ideas isn’t education. It’s groupthink. In healthy learning cultures, people are invited to take intellectual risks. They gain the courage to challenge each other’s views — and their own. Silencing dissent is an enemy of critical thinking.

The idea of facing the unvarnished truth makes us anxious. To get over that, we need to understand intellectually why untruths are scarier than truths and then, through practice, get accustomed to living with them.

Free speech is necessary for knowledge. Suppressing a truth stops people knowing it is true. Suppressing a falsehood stops them knowing why it is false. Suppressing discussion of any sort stops the discovery of new truth.

If two people always agree, it’s a sign that at least one of them isn’t thinking critically — or speaking candidly. Differences of opinion don’t have to be threats. They can be opportunities to learn. Intellectual friction isn’t a relationship bug. It’s a feature of education.

People are not free when they are given information that makes them feel good — true freedom requires the ability to confront information that feels bad. We have nothing to fear from knowing the truth. Criticism is the best thing that can happen to a person/company/country. 1/ It means people care. 2/ It shows you what you can improve.

There’s no downside to challenging your own ideas and beliefs (other than, perhaps, patience). One of two things will happen: 1/ You will discover that you are wrong. 2/ Or you will improve that arguments for your own ideas.

It is better to be divided by truth than to be united in error. It is better to speak the truth that hurts and then heals, than falsehood that comforts and then kills.

If you’re sick, it’s natural to fear your doctor’s diagnosis — what if it’s cancer or some other deadly disease? As scary as the truth may turn out to be, you will be better off knowing it in the long run because it will allow you to seek the most appropriate treatment. The same holds for learning painful truths about your own strengths and weaknesses. Knowing and acting on the truth is what I call the “big deal” for a country. It’s important not to get hung up on all those emotion- and ego-laden “little deals” that can distract you from the overall mission.

It’s usually a red flag when someone gets mad at you for disagreeing with them. When two people believe opposite things, chances are that one of them is wrong. It pays to find out if that someone is you. That’s why I believe you must appreciate and develop the art of thoughtful disagreement. This is a critical principle for our society now. It’s very relevant in terms of us getting to the best answers together. The alternative is very scary. In thoughtful disagreement, your goal is not to convince the other party that you are right — it is to find out which view is true and decide what to do about it. In thoughtful disagreement, both parties are motivated by the genuine fear of missing important perspectives. Exchanges in which you really see what the other person is seeing and they really see what you are seeing — with both your “higher-level yous” trying to get to the truth — are immensely helpful and a giant source of untapped potential.

You must not let your need to be right be more important than your need to find out what’s true. If you don’t mind being wrong on the way to being right, you’ll learn a lot — and increase your effectiveness. But if you can’t tolerate being wrong, you won’t grow, you’ll make yourself and everyone around you miserable, and your work environment will be marked by petty backbiting and malevolent barbs rather than by a healthy, honest search for truth.

Being patriotic doesn’t imply you think your country is perfect. Just like having self-esteem doesn’t mean you think you’re perfect.

One reason that freedom of speech is so important is that doubt is the foundation of science. When you close a topic to discussion, you are saying that it is decided, and scientific inquiry is no longer allowed into that domain. There’s no innovation without doubt. It is doubt that challenges and reforms old ideas. Think about a stand up comedian — they are CONSTANTLY tweaking their set to make it perfect. We should be constantly tweaking our processes to make them perfect as well. Try different things — always be experimenting.

“The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt.” — Bertrand Russell

There are no bad or good ideas or new ideas. There are only early ideas… They’ll all happen. It’ll all happen. I’ve become convinced now it’ll all happen. Every smart person has a crazy idea, it’s all going to happen at some point. They will all happen. It’s just a question of when. It’s all about execution. Some are just executed better than others. Every idea can be good if it is at the right time, right place and be executed by the right people. No matter how good your idea is, it can be bad if one of those three is missing.

You must have contention, a clash of ideas. If Galileo had not challenged the Pope, we would still believe the world is flat, right? And Christopher Columbus might never have discovered America.

The conventional-minded say, as they always do, that they don’t want to shut down the discussion of all ideas, just the bad ones. You’d think it would be obvious just from that sentence what a dangerous game they’re playing. But I’ll spell it out. There are two reasons why we need to be able to discuss even “bad” ideas. The first is that any process for deciding which ideas to ban is bound to make mistakes. … The second reason it’s dangerous to ban the discussion of ideas is that ideas are more closely related than they look.

People hate things that contradict their deeply-held beliefs. But since ideas that contradict deeply-held beliefs are the most interesting (see the history of physics for example), anyone on the hunt for interesting ideas will tend to offend a lot of people.

Also, if you try to control every-thing, you train your citizens to defer to you — and you train them to fear risk.

Civil society is a place where all ideas can be criticized without the risk of physical violence. If liberty means anything at all, it means the right to tell people what they don’t want to hear.

“Artists” calling for censorship don’t know what art is. “Scientists” citing consensus don’t know what science is. “Teachers” indoctrinating students don’t know what teaching is. “Journalists” parroting propaganda don’t know what reporting is. Programming us all day long.

Unfortunately, that’s increasingly becoming their culture. Restricting people from participating in discussions of social issues is an act of exclusion and a step toward segregation. A culture that denies entire groups the right to speak during significant events is a culture of silence rather than voice. Disagree with what I say, not whether I have the right to say it. Conformity cultures reject ideas that challenge the status quo. They defend best practices to maintain stability. Curiosity cultures welcome ideas to improve the status quo. They find better practices to make progress. Without curiosity, expertise quickly becomes obsolete.

We’re seeing the impulse to restrict speech and enforce new norms around what people can say. In the current political atmosphere, which values obedience more than competence, local people have an incentive to avoid taking responsibility. Increasingly, we’re seeing people try to define more speech as dangerous because it may lead to political outcomes they see as unacceptable. Some hold the view that since the stakes are so high, they can no longer trust their fellow citizens with the power to communicate and decide what to believe for themselves.

Americans think that free speech and freedom of press is basic for people. But in China they think state capacity, collective culture, the community, the country, are the first things they need to think about. Most ordinary Chinese people don’t understand why democracy is so important for America. They’ll say, “Yes, America brings democracy to Iraq, to Afghanistan, to lots of countries. But these countries are getting killed now.” They say, “We’re not democratic, but we live in a peaceful country. We have a good living standard.” They are too quick to dismiss what people love about life outside. They’ve lost their basic ability to think independently. If peace means a willingness to lose freedom and basic human rights, dominated politically, humiliated and segregated, I don’t want peace! It also strikes me that they are expert practitioners of “whataboutism”, countering any criticism of China by pointing to a different sin committed by the West — though in this case I find the comparison unconvincing.

In cutthroat cultures, people kiss up and kick down. They protect themselves by currying favor with people in power and exploiting those without it. In supportive cultures, people speak up and support down. They protect people without power by raising problems to those with it.

The death on 7 February of doctor Li Wenliang, who had tried to warn colleagues about the virus but was reprimanded and silenced by security forces, triggered an outpouring of grief and anger and an unusual public discussion about censorship. It is an encouraging sign that so many Chinese netizens have this time sensed that freedom and democracy is not just an abstract slogan, but a practical value that might some day protect their own lives and assets. When enough people realize the values of democracy and freedom align not only with some moral high ground but also benefit their daily lives, the momentum for change will be unstoppable. The biggest concern, though, is that they will cherry-pick their demands for freedom of speech, as in the Li case. If they avoid seeing the system itself as the root of the problem, they will never eradicate the true cause of the crisis, and we will see more martyrs.

* What’s the solution?

The ability to speak and write on controversial subjects in a public forum is critical for a free society.

A culture of voice begins with admitting gaps in your knowledge and rewarding those who speak up.

Not everyone who disagrees with you is stupid or evil. Even if you’re not a fan of what they think, you might learn something from how they think.

China should stop worrying about looking good — instead they should worry about achieving their goals.

Weak leaders blame the messenger. They see problems as threats to their ego.
Strong leaders thank the messenger. They see problems as threats to their mission. Great leaders promote the messenger. They see recognizing and raising problems as acts of vision and courage.

Put their insecurities away and get on with achieving their goals. Reflect and remind themselves that an accurate criticism is the most valuable feedback they can receive. They need to learn from those they disagree with, or even offend them. See if they can find the truth in what they believe. Trying to understand the reasoning of people who disagree with them is the quickest way to get an education and to increase their probability of being right. Imagine how silly and unproductive it would be to respond to your ski instructor as if he were blaming you when he told you that you fell because you didn’t shift your weight properly. It’s no different if a supervisor points out a flaw in your work process. Fix it and move on.

China needs to avoid alienating others and learn how to influence people if it is to cement its place at the top.

It is often said that Beijing political elites are encouraged to read the works of the great thinkers of the West. This will allow an insight into the Western mind that will be useful in replicating the West’s global success. One slightly less highbrow tome they might want to put on the reading list is Dale Carnegie’s 1936 classic How to Win Friends and Influence People. The original self-help book has some advice for countries wanting to win over the world, with tips that include “how to change people without giving offence”, “the only way to get the best of an argument is to avoid it”, and “make the other person happy about doing the thing you suggest”.

That might all be useful instruction for a country that is, rightly or wrongly, increasingly being seen as an international bully.

To do this well, approach the conversation in a way that conveys that they’re just trying to understand. Having open-minded conversations with believable people who disagree with them is the quickest way to get an education and to increase their probability of being right. Use questions rather than make statements. Conduct the discussion in a calm and dispassionate manner, and encourage the other person to do that as well. Remember, they are not arguing; they are openly exploring what’s true. Be reasonable and expect others to be reasonable. If they’re calm, collegial, and respectful they will do a lot better than if they are not.

Find the most believable people possible who disagree with them and try to understand their reasoning. Triangulate their view with believable people who are willing to disagree. By questioning experts individually and encouraging them to have thoughtful disagreement with each other that they can listen to and ask questions about, they can both raise their probability of being right and become much better educated. This is most true when the experts disagree with them or with each other. Smart people who can thoughtfully disagree are the greatest teachers, far better than a professor assigned to stand in front of a board and lecture at you. The knowledge you acquire usually leads to principles that you develop and refine for similar cases that arise in the future.

They can control thought without limiting speech by defining the limits of acceptable thought while allowing for lively debate within these barriers. For example, Fox News and MSNBC set the implicit limits on acceptable political opinions in America.

When I have kids someday, I think the most valuable thing I could teach them is being comfortable around people and opinions they disagree with. One of the qualities I most value in a person is “fun to disagree with,” and that, more than anything, has really shaped for me a life of wonderful, passionate weirdos.

So the key here is to create a learning culture, in which people have the humility to know what they don’t know and the curiosity to rethink the way they’ve always done things. Requiring proof is an enemy of progress. This is why companies like Amazon use a principle of disagree and commit. The goal in a learning culture is to welcome all kinds of experiments, to make rethinking so familiar that it becomes routine and people don’t hesitate to pitch new ideas.

In performance cultures, people are determined to prove themselves.
In learning cultures, people are more interested in improving themselves — and the organization around them.

The foundation of a learning culture is psychological safety — being able to take risks without fear of reprisal. When people have psychological safety, they’re more willing to acknowledge their own mistakes and figure out how to prevent them moving forward. They’re also more comfortable raising problems and exploring innovative solutions.

The first principle of psychological safety: The harder you make it to voice problems, the harder it becomes to solve them. The issues people are most afraid to raise are the most likely to become thorns in your side. It’s impossible to fix what you don’t know is broken.

Create the psychological safety for people to constantly rethink what’s possible. Create an environment and an atmosphere in which everyone has the right to understand what makes sense and their first thought is to ask: “Is it true?”

It’s not psychological safety if people can only voice what you want to hear. Psychological safety begins with admitting our own mistakes and welcoming criticism from others. The goal is not to be comfortable. It’s to create a climate where people can speak up without fear.

Without psychological safety, people hide mistakes and withhold ideas. They aim to prove themselves and protect their image.
With psychological safety, people admit errors and voice suggestions. They are willing to take risk and fail. They strive to improve themselves and protect their team.

The standard advice for leaders on building psychological safety is to model openness and inclusiveness: Ask for feedback on how you can improve, and people will feel it’s safe to take risks. The best way to get honest feedback is to reward people for giving it. If you make it hard to tell you the truth, people take the easy way out. When people have the courage to be candid, you can reinforce it with gratitude and curiosity.

Although psychological safety erases the fear of challenging authority, it doesn’t necessarily motivate us to question authority in the first place. To build a learning culture, we also need to create a specific kind of accountability — one that leads people to think again about their decisions.

On the other hand, don’t let “loyalty” to people stand in the way of truth and the well-being of the country/organization.

In some companies and countries, people hide their leader’s mistakes, and leaders do the same in return. This is unhealthy and stands in the way of improvement because it prevents people from bringing their mistakes and weaknesses to the surface, encourages deception, and eliminates subordinates’ right of appeal.

The same thing applies to the idea of personal loyalty. I have regularly seen people kept in places that they don’t deserve because of their personal relationship to the leader, and this leads to unscrupulous managers trading on personal loyalties to build fiefdoms for themselves. Judging one person by a different set of rules than another is an insidious form of corruption that undermines the meritocracy.

I believe in a healthier form of loyalty founded on openly exploring what is true. Explicit, principled thinking and radical transparency are the best antidotes for self-dealing. When everyone is held to the same principles and decision making is done publicly, it is difficult for people to pursue their own interests at the expense of the organization’s or country’s. In such an environment, those who face their challenges have the most admirable character; when mistakes and weaknesses are hidden, unhealthy character is rewarded instead.

2. Protectionist Regulation

The only two ways to coordinate human societies at scale are free markets and physical power. Any ideology rejecting free markets is just advocating for power. Socialism, communism, and fascism all converge to the same endpoint — rule by the biggest thug.

Socialism appeals to people today because it promises “equality and social justice,” but look at its track record. In Russia, Cuba, North Korea, Nicaragua, Vietnam and China, socialism has meant a loss of freedom. Socialist experiments also failed in Israel, India, Great Britain, Afghanistan, Syria, Algeria, Cambodia, Somalia, etc. There are no socialist success stories.

Only capitalist countries create real wealth. The history of humanity is poverty, starvation, early death. In the last 20 years, we’ve seen more humans escape extreme poverty than any other time in human history. That’s because of markets. Yet, millions vote for socialism.

If we pursue free services and money we will drive more power into the hands of a larger and larger incompetent government, and I think we know where that will end up — and it won’t be great for anyone.

If the state directs the economy, some government department must manage millions of production decisions and prices. That never works. No bureaucrat can anticipate the needs and wants of millions of people in different places. No politician can match the wisdom of decentralized entrepreneurs making subtle adjustments constantly.

Some industries are government-owned, but when you look at things that are inefficiently done — public education, our congested streets — (it’s clear) socialized industries don’t work well.

Speaking about regulatory problem, most economies have developed a near obsession with precautions that simply cannot be married to a culture of experimentation. A big obstacle to innovation is the slow pace of regulatory licensing. Incumbent vested interests, overcautious regulators, opportunistic activists and rent-seeking patent holders combine to oppose or delay almost every innovation.

No one is attracted towards an authoritarian country (a system of government that is very authoritarian) or totalitarian dictatorship. Speaking about regulatory problem, some governments regulate too much. It cost too much to invent new things.

Chinese people lack the freedom to fail.

* There is a lot of evidence:

This is not a happy time to be an entrepreneur seeking to list your firm on one of China’s stock exchanges. Nor is your situation better if you’re one of the Securities Commission members charged with approving listing applications.

Chinese companies aren’t doing very well, and Beijing thinks it’s because the standards on initial public offerings (IPOs) weren’t strict enough in the first place. A better winnowing process is needed to ensure that only the crème de la crème of Chinese companies gets listed. Those not making the grade are viewed as “locusts that must be killed,” or as viruses, with the commissioners’ mission being to “prevent diseases from entering the body via the mouth.” That kind of thinking would put a dampener on an entrepreneur seeking seed capital no matter how great he thinks his idea is.

In China, the only way to obtain seed capital is first to get regulatory approval. That’s a process that can take years. And the commissioners aren’t inclined to view applications benignly, for they will be held “accountable for life” for each IPO they approve. Only last month, Chinese authorities swooped down to seize a large private insurer deemed to have become too risky. One would not want to be one of those who approved its application.

Those who pay attention to business news have probably noted an interesting and curious phenomenon over the past few months: China is smashing its internet companies. It started — or at least, most people in the U.S. started noticing it — when the government effectively canceled the IPO of Ant Financial, then dismantled the company. Jack Ma, the founder of Ant and of e-commerce giant Alibaba, was summoned to a meeting with the government and then disappeared for weeks. The government then levied a multi-billion dollar antitrust fine against Alibaba (which is sometimes compared to Amazon), deleted its popular web browser from app stores, and took a bunch of other actions against it. The value of Ma’s business empire has collapsed.

Long-time crypto watchers will recall 2013, when China banned exchanges from allowing people to buy into bitcoin and other crypto coins using the local yuan currency.

The Chinese financial company, Ant Group, was set to go public recently. The IPO was expected raise an estimated $37 billion and boost Ant’s market value to in excess of $300 billion. But regulators for the Shanghai Stock Exchange, where Ant was planning to list, abruptly suspended the offering on Tuesday, citing “major issues” with the group that “may fail to meet information disclosure requirements.” In a recent speech, Alibaba cofounder Jack Ma made critical comments about the country’s financial regulatory system. Then on Monday, four regulators summoned Ma and Ant Group’s top execs for a chat. We don’t know what was said, but it probably wasn’t “keep criticizing us.” Ant Group and the government are frenemies; the Chinese Communist Party wants to cultivate the country’s capital markets…but not to the point where it’ll tolerate dissent. Ant may still IPO, but it’ll have to pull off some major reorganizing to get right with regulators.

But Ma was only the most prominent target. The government is also going after other fintech companies, including those owned by Didi (China’s Uber) and Tencent (China’s biggest social media company). As Didi prepared to IPO in the U.S., Chinese regulators announced they were reviewing the company on “national security grounds”, and are now levying various penalties against it. The government has also embarked on an “antitrust” push, fining Tencent and Baidu — two other top Chinese internet companies — for various past deals. Leaders of top tech companies (also including ByteDance, the company that owns TikTok) were summoned before regulators and presumably berated. Various Chinese tech companies are now undergoing “rectification”.

Gig work in China’s fledgling ride-hailing industry is coming to an end as new regulations make part-time driving overly expensive. On January 1, ride-hailing apps in China start banning drivers who operate without the required “double licenses”: one for drivers and another for the cars they steer. Municipal governments across the country have nuanced stipulations for what these certificates entail, but in general, the fresh rules aim to more closely vet drivers transporting passengers around.

Like a lot of China’s nascent industries, ride-hailing took off quickly in part thanks to relatively lax government oversight at the start. The first set of industry laws took effect in 2016, when the country officially legalized apps like Uber, which was later acquired by its local competitor Didi. Since then, Chinese authorities have gradually rolled out more rules, and the strictest regulations, including the rollout of the double licenses last year.

There’s also a lot of unreasonable market access limitations imposed by local governments on makers of electric vehicles. The government does not allow companies to test fleets of driverless cars in urban areas.

What we generally regard as growth stocks and growth companies … they won’t and they shouldn’t trade as growth stocks because they have been politicized. Capital is being politicized in China. Beijing’s crackdown is all about the Communist Party’s pursuit of political “control.” China’s Communist Party is basically driven to control these tech firms and entrepreneurs, despite the fact that they are the essence of the dynamism of China’s economy. Entrepreneurs like Alibaba founder Jack Ma and Tencent chief Pony Ma are supposed to support the party’s goals.

The difference is that in the US, people are applauded for being themselves. There’s a lot of value placed on independence and fighting the “system”. Silicon Valley encourages risk-taking. American people are innately risk-takers.

Silicon Valley embraces risk using an “affordable loss principle” in discovery of “what works”. It celebrates risk, yet at the same time it has some of the best mechanisms for avoiding the consequences of risk in the world.

What made Silicon Valley really attractive has been it is one giant incubator as a society, with a lot of pay-it-forward culture and a low cost of trying.

SV essentially places zero penalty on failure. You have almost unlimited upside if something works and very limited downside.

They’re working with a huge net. It’s easier to take risk when you are insulated from it.

It’s a culture in which people are willing to bypass convention in any area, not be overly biased by why things can’t be done, but rather take the approach, how one might take a shot at it? It is one where people are not afraid of failure but just look at the consequences of success, not the probability of failure. It is more experimental, less planned, more iterative, and evolutionary even as to the goals, let alone the methods.

It is more of a Wild West risk-taking culture, at least at the personal level of things. Entrepreneurs accept risk as given and focus on controlling the outcomes at any given level of risk; they also frame their problems spaces with personal values and assume greater personal responsibility for the outcomes. Founders think in action…”Fire-ready-aim”. They pursue opportunities without regard to resources currently controlled. Working at a startup is like riding a roller coaster and rolling the dice. Building a startup is so hard with so many obstacles and ups and downs in the way that practical people become too pragmatic and turn big visions into decent ideas instead of sticking with their original vision. I think it takes real nerve to ride this roller coaster for very long, and you have to normalize the madness or go crazy yourself. See this for more information.

Nothing stands still in Silicon Valley; the place has a kinetic energy. Look at the top ten firms in Silicon Valley. Every five or ten years, the list completely changes, with perhaps one or two exceptions. The entire venture capital industry essentially invests in failures, since the majority of the companies they fund eventually go under.

These entrepreneurs deserve their money because of the risks they take. But you don’t see people jumping off the tops of buildings here. They tend to land on their feet. They tend to land in places like this, drinking cappuccinos, because the risk is a peculiar kind of risk. Most of the people in high tech will admit if they lost their job, they would find another one. They might even find a better one.

* Here’s what this regulation could mean for China:

Rigid controls in politics and education would constrain radical innovation. Regulation can shut down iteration and experimentation, and nuclear tech is definitely the case. Economic reformers are worried about the increasing emphasis on the role of the state in the economy, fearing that it could kill entrepreneurship.

If you look at the history of technology, most technologies came with new risks; most of them needed new safety mechanisms to be invented with it. When we invented the X-ray, for example we also realized it could be harmful for our health.

Safety concerns are real, but we need to understand there are always tradeoffs to regulation. We need to acknowledge that there is a tradeoff between safety and speed, efficiency, progress, and long term breakthroughs.

The main way our society works is through innovation. No innovation, no growth. The single most important contributor to a nation’s economic growth is the number of start-ups that grow to a billion dollars in revenue within 20 years. There’s no investment where money works as hard as it does in a tech startup. Driven founders, leveraged with code, capital, media, and intellect, sweating every dollar spent.

No progress or innovation is possible without trial, error and failure. Not in business, not in science, not in nature. Without failure, there is no learning, no progress, and no success.

If you keep doing the same thing over and over again, then there’s no innovation. You don’t get innovation by following the rules all the time, you get it by taking a risk. You don’t succeed unless you TAKE RISK. Price of extreme creativity is natural resistance to all things structure and rules. Creativity, like entrepreneurship, thrives in an environment that welcomes risk, not in one where risk-taking is punished. By its very nature, creation is risky. The world of technology thrives best when individuals are left alone to be different, creative, and disobedient.

And when you take risks you sometimes FAIL. When that happens you pick yourself up and start over again. Except that doesn’t happen when failure means you get a visit from your friendly local commissar.

Billionaire Mark Cuban explains it this way, “Failure is part of the success equation”. Jeff Bezos described it well when he said, “You have to have a willingness to repeatedly fail. If you don’t have a willingness to fail, you’re going to have to be very careful not to invent.”

Failure is acknowledged as a natural part of the process of innovation. Being able to view failure as an asset is the hallmark of an entrepreneurial environment. This is why I’m amused when I hear people sneering at Donald Trump’s bankruptcies, as if failing when taking big risks is a cause for shame.

Innovation requires experiments (most of which fail). Trial and error is the key to turning an invention into a useful innovation. Innovation relies upon freedom to experiment and try new things, which requires sensible regulation that is permissive, encouraging and quick to give decisions. Developing a new technology is 1% inspiration and 99% perspiration. Jeff Bezos makes the same point: “Being wrong might hurt you a bit, but being slow will kill you. If you can increase the number of experiments you try from a hundred to a thousand, you dramatically increase the number of innovations you produce.” Continuous tinkering to develop and refine a better product is much more important than protecting what you’ve already created. Innovation works best when the innovator isn’t required to ask for permission first. To create game-changers, innovators must feel empowered to brainstorm, experiment and make decisions — without judgement.

As Docherty puts it, “The key (for innovation) is to not try to get it completely right the first time, but to try things quickly and adjust as we go. That also means we need to manage expectations along the way.” For example, it took Thomas Edison more than 10,000 tries to perfect the light bulb, after which he famously stated, “I have not failed. I have just found 9,999 ways that do not work.”

If you try to constrain really talented people, you’re only going to create a mirror of yourself with your same strengths and weaknesses. You HAVE to let people do stuff that you disagree with. You can’t tell how good they are if they’re just replicating what you’d have them do. Also, if you try to replace market decision-making with command and control, you train your citizens to defer to you — and you train them to fear risk.

If you punish people for being wrong, they cover up their mistakes. They make excuses and throw blame to justify the past.
If you treat being wrong as a learning opportunity, people admit their errors. They take responsibility for correcting and preventing them in the future.

When you punish failure, people are quick to deny it. They strive to convince others — and themselves — that they haven’t failed.
When you normalize failure as part of growth, people are quick to recognize it. They strive to learn from it and rectify it.

The key to success is the ability to extract the lessons out of each of the experiences and to move on with the new knowledge. Anyone that doesn’t continue to experiment and doesn’t embrace failure, will eventually get in a desperate position where the only thing they can do is a Hail Mary bet at the very end of their existence.

Xi’s “Made in China 2025” economic project aims to displace the U.S. as the world’s technological power, while another plan calls for dominance in Artificial Intelligence by 2030. China has aspirations to become a world power equal to the United States, and many American declinists believe this is inevitable. I don’t share their view. So long as the Chinese people lack the freedom to fail, China will remain weak.

The country that today funds its failing companies is running out of money, and the international community is running out of patience, as can be seen from the tariffs President Trump is levying on Chinese steel.

China’s response is to try to strong-arm its companies into succeeding. It will have the opposite effect.

* What’s the solution?

Everyone makes mistakes. The main difference is that successful people learn from them and unsuccessful people don’t. By creating an environment/culture in which it is okay to safely make mistakes and unacceptable not to learn from them so that people can learn from them, China will see rapid progress and fewer significant mistakes.

Gary Shapiro, author of two best-selling books on innovation, explains the innovative success of the United States and Israel: “Both countries share the unique view that entrepreneurial failure is an education rather than a badge of dishonor. They don’t punish risk-taking the way many other nations do.”

If a place is a magnet for talent, its odds of achieving success are greatly magnified. That’s why an enlightened society would encourage and educate founders and investors, not restrict them. We don’t need to celebrate failure. We just need to normalize it. It’s important to de-risk it (a.k.a reduce downside of risk-taking), preserve the entrepreneurship and risk-taking that has allowed the creation of all these incredible businesses advancing the world. People need the freedom to fail.

I can’t tell you how much time is spent worrying about decisions that don’t matter. To just be able to make a decision and see what happens is tremendously empowering, but that means you have to set up the situation such that when something does go wrong, you can fix it. When something does go wrong, it doesn’t cost you or your customer an exorbitant amount. It isn’t ridiculously expensive. When you get in situations where you cannot afford to make a mistake, it’s very hard to do the right thing. So if you’re trying to do the right thing, the right thing might be to eliminate the cost of making a mistake rather than try to guess what’s right.

If a country is going to attract people with extremely high potential, the first thing it has to do is let them thrive. It has to give them the degrees of freedom to do both what they can do very well, and to some extent, allow them to make mistakes. You want people to increase their proficiency and improve their craft. You want to create a culture where that’s possible and encouraged. Countries should encourage a culture of tinkering, experimentation, and following intellectual curiosity. Tech is all about the exchange of new ideas. So you can only go where people are open to new things.

A country can incentivize more founders by making median founder outcome closer to average and by removing economic and cultural friction. Politicians should rethink the incentives for innovation. One option is to expand the use of prizes, to replace reliance on grants, subsidies and patents. They should systematically remove barriers and bottlenecks to starting companies for people interested in it: celebrate starting companies as a thing for ambitious people to do globally, see startup failures on resumes as badges of honor instead of blemishes, create communities to find co-founders and founder support, etc.

We need to create the best mechanism for avoiding the consequences of risk.

We can embrace risk by using an “affordable loss principle” in discovery of “what works”.

What makes a place really attractive is whether it is one giant incubator as a society, with a lot of pay-it-forward culture and a low cost of trying. We need a place that essentially places zero penalty on failure so we have almost unlimited upside if something works and very limited downside. It’s a culture in which people are willing to bypass convention in any area, not be overly biased by why things can’t be done, but rather take the approach, how one might take a shot at it? It is one where people are not afraid of failure but just look at the consequences of success, not the probability of failure. It is more experimental, less planned, more iterative, and evolutionary even as to the goals, let alone the methods.

This culture is discouraged in most places, partly because failure is discouraged, partly because planning predictability and success along predefined pathways is the only way things get funded instead of saying something is just worth attempting. As the stories of Silicon Valley become more prevalent, this style and culture is becoming more pervasive and will grow in other areas, especially as old generations retire and new generations come up with new models. Having said that, there are ecosystems around places like Bangalore and Israel that are starting to start this transformation of culture. More established places like Europe see less of this, unfortunately, even though they have a lot of talent to make this approach possible.

Everyone deserves a leader or a government that can help them achieve their dreams more than focus on controlling them. Government should merely act as “referees” to establish the rules of the game and ensure the right rules are properly enforced. That’s an important thing for government to ensure that the rules are correct and that the incentives are what we actually want them to be for. Where the government goes wrong, is when they want to not just be a referee on the field, they want to be a player on the field. It’s incredibly important that the government focus on incenting the outcome, not the path.

Free market capitalism is the most effective system to drive entrepreneurship and jobs, which means people get paid for their services, depending on how valuable their contributions are. If you look at the number of jobs that have been created by the free enterprise system, this is the best thing going. I’m a big believer in the entrepreneurial spirit that helped create lots of great businesses around the world, the free enterprise system, fair, free and open markets. We’ve always been a proponent of a fair and free and open market and we recognize that’s got to be balanced by the public interest. Entrepreneurship has created the greatest gains in our standard of living to date, even if it’s hard to grasp the wild polarization of wealth in society. I don’t see capitalism’s lock on the best operating system for society changing any time soon — the most driven humans drive humanity forward, it’s that simple.

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The desire to control other people (always for the greater good) is the root of evil.

Their flagrant abuses of intellectual property and human rights, their suppression of freedom, independence, and consolidated democracy, whether in China, Hong Kong, in northwest China or in anywhere else, will not stand. If you’re intellectually honest and advocate for a system that controls people, turn over the keys to your enemies for a dry run. You cannot be a great leader — and you cannot be a great country — when you oppose freedom, when you are so brutal to the people. Everyone deserves a leader or a government that can help them achieve their dreams more than focus on controlling them.

A fundamental condition for the long-term prosperity of a country is freedom and proper education for all. Life expectancy, economic development, and happiness all suffer when the population is oppressed. Limiting opportunity for people limits growth for the country.

For a long time, we’ve known that, on average, freer economies are richer, grow faster and have longer life expectancies. Since diversity of thought and idea is the key to economic growth, it is time for Mr Xi’s five “NOs” to be matched with some western “NOs” — including a decisive “NO” to restrictions on free speech, privacy, free market and free enterprise system.

Finding a way out for mainland China to evolve into a more liberal and law-governed society and adopt Western-oriented secular modernization, allowing some degree of cultural freedom, embrace capitalism and open its economy to foreign investment and domestic entrepreneurship would require Mr Xi to display a humility, open-mindedness and tolerance for opposing points of view that seem completely alien to him and the system that he has created.

Yet any fair account has to accept that Mr Xi can also claim some successes, so it is possible I will be just the latest in a long line of western skeptics who get China wrong. But it is hard to look at the Xi cult and not feel a sense of foreboding.