In this special crossover episode with ChinaTalk podcast host Jordan Schneider, we interview director of the Defense Innovation Unit Michael Brown. We touch on a number of topics, including:
- Industrial espionage and foreign investment
- The debate over basic vs. applied research
- China starting to determine technical standards
- Coordinating with allies on semiconductors
- Transitioning tech in the DoD
Before taking the helm of DIU in 2018, Michael co-authored a study with Pravneet Singh showing how Chinese participation in the US venture/tech ecosystem had surged from $300 million in 2010 to $11.52 billion in 2015. The Chinese made up of 16 percent of all deals in 2016. That work launched the Foreign Investment Risk Review Modernization Act (FIRRMA) which strengthened the government’s ability to block Chinese investments.
While the Chinese still work hard to transfer technology from the West, in several cases China itself is setting the standards and aggressively exporting that to other countries. They have national champions for artificial intelligence, e-commerce, 5G, drones, and so forth, which are strategically subsidized to achieve a monopoly on infrastructure.
The competition with China is not like the Cold War. Decades ago, the Soviets were at a disadvantage. They (1) had a much smaller economy (about half the size); (2) were not integrated with the global economy; and (3) were not developing technology standards. The answer is not to anoint domestic champions in the United States, but to invest more heavily in S&T and provide safeguards to protect it from IP theft.
Basic vs. Applied Research
Jordan had a great newsletter and podcast with Emily De La Bruyere discussing how China prioritizes applied research over basic. We asked Michael Brown where he thought the US should be focusing on that question. While he thought there needed to be more US investment in both, he wouldn’t move from basic to applied on the margin. In the 1960s, the US spent roughly 2 percent of GDP on federally funded research. That figure is 0.7 percent today, and half of that is spent on healthcare and biotech. The government is especially important in planting “seed corn” for research because it has the ability to be more patient.
Jordan pushed back, arguing that breakthroughs in research are prone to spillover — “you don’t even need industrial espionage just to read the newest paper in an academic journal..i is there anything else,” Jordan asked, “that basic research can do besides open doors, which both the US and China can walkthrough at relatively the same time?”
I’ll let you listen to the podcast for Michael’s response.
Defense budgets
DIU has the goal of saving 10 times their budget. For example, one project alone saved $300 million a year compared to their budget of roughly $70 million. It might not surprise many observers, however, to hear that only 23 percent of finished DIU projects transitioned to the field. In about one-quarter of projects, the military application was not ready for the technology. “And that’s fine with me,” Michael said, “I don’t lose sleep over that. We should be taking some risks and seeing some failure there.” He continued,
I was very disappointed to see that a big proportion of what we were doing resulted in a successful prototype, but then did not scale. The big reason for that is often the, DOD partner or customer did not have the dollars in its budget. Assuming that the prototype was going to be successful. And one of the issues, this highlights is how long the budgeting cycle is for the defense department. If I want to spend a dollar today, I need to plan that two years prior.
Michael argues that there’s enough flexibility in the acquisition process, such as using CSOs or OTAs. “It’s all about budget flexibility and speed. Today we’re neither agile nor fast, and that’s what needs to change. It’s really a matter of trying some new things and building a level of trust the Congress.” Michael briefly touched on how innovation can be sped up in the DoD:
… why not work with portfolios of technologies as we do the budgeting. Why is it important for Congress to set a line for how many F-35s, F-22, F-18s? Why isn’t there an aviation line so you could do that with some aggregation as well?
Budget portfolios — and really management by real options — also requires transparency with Congress, as Michael observes. That kind of programmatic insight, exactly how much money went to an F-35 or F-18, can be done “after-the-fact.” I would suggest something like a quarterly report on funding allocation and updated estimates.
Thanks Michael and Jordan!
I’d like to thank Michael Brown for joining me on the Acquisition Talk podcast. I’d also like to thank the excellent Jordan Schneider for setting this all up and inviting me for a crossover episode. You can find more about DIU at their website. Here is Michael Brown’s research into China’s venture activity in the US, “China’s Technology Transfer Strategy.” Here’s Michael testifying to Congress in 2019 and a more China-oriented intelligence hearing in 2018.
Be sure to sign up for Jordan’s ChinaTalk newsletter and subscribe to his podcast. He’s bomb on Twitter too, @jordanschnyc. Here’s Jordan’s personal website.
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