Book Review: A.I. Superpowers

With the saber rattling and threat of a Cold War between the United States and China grabbing headlines, Kai-Fu Lee's A.I.Superpowers: China, Silicon Valley, and the New World Order is a topical read. Mr. Lee is the experts' expert on all things A.I. with impressive credentials. Kai-Fu began his career in academia where he obtained a PhD in artificial intelligence, then branched out into the private sector with stints at Apple (AAPL), Microsoft (MSFT) and Alphabet (GOOG)(GOOGL). He's currently founder of venture capitalist firm Sinovation Ventures located in the Zhongguancun neighborhood of Beijing, often referred to "the Silicon Valley of China".

Although born in Taiwan, Mr. Lee spent his formative and academic years in the United States. I found the writing primarily apolitical, where the author took sides with the technology, not a particular country, but a few times he leaned towards Red China. Perhaps it's a bias because his bread and butter is now incubating P.R.C. startups. For instance, he warns in working with Chinese companies that "Silicon Valley looks sluggish compared to its competitor across the Pacific.". Based on the data in the text, I thought he was being objective, but others may take offense. Nevertheless, it doesn't detract from the fact you will learn a lot from reading A.I. Superpowers.

Kai-Fu states that there are four waves of A.I.: internet, business, perception and autonomous. Internet A.I. began fifteen years ago as recommendation algos for companies such as Amazon (AMZN) and Google. Business A.I. mines structured databases for information; mortgage defaults, stock price patterns and credit-card usage are all common practices. Perception A.I. uses "deep learning" or "neural networks" to digitize the world around us with the proliferation of sensors and smart phones. Facial recognition is one of the essential technologies in this stage. The autonomous phase will amalgamate the previous three iterations. An example is self-driving vehicles. The science fiction of my youth is now imminent technology, or, just plain old current events.

So who are the leaders in artificial intelligence? The usual technology suspects that have made investors increasingly rich the past decade: Google, Facebook (FB), Amazon, Microsoft, Baidu (BIDU), Alibaba (BABA), and Tencent (TCEHY). The author dubs them "The Seven Giants of Artificial Intelligence". I would think that Apple (AAPL) would be included, but it was omitted.

According to Kai-Fu Lee:

These Seven Giants have morphed into what nations were fifty years ago - large and relatively closed-off systems that concentrate talent and resources on breakthroughs that will mostly remain "in house".

It's a winner take all world in the race for singularity, or, Artificial General Intelligence [AGI], the hypothetical future creation of super-intelligent machines. Three technologies have changed humanity: the steam engine, electricity, information and communication science. In the future, AGI will be included. Although the corporate behemoths of the A.I. age will see profits rise exponentially to previously unfathomable levels, the first company that cracks the code for Singularity Technology will be the last company standing. AGI is so difficult to invent, it will be like discovering nuclear fission. Unlike popular science fiction, Lee doesn't foresee this taking place for decades, if not hundreds of years. Cyborgs with machine guns are not on the horizon.

It was only a decade ago that China was considered a technology backwater, but times have changed. They are currently slightly ahead of Silicon Valley in the development of artificial intelligence according to Lee. How did China get an edge on their American counterparts? The country had their own Sputnik moment. You may recall that the United States pushed the envelope to get to the moon before the Soviet Union when the USSR launched the Sputnik satellite. Beijing took notice in 2016 when Alphabet's AlphaGo, an A.I. game algorithm, trounced the world champion in a series of matches. It induced A.I. frenzy in the Chinese populace and the government made it a top priority to beat the Americans. With the backing of Beijing, Chinese firms leapfrogged an entire generation of data science, going from a copycat country, to an A.I. juggernaut. For instance, Baidu used to be called the Google of China and rightfully so. The Baidu website was formally a carbon copy of Google. That's history now. Google and Baidu are now equal as powerful leaders of their respective countries in A.I.. However, Kai-Fu states that, "no amount of government support can guarantee that China will lead in autonomous A.I.".

So where does this leave us humans? Basically out of luck. Lee believes that in twenty years, 40%-50% of work will be done by machines, "A.I. algorithms will be to many white-collar workers what the tractors were to farmhands.". However, no social strata will be left unscathed. Robotics is going to affect all of us. Lee warns that if left unchecked, A.I. will exponentially increase inequality on an international level. Poor countries will stagnate while the A.I. Superpowers escalate their economic dominance. The author gives a workaround for the vast amount of the potentially unemployed stateside, but it comes off a little too much like Universal Basic Income, which he doesn't believe in. I thought that was the weakest part of the book in an otherwise strong narrative.

Artificial Intelligence gravitates towards monopolies. One way to take advantage of the inevitable is to directly invest in The Seven Giants. If you prefer diversification, then Internet sector exchange traded funds could be up your alley. The popular First Trust DJ Internet Index ETF (FDN) invests in domestic securities. KraneShares CSI China Internet ETF (KWEB) focuses on Chinese firms. Invesco Exchange-Traded Fund Trust - Invesco NASDAQ Internet ETF (PNQI) blends equities from both countries. There's two caveats here. Because of the tensions between both countries, the Senate recently passed an oversight bill on Chinese companies, The Holding Foreign Companies Accountable Act. President Trump is also putting pressure on American technology giants such as Alphabet and Facebook for monopolistic practices. As a country, we need A.I. superiority, so I believe this too shall pass.

Book Review: The Age of Surveillance Capitalism

Harvard professor emerita Shoshana Zuboff's opus The Age of Surveillance Capitalism is equal parts economics tome and public policy manifesto. Five Hundred page economics and public policy books aren't usually slated for the bestseller list, and this treatise is certainly no exception. Although filled with a cornucopia of information, it's not a page turner, but more of a niche play for those in academia, government or finance. That's too bad because what she has to say is important, but the erudite writing style makes it inaccessible to the masses. Plus, it's redundant at times. It should have been edited down. That said, stock market participants may glean knowledge for technology investing if they decide to plow through it.

The book is primarily about Alphabet (GOOG)(GOOGL), the holding company of the Google empire, and to a lesser extent, Facebook (FB) and Microsoft (MSFT). Apple (AAPL) and Amazon (AMZN) are afterthoughts throughout the narrative. Alphabet is the trail blazing pioneer in surveillance capitalism. According to Zuboff, "Google is to surveillance capitalism what the Ford Motor Company and General Motors were to mass-production-based managerial capitalism.". What began as an altruistic search company that scoffed at advertising, clandestinely became a marketing juggernaut to avoid the unprofitable netherworld that doomed many dotcom companies.

Google mined the mother lode of what Zuboff coins "data exhaust" early on in its existence before other organizations were aware of the value. It began with cataloging and storing search results in their enormous server farms, but branched out to encompass e-mails, texts, photos, songs, messages, locations, communication patterns, purchases, and whatever else you can think of. Google is able to do this with the quid pro quo relationship it has with its users. The company gives away the Android mobile operating system, and lets people use loss leader YouTube for free because it enriches the dossiers they're compiling on each and every one of us. With the advent ubiquitous sensors in our lives and the adoption of "the-internet-of-things", there's nothing they don't have. Facebook utilizes the same game plan, and most other major technology corporations have followed suit. As the author states: "Once a third party captures your surplus, it is shared with other third parties, who share with other third parties, and so on.".

In the A.I. world in which we live, it's size and scope that counts - data begets more data which produces better search outcomes. Google does a land office business in A.I., but the author spins a cautionary tale about not only the company's underlying motives, but the underlying motives of the digerati as a whole. It comes off as a mashup of science fiction movies The Terminator and Minority Report. If you recall in The Terminator, Skynet, an artificial intelligence network, masterminded by Cyberdyne Systems, has become self-aware. In Minority Report, the pervasive network has precognition capabilities and can alter events before they happen. In Zuboff's not too distant future, behavior modification techniques by the digital industrial complex turn us into sheep with no free will. Anything against the norm decreases revenue streams. It's much more than state-of-the-art, high-tech, subliminal seduction.

George Orwell's Nineteen Eighty-Four features Big Brother, a fictional character that's the symbol of a totalitarian state depicted via cult of personality television transmissions. In Surveillance Capitalism, we have Big Other, an always connected network that "renders, monitors, computes and modifies human behavior". It's a new form of fascism. "Big Other acts on behalf of an unprecedented assembly of commercial operations that must modify human behavior as conditions of commercial success.". Just like Skynet in The Terminator without the search and destroy cyborgs. Zuboff believes this takeover will be a market driven coup from the powers that be that control the network, or at least this is how I interpreted it. "It is not a coup d'état in the classic sense but rather a Coup de gens: an overthrow of the people concealed as the technological Trojan horse that is Big Other.".

So how did we get to this point? To paraphrase the author, US privacy laws have failed to keep pace with the march of instrumentarianism, the 24/7 machine intelligence apparatus with the goal to automate us.

There was a time when you searched Google, but now Google searches you.

Zuboff states that Alphabet has been in bed with the CIA ever since the aftermath of the 9/11 attacks on the World Trade Center. The government needed Google's search algorithms to fight terrorism. In the book, former Alphabet CEO Eric Schmidt quotes an Andy Grove formula, "High tech runs three-times faster than normal businesses. And the government runs three-times slower than normal businesses. So we have a nine-times gap.". Uncle Sam just can't keep up with Silicon Valley.

CNBC's Jim Cramer is known for saying we live in a world of, for, and by the corporation. It's only getting worse as small and medium sized businesses in the COVID-19 pandemic are falling by the wayside. Corporations have been trying to control us from time immemorial. In addition, behavior modification has been around since soap companies convinced us to bathe every day in the 1920's when radio became mainstream. In The Age of Surveillance Capitalism, Zuboff warns that it's much more severe than "business as usual" now. We are becoming puppets of a digital totalitarian state fueled by the public's addiction to an always connected cyberspace. The benefits we derive from companies such as Google, Facebook, Microsoft, Amazon and Apple, have a double edge sword element to the relationship.

In aggregate, I tend to agree with Zuboff in a majority of the points she makes, including the creeping engulfment of the ubiquitous network 'Big Other'. I realized twenty-something years ago my privacy was a thing of the past when the first cookie was placed on my browser. Being a Baby Boomer, some sort of a cloaking mechanism is important to me. That may not be true for younger generations. Baby Boomers, Great Depression Kids, and the Greatest Generation who fought WWII are technology immigrants; they had to learn technology as adults. Gen-X, Millennials, and Gen-Z are technology natives, where computers have been part of their lives from womb to tomb. They appear not to care about privacy which can be demonstrated by the personal information they post in e-mails, texts, social media, photos and videos. For me, Zuboff is preaching to the choir. To the younger generations, her message may be falling on deaf ears.

I found The Age of Surveillance Capitalism equally fascinating, and equally bogged down by the academic narrative. If this is a warning sign to the masses, she did a poor job of reaching her audience. A more succinct book covering the same subject is The Four by Scott Galloway. Galloway also discusses how the large Silicon Valley companies evade paying taxes at the public's expense while taking advantage of lax government regulation. Although the Department of Justice recently announced an antitrust lawsuit against Alphabet, this isn't Alphabet's first rodeo. As in the past, they will probably be fined and get a slap on the wrist. After all, we are in a technology war with China, and the digital oligopoly has the best A.I. on the planet.

As an investment thesis, the surveillance capitalism equities are probably a good bet. They've been working and will continue to do so until major government intervention ensues. In the 1960's and early 1970's, we had the Nifty Fifty stocks that everyone owned and only went up. Now it's the FANGMAN (Facebook, Apple, Netflix (NFLX), Google, Microsoft, Amazon, Nvidia (NVDA)) stocks. If you are uncomfortable owning individual securities, then First Trust Dow Jones Internet Index etf (FDN), could be for you. The only free lunch in investing is diversification.