Author J.D. Vance – yes, of Hillbilly Elegy fame – made a comment in an interview that neatly laid out the issue with China and technology, one that has ramifications for Australia.

“One of the really worrying things that I think about from a macro perspective is, if you invest in a real technology enterprise, one of the things you have to be worried about is that, when that company hopefully goes global and scales, it may have the very thing that makes it a good investment just stolen by the Chinese.”

“And in that world where we’re worried about investing in real technology companies because we’re terrified that the Chinese are just going to steal it, we’re not going to have as much technology innovation.”

“That means we’re not going to have as much productivity growth.”

“And ultimately, that means we’re not going to have as many people with good American jobs who are building and creating those new technologies. So I think that China is the threat.”

Vance, who works in venture capital, hits on a point that really illuminates the nature of long term techno-competition with China. As it stands China’s technology policy can dissuade companies and investors from expanding into new areas or moving up the food-chain of innovation. Why do it, if it’s just going to be stolen by China?

One feature of the Cold War was the considerable ignorance of the rival bloc’s technology. Today, the arc of China’s modern rise is to use the internet to hack and download things that aren’t available through the open market or through forced-technology transfers. So the technology a Western company makes is likely to be stolen and sold right back to Western countries – partially or in full.

Of course, this effect alone doesn’t account for the lull in innovation the US and West has experienced. There has also been a laziness and lack of adventure, not to mention the effects of the seductive lure of free trade ideology in recent decades. But one of those effects in a globalized, free-trade market, is what Vance describes so well.

The US is just waking up from this. Joe Biden, while recently espousing industrial policy, observed that “we’ll see more technological change in the next 10 years than we saw in the last 50.”

The comment from Vance points to the long-term landscape of competition between free democracies and China. How do you plan and invest if at any time, you’re precious IP is swiped and copied? Western inventions, governments and investors must prepare for innovation in a world, where this thievery is the new normal. How can they be successful?

For Australia, the more it diversifies its economy away from commodities and education and into technology, the more this problem will emerge. In fact, the higher the food chain of tech development Australia’s goes, the more it will come into conflict with China’s privateering industrial policy.