Daily Archives: July 14, 2020

FBI director: China is the “greatest long-term threat” to the US

New Europe – New Europe has, in the past, sounded the alarm on multiple occasions in an effort to caution the public about China’s flagship projects, including its Belt and Road initiative, as well as its numerous financial and technological investments around the world, all of which are aimed at ensuring that the Chinese Communists’ vital interests become so irreversibly intertwined with the order of business in the community that they guarantee that Beijing replaces the United States and its allies to become the arbiter of a new, Chinese-model, world order.

While speaking to the Hudson Institute in Washington on July 7, FBI Director Christopher Wray confirmed what New Europe has been concerned about, saying that acts of espionage and theft by China’s government pose the “greatest long-term threat” to the future of the United States.

As National Security Advisor O’Brien said in his recent remarks, we cannot close our eyes and ears to what China is doing—and today, in light of the importance of this threat, I will provide more detail on the Chinese threat than the FBI has ever presented in an open forum. This threat is so significant that the attorney general and secretary of state will also be addressing a lot of these issues in the next few weeks. But if you think these issues are just an intelligence issue, or a government problem, or a nuisance largely just for big corporations who can take care of themselves—you could not be more wrong.

It’s the people of the United States who are the victims of what amounts to Chinese theft on a scale so massive that it represents one of the largest transfers of wealth in human history.

In 2017, the Chinese military conspired to hack Equifax and made off with the sensitive personal information of 150 million Americans—we’re talking nearly half of the American population and most American adults—and as I’ll discuss in a few moments, this was hardly a standalone incident.

Our data isn’t the only thing at stake here—so are our health, our livelihoods, and our security.

We’ve now reached the point where the FBI is opening a new China-related counterintelligence case about every 10 hours. Of the nearly 5,000 active FBI counterintelligence cases currently underway across the country, almost half are related to China. And at this very moment, China is working to compromise American health care organizations, pharmaceutical companies, and academic institutions conducting essential COVID-19 research.

To understand this threat and how we must act to respond to it, the American people should remember three things.

First: We need to be clear-eyed about the scope of the Chinese government’s ambition. China—the Chinese Communist Party—believes it is in a generational fight to surpass our country in economic and technological leadership.

That is sobering enough. But it’s waging this fight not through legitimate innovation, not through fair and lawful competition, and not by giving their citizens the freedom of thought and speech and creativity that we treasure here in the United States. Instead, China is engaged in a whole-of-state effort to become the world’s only superpower by any means necessary.

The second thing the American people need to understand is that China uses a diverse range of sophisticated techniques—everything from cyber intrusions to corrupting trusted insiders. They’ve even engaged in outright physical theft. And they’ve pioneered an expansive approach to stealing innovation through a wide range of actors—including not just Chinese intelligence services but state-owned enterprises, ostensibly private companies, certain kinds of graduate students and researchers, and a whole variety of other actors working on their behalf.

To achieve its goals and surpass America, China recognizes it needs to make leaps in cutting-edge technologies. But the sad fact is that instead of engaging in the hard slog of innovation, China often steals American intellectual property and then uses it to compete against the very American companies it victimized—in effect, cheating twice over. They’re targeting research on everything from military equipment to wind turbines to rice and corn seeds.

Through its talent recruitment programs, like the so-called Thousand Talents Program, the Chinese government tries to entice scientists to secretly bring our knowledge and innovation back to China—even if that means stealing proprietary information or violating our export controls and conflict-of-interest rules. more>

Updates from McKinsey

Unlocking enterprise efficiencies through zero-based design
Zero-based design allows even mature companies in asset-heavy industries to cut costs and complexity without compromising safety, quality, or customer trust.
By Charles-Henri Marque, Rohit Panikkar, and Sai Tunuguntla – Across virtually every industry, startups are gaining ground, if not disrupting the status quo, with new operating models that allow them to design, test, and scale better products and services, faster than ever. This ability has raised customer expectations, putting added pressure on incumbent businesses.

Of course, startups have an innate advantage: a clean slate from which to design operations and processes. Incumbents, on the other hand, contend with rigid and ingrained processes and systems, and a well-worn, usually siloed, organizational structure that slows decision making. Other constraints, such as a legacy infrastructure or the lack of the right talent, skills, and capabilities, make change slow and difficult at a time when rapid response is needed more than ever. And in this environment, operational-excellence efforts tend to emphasize the continuous improvement of current-state work, rather than the kind of radical, step-change reimagination that has become a business imperative in the digital era.

Yet it is indeed possible for mature companies—even those in asset-heavy industries—to cut waste and complexity and accelerate processes dramatically without compromising safety, quality, or customer trust. While they can’t exactly work from a clean slate, mature companies can sweep away many of the self-imposed barriers to achieve results that more closely align with their priorities. This approach is called zero-based design.

Some organizations know their internal processes need radical change—fast. They use zero-based design to deliver substantial results despite legacy business’ usual constraints of protracted product-development cycles and complex processes. Indeed, zero-based design isn’t new: it has already proven its worth in product design and more recently, in redesigning customer-facing processes. Its usefulness doesn’t stop there: zero-based design holds promise in delivering quantum-leap performance improvement in the internal operations of many types of enterprises, regardless of industry.

Many companies, especially those dealing with rapidly changing requirements and large asset bases, face three major challenges.

Demand is escalating, but cycle times remain long. Telcos are a prime example: while demand for mobile services has exploded, it can still take up to 12 months in some markets to deploy services in new areas. Contrast that with product launches enabled by agile methodologies, where new releases take weeks, rather than months—or even years.

Core enterprise operations such as research, design, development, and implementation still take considerable resources and time. Telco network operations, for instance, account for between 20 and 40 percent of total telco operational expenditure and 20 to 30 percent of the total workforce.

When companies attempt to shoehorn new technologies into old approaches and processes, they often find they cannot realize the full value they hoped to achieve. Digital tools and technologies have so radically changed products and services, and how they are conceived and delivered, that organizations instead face a fundamental rethinking of how processes are designed.

Decision makers may not see the potential impact of a change program, or know where to start, or how to prioritize implementation. The fragmented ownership of processes or activities compounds the inertia. For some companies, the problem isn’t getting started, but rather sustaining the improvement: they may claim success prematurely, leaving them in pilot purgatory. For others, attempting to resolve these complexities from their current base hampers their thinking and creativity. more>

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5 Best Practices for Utilizing Open Source Software

Open source software is everywhere and has the potential to help businesses accelerate development and improve software quality. Achieving these results can be challenging if care is not taken.
By Jacob Beningo – Here are five best practices for utilizing open source software successfully.

Best Practice #1 – Use an abstraction layer to remove dependencies
One of the common issues with code bases I review is that developers tightly couple their application code with the software libraries they use. For example, if a developer is using FreeRTOS, their application code makes calls specific to the FreeRTOS APIs in such a way that if a developer ever decided to change their RTOS, they’d have to rewrite a lot of code to replace all those RTOS calls. You might decide that changing libraries is rare, but you’d be surprised how often teams start down a path with one OS, library or component only to have to go back and rewrite code when they decide they need to make a change.

The first thing teams should do when they select an open source component, and even commercial components, is to create an abstraction layer to interact with that component. Using RTOS as an example, a team would use an OS abstraction layer, OSAL, that would allow them to write their application code with OS independent APIs. If the OS changes, the application doesn’t care, because it’s accessing an abstraction layer and the software change can take minutes rather than days.

Best Practice #2 – Leverage integrated software when possible
Most open source software is written in its own sandbox without much thought given to other components with which it may need to interact. Components are often written with different coding standards, styles, degrees of testing, and so on. When you start to pull together multiple open source components that were not designed to work with each other, it can result in long debugging sessions, headaches, and missed deadlines. Whenever possible, select components that have already been integrated and tested together.

Best Practice #3 – Perform a software audit and quality analysis
There is a lot of great open source software and a lot of not so great software. Before a developer decides to use an open source component in their project, they need to make sure they take the time to perform their due diligence on the software or hire someone to do it for them. This involves taking the time to audit the component and perform a quality analysis. Quality is often in the eye of the beholder.

At a minimum, when starting out with an open source component, the source code should be reviewed for:

Complexity using cyclomatic complexity measurements
Functionally to ensure it meets the businesses needs and objectives
Adherence to best practices and coding standards (based on needs)
Ability to handle errors
Testability

Best Practice #4 – Have the license reviewed by an attorney
Open source software licensing can be difficult to navigate. There are a dozen or so different licensing schemes, which place different requirements on the user. In some cases, the developer can use the open source software as they see fit. In others, the software can be used but any other software must also be open sourced. This means that it may require releasing a product’s secret sauce, which could damage their competitive market advantage. more>

There’s a hidden economic trendline that is shattering the global trade system

By Marshall Auerback and Jan Ritch-Frel – Former U.S. Treasury Secretary Lawrence Summers has recently conceded: “In general, economic thinking has privileged efficiency over resilience, and it has been insufficiently concerned with the big downsides of efficiency.” Policy across the globe is, therefore, moving in a more overtly nationalistic direction to rectify this shortcoming.

COVID-19 has accelerated a process that was well underway before it, spreading beyond U.S.-China-EU trade negotiations and into the world’s 50 largest economies. As much as many defenders of the old order lament this trend, it is as significant a shift as the dawn of the World Trade Organization global trade era.

Economists, politicians, and leading pundits are often tempted to see new economic patterns through the prisms of the past; we are therefore likely to hear that we’re back in an era of 19th-century mercantilism, or 1970s-style stagflation. But that misses the moment—the motives are different, and so are the outcomes.

What we are experiencing is the realisation by state planners of developed countries that new technologies enable a rapid ability to expand or initiate new and profitable production capacity closer to or inside their own markets. The cost savings in transport, packaging and security and benefits to regional neighbours and these countries’ domestic workforces will increasingly compete with the price of goods produced through the current internationalized trade system. U.S. national politicians from President Donald Trump to Senator Elizabeth Warren will be joined by a growing chorus who see the long-term domestic political benefit of supporting this transition.

The combination of high-speed communication, advances in automated manufacturing and computing combined with widespread access to the blueprints and information necessary to kick-start new production capacity increasingly makes the current international network of supply chains resemble a Rube Goldberg contraption, and it lightens the currency outflow challenge that many economies have had to deal with for the past seven decades.

Growing political will to restore manufacturing capacity in the national interest will have a shattering effect on countries that built up their economies through a labour price advantage over the past 40 years. No amount of currency depreciation or product dumping can overcome the reality of a country’s foreign customer base suddenly opting to produce and buy their own goods at competitive prices.

Taken in sum, the transformation underway isn’t just Donald Trump demanding less dependency on China’s production capacity—it’s a global process. It’s also India signalling it’s going to try to strike its own technological path away from China.

The rationales provided by governments to escape the strictures of the existing trade arrangements and into the new era are fairly easy: a mix of opportunism and need, tied to the exigencies of the moment, such as the current pandemic, and long-term national security, which of course can ultimately amount to any economic activity of scope. Senator Elizabeth Warren’s introduction in July of her sweeping Pharmaceutical Supply Chain Defense and Enhancement Act demonstrates that the U.S. power establishment is beginning to reach a consensus on this issue—no longer the sole province of Trump-era nationalism. “To defeat the current COVID-19 crisis and better equip the United States against future pandemics, we must boost our country’s manufacturing capacity,” Warren said, recasting the consequences of decades of policy to offshore our economic production as an “overreliance on foreign countries.” Likewise, Senator Tom Cotton has introduced a new bill focusing on domestic production of semiconductors, titled the “American Foundries Act of 2020,” which aims to rebuild the country’s semiconductor capacity. This bill too has significant bipartisan backing.

The government of Japan’s newly defined restrictions on foreign investment as reported by the Financial Times of around a dozen sectors including “power generation, military equipment, [computer] software [and technology]” in effect prioritize the claims of domestic manufacturers on national security grounds.

The government of Australia has likewise outlined new powers to scrutinize new overseas investment, as well as forcing foreign companies to sell their assets if they pose a national security threat. The proposals come in the wake of an intensifying trade war between the governments of Beijing and Canberra, alongside “a dramatic increase in the number of foreign investment bids probed by Australia’s spy agency ASIO, over fears that China was spying on sensitive health data,” according to news.com.au. This is happening at the same time that there has been an overhaul of thought with regard to manufacturing, something Australia hasn’t typically done much of. The headlines from Australia are beginning to look a lot like the Area Development stories in the United States.

The Canadian government has also announced plans to enhance foreign investment scrutiny “related to public health or critical supply chains during the pandemic, as well as any investment by state-owned companies or by investors with close ties to foreign governments,” according to the Globe and Mail. This attempt to disaggregate beneficial foreign investment flows from those deemed contrary to the national interest used to be a common feature of government policy in the post-World War II period. Canada established the Foreign Investment Review Agency in 1973 as a result of mounting concerns about rising overseas investment, notably the domination of U.S. multinationals, in the Canadian economy. Its provisions were repeatedly downgraded as globaliaation pressures intensified, but its value is now being reassessed for compatibility with national health policy and resiliency in manufacturing chains. Predictably, pharmaceutical independence is high on the list.

Taiwan, “a net importer of surgical masks before the pandemic, [has] created an onshore mask-manufacturing industry in just a month after registering its first infections in January,” reports the Financial Times. “Taiwan’s President Tsai Ing-wen… said Taipei would repeat that approach to foster other new industries.” And world economists have noted that Taiwan and Vietnam lead the world in growth of global market share in exports, at the expense of larger economies like China.

In Europe, the EU leadership is publicly indicating a policy of subsidy and state investment in companies to prevent Chinese buyouts or “undercutting… prices.” This was supposed to represent a cross-European effort, but the coronavirus policy response is increasingly driven at the national level. Consequently, it is starting to fracture the EU’s single market, which has long been constructed on an intricate network of cross-border supply chains and strict rules preventing state subsidies to national champions.

Even Germany, with a vibrant export sector that has long made it a beneficiary of globalization, has also signaled a move toward greater economic nationalism.

Economic nationalist considerations are also driving a shift in Britain’s negotiating stance in the current Brexit trade negotiations with the EU, with the UK clearly prioritizing national sovereignty over frictionless free trade with its former single-market partners, even if that means a so-called “Hard Brexit.” The EU’s single-market rules specifically preclude state aid to specific industries if it undermines the operation of the single market. But the UK’s chief negotiating officer, David Frost, has made it clear that the ability to break free from the EU’s rulebook was essential to the purpose of Brexit, even if that meant reverting to the less favorable WTO trade relationship that exists for other non-EU countries.

Over the past 40 years, this kind of overt economic nationalism, especially as it has pertained to domestic manufacturing capabilities, has generally been eschewed by the United States, at least until the ascension of Donald Trump to the White House. In part, this is a product of the fact that as global hegemon, the United States used to be able to dominate global institutions (such as the International Monetary Fund and the WTO) and shape them toward U.S. national interests. But when necessary, national security considerations have intervened.

More recently, national security considerations in the semiconductor industry have again revived in the wake of the Trump administration’s growing dispute with Chinese 5G telecommunications equipment maker Huawei. The U.S. Commerce Department has now mandated that all semiconductor chip manufacturers using U.S. equipment, IP, or design software will require a license before shipping to Huawei. This decision has forced the world’s biggest chipmaker—Taiwan Semiconductor Manufacturing Company (TSMC)—to stop taking fresh orders from Huawei, as it uses U.S. equipment in its own manufacturing processes. Paradoxically, then, the Trump administration has exploited pre-existing global supply linkages in the furtherance of a more robust form of economic nationalism. The same policy attitude is now visible with regard to pharmaceuticals (as it is in other parts of the world, to the likely detriment of China and India).

A shift like this will have a knock-on effect that will reverberate to the other parts of the world that for centuries have been forcibly limited—by arms and finance—to being sources of raw material export, refined if they were lucky. They will watch closely what happens with Australia, which for the majority of the past 150 years has been an exporter of food and minerals, but is now jumping on the project to establish a national manufacturing base.

As dozens of countries build their own manufacturing base—something only a handful of countries controlled for most of modern history—big questions will emerge about geopolitical stabilization and the classical tools of foreign influence. The world today in some respects resembles the 19th century’s balance-of-power politics, even as the majority of countries understand that some minimal level of state collaboration is essential to combat shared challenges. China is party to a growing number of global disputes, as emerging great powers typically experience: the U.S. vs. China, China vs. IndiaJapan vs. ChinaChina vs. Australia, and the EU vs. China. But hot wars are unlikely to feature as prominently as they did two centuries ago.

Expect to see Cold War-style conflict intensify, however, albeit in new forms. Instead of the old geopolitical arenas including access to vital commodities or stable petroleum markets, the new forms of the competition will put greater weight on access to advanced research and technologies, such as the collection, transfer and storage of data and the quantum computing power to process it.

The speed at which global supply chains can potentially shift to accommodate the rise in economic nationalism is considerable. The success with which we manage the transition will largely settle the debate as to whether it is, in fact, the better path to greater prosperity and global stability. more>