This article previously appeared in The National Interest.

Last month the U.S. passed the CHIPS and Science Act, one of the first pieces of National Industrial Policy – government planning and intervention in a specific industry — in the last 50 years, in this case for semiconductors. After the celebratory champagne has been drunk and the confetti floats to the ground it’s helpful to put the CHIPS Act in context and understand the work that government and private capital have left to do.

Today the United States is in great power competition with China. It’s a contest over which nation’s diplomatic, information, military and economic system will lead the world in the 21st century. And the result is whether we face a Chinese dystopian future or a democratic one, where individuals and nations get to make their own choices. At the heart of this contest is leadership in emerging and disruptive technologies – running the gamut from semiconductors and supercomputers to biotech and blockchain and everything in between.

National Industrial Policy – U.S. versus China
Unlike the U.S., China manages its Industrial Policy via top-down 5-year plans. Their overall goal is to turn China into a technologically advanced and militarily powerful state that can challenge U.S. commercial and military leadership. Unlike the U.S., China has embraced the idea that national security is inexorably intertwined with commercial technology (semiconductors, drones, AI, machine learning, autonomy, biotech, cyber, semiconductors, quantum, high-performance computing, commercial access to space, et al.)  They’ve made what they call military/civil fusion – building a dual-use ecosystem by tightly coupling their commercial technology companies with their defense ecosystem.

China has used its last three 5-year plans to invest in critical technologies (semiconductors, supercomputers, Al/ML, quantum, access to space, biotech.) as a national priority. They have built a sophisticated public/private financing ecosystem to support these plans. The Chinese technology funding ecosystem includes regional Investment funds that exceed 700 billion dollars (what they call their Civil/Military Guidance Funds). These are investment vehicles in which central and local government agencies make investments that are combined with private venture capital and State-Owned Enterprises in areas of strategic importance. They are tightly coupling critical civilian companies to their defense ecosystem to help them develop military weapons and strategic surprises. (Tai Ming Cheung’s book is the best description of the system.)

The U.S. has nothing comparable.

In contrast, for the last several decades, planning in the U.S. economy was left to “the market.” Driven by economic theory from the Chicago School of Economics, its premise is that free markets best allocate resources in an economy and that minimal, or even no, government intervention is best for economic prosperity. We ran our economy on this theory as a bipartisan experiment in the U.S. for the last several decades. Optimizing profit above else led to wholesale offshoring of manufacturing and entire industries in order to lower costs. Investors shifted to making massive investments in industries with the quickest and greatest returns without long-term capital investments (e.g. social media, ecommerce, gaming) instead of in hardware, semiconductors, advanced manufacturing, transportation infrastructure, etc. The result was that by default, private equity and venture capital were the de facto decision makers of U.S. industrial policy.

With the demise of the Soviet Union and the U.S. as the sole superpower, this “profits first” strategy was “good enough” as there was no other nation that could match our technical superiority. That changed when we weren’t paying attention.

China’s Ambition and Strategic Surprises
In the first two decades of the 21st century, while the U.S. was focused on combating non-nation states (ISIS, Al-Qaeda…) U.S. policymakers failed to understand China’s size, scale, ambition, and national commitment to surpass the U.S. as the global leader in technology. Not just in “a” technology but in all of those that are critical to both our national and economic security in this century.

China’s top-down national industrial policy means we are being out-planned, outmanned, and outspent. By some estimates, China could be the leader in a number of critical technology areas sooner than we think. While Chinese investment in technology at times has been redundant and wasteful, the sum of these tech investments has resulted in a series of strategic surprises to the U.S.– hypersonics, ballistic missiles with maneuverable warheads as aircraft carrier killers, fractional orbital bombardment systems, rapid advances in space, semiconductors, supercomputers, and biotech …with more surprises likely – all with the goal to gain superiority over the U.S. both commercially and militarily.

Limits and Obstacles to China’s Dominance
However, America has advantages that China lacks: capital markets that can be incented not coerced, untapped innovation talent willing to help, labor markets that can be upskilled, university and corporate research that still excels, etc. At the same time, a few cracks are showing in China’s march to technology supremacy; their detention of some of their most successful entrepreneurs and investors, a crackdown on “superfluous” tech (gaming, online tutoring) and a slowdown of listings on the China’s version of NASDAQ, the Shanghai Stock Exchange’s STAR Market – may signal that the party is reining in its “anything goes” approach to pass the U.S.  Simultaneously the U.S. Commerce department has begun to prohibit export of critical equipment and components that China has needed to build their tech ecosystem.

Billionaires and Venture Capital Funding Defense Innovation
In the U.S. DoD’s traditional suppliers of defense tools, technologies, and weapons – the prime contractors and federal labs – are no longer the leaders in many of these emerging and disruptive  technologies.  And while the Department of Defense has world-class people and organizations it’s for a world that no longer exists. (Its inability to rapidly acquire and deploy commercial systems requires an organizational redesign on the scale of Goldwater/Nichols Act, not a reform.)

Technology innovation in many areas now falls to commercial companies. In lieu of a coherent U.S. national investment strategy across emerging and disruptive technologies (think of the CHIPS Act times ten), billionaires in the U.S. have started their own initiatives – Elon Musk – SpaceX and Starlink (reusable rockets and space-based broadband internet), Palmer Lucky –  Anduril (AI and Machine Learning for defense), Peter Theil – Palantir (data analytics). And in the last few years a series of defense-focused venture funds – Shield Capital, Lux Capital, and others – have emerged.

However, depending on billionaires interested in defense is not a sustainable strategy, and venture capital invests in businesses that can become profitable in 10 years or less. This means that technologies that might take decades to mature (fusion, activities in space, new industrial processes, …) get caught up and die in a “Valley of Death.” Attempts to bridge this Valley of Death often find technology companies relying on Government capital. These programs (DIU, In-Q-Tel, AFWERX, et al), are limited in scope, time and success at scale. These government investment programs have largely failed to scale these emerging and disruptive technologies for four reasons:

• Government agencies have limited access to top investment talent to help them make sophisticated technical investment decisions
• Government agencies lack the commercialization skills to help founders turn technical ideas into commercial ventures.
• While the Dept of Defense has encouraged starting new ventures, it has failed to match it with the acquisition dollars to scale them. There’s no DoD coherent/committed strategy to create a new generation of prime contractors around these emerging and disruptive technologies.
• No private or government funds operates as “patient capital” – investing in critical deep technologies that may take more than a decade to mature and scale

America’s Frontier Fund
Today one private capital fund is attempting to solve this problem. Gilman Louie, the founder of In-Q-Tel, has started America’s Frontier Fund (AFF.) This new fund will invest in key critical deep technologies to help the U.S. keep pace with the Chinese onslaught of capital focused on this area. AFF plans to raise one billion dollars in “patient private capital” from both public and private sources and to be entirely focused on identifying critical technologies and strategic investing. Setting up their fund as a non-profit allows them to focus on long-term investments for the country, not just what’s expedient to maximize profits. It will ensure these investments grow into large commercial and dual-use companies focused on the national interest.

They’ve built an extraordinary team of experienced venture capitalists (I’ve known Gilman Louie and Steve Weinstein for decades), a world-class chief scientist, a startup incubation team, and they come with a unique and deep understanding of the intersection of national security and emerging and disruptive technologies.

AFF is the most promising effort I have seen in tackling the long-term challenges of funding and scaling emerging and disruptive technologies head-on.

At stake is whether the rest of the 21st century will be determined by an authoritarian government wiling to impose a dystopian future on the world, or free nations able to determine their own future.

These are tough problems to solve, and no single fund is can take on the massive investments China is making, but it’s possible that the AFF’s market driven approach, when combined with the government’s halting steps reengaging in industrial policy, can tip the scale back in our favor.

Here’s hoping they succeed.