In this edition, Russian fighter jets cause a US drone to crash, China’s Ministry of Industry and Information Technology has invested in approximately 10,000 firms focused on critical technologies, Open AI releases GPT-4, and the tech industry responds to the fallout of the failure of Silicon Valley Bank. Additionally, a data breach exposes healthcare information belonging to members of Congress, and the Biden administration backs a bill that would compel the sale of foreign-owned technologies on the basis of national security.
Industrial Policy & International Security
Loss of US drone clipped by Russian jet was a twist in a broader pattern | The Washington Post
Earlier this week, Russian fighter jets intercepted and collided with the rear propeller of a US drone in international airspace approximately fifty miles off the coast of Crimea. Remote operators were forced to bring the MQ-9 Reaper down in the Black Sea. Close encounters between US and Russian aircraft, initiated by both countries, have been a common challenge since the onset of the Cold War but crashes caused by intercepts are rare. Moscow denied their Su-27 fighters hit the drone and alleged the US drone breached a temporary Russian boundary established for its “special military operation” in Ukraine. Surveillance footage released by the US shows damage to the propeller after the pair of Su-27s dumped fuel on the drone and made a second pass. However, US officials have publicly suggested the incident could have been an accident. The war in Ukraine significantly increases the risk of unintended escalation. RAND analyst Samuel Charap suggests the unmanned nature of the US aircraft “might have emboldened both sides.”
China cultivates thousands of ‘little giants’ in aerospace, telecom to outdo US | The Wall Street Journal
To build self-sufficiency and dominance in key industries and technologies, China’s Ministry of Industry and Information Technology has invested in approximately 10,000 firms that specialize in areas including aerospace, renewable energy, electronics, and semiconductors. The “single champions” program is focused on companies that are or may become global leaders in important markets and, since 2016, the companies in this program have grown from 92 to 952 as of 2021. Performers include companies such as state-owned Aluminum Corp. of China Ltd., which is a leading producer of aluminum products that is seeking to advance production of higher-end products important to China’s defense industry. On the other hand, the “little giants” program awards funding to smaller firms with the potential to make technological breakthroughs, especially related to space; it began after the single champions program but has grown to include more than 9000 companies. These programs ramped up in accordance with heightened US-China competition and researchers at Force Distance Times argue they demonstrate Beijing’s industrial policy is “advanced, sophisticated, and comprehensive.”
US Regulation
Biden Administration Backs New TikTok Bill, Wants Swift Passage | Bloomberg
On Tuesday, Senators Mark Warner and John Thune introduced a new bill that would grant the president the power to compel the sale of foreign-owned technologies, applications, software, or e-commerce platforms on the basis of national security. While TikTok, owned by Beijing-based ByteDance, was not mentioned in the bill, it is clear the purpose of the bill is to hasten the sale of TikTok amid data privacy concerns of the 100 million US app users. The bill has bipartisan support and received endorsement from the White House, which is the first time the Biden administration has expressed a preference for legislation affecting TikTok. Under the Trump administration, previous efforts to ban TikTok and the Chinese messaging app, WeChat, violated free speech protections. The Biden administration seeks to avoid this legal hurdle by establishing a category of risk requiring government action instead of targeting a specific company. To pass, the bill will still need to go through a Senate committee and pass in the House of Representatives.
Innovation
OpenAI releases GPT-4, a multimodal AI that it claims is state-of-the-art | TechCrunch
OpenAI released its new generative AI model, GPT-4, to users paying for ChatGPT Plus and introduced a waitlist for developers to access the API. GPT-4 surpasses GPT-3.5 in its ability to accept image and text inputs and its performance at a “human level” according to various professional and academic measures. For example, GPT-4 passed a Bar exam in the 90th percentile of test takers, while GPT-3.5 placed in the 10th percentile. GPT-4’s image understanding capability is being tested with partner Be My Eyes and can reportedly caption and interpret relatively complex images. While OpenAI acknowledges the distinctions between GPT-3.5 and GPT-4 are generally subtle, the company says GPT-4 is “more reliable, creative, and able to handle much more nuanced instructions.” Notably, the new model is 82 percent less likely to respond to disallowed content, follows policies dictating responses to sensitive requests 29 percent more often, and is overall more factual. Early adopters include Microsoft and Stripe.
‘Let 1,000 Flowers Bloom’: AI Funding Frenzy Escalates | The New York Times
Following the release of OpenAI’s groundbreaking chatbot powered by generative AI, ChatGPT, venture capital (VC) firms have escalated a race to fund new generative AI startups. With the potential revolutionary impacts, investors are seeding many businesses for the future. The level of VC interest, relative scarcity of AI companies, and potential of the technology has led to a surge in AI startup valuations. For example, Mobius, founded by prior AI researchers at Google, was valued at around $100 million after approximately one week. Firms are looking for as many viable opportunities as they can find. Of startup incubator Y Combinator’s 218 companies in its current program, at least fifty are focused on generative AI. More established companies are also benefiting from venture capital windfalls as they face high research costs in the ballpark of $500 million to access required computing power and develop effective models. However, some investors believe the capital intensive nature of generative AI yields an advantage to players like Microsoft and Alphabet. Venture capitalist Sam Lessin believes that the best way to invest in AI is to buy publicly traded big tech stocks because these companies will become leaders in the field.
Cyber
DC Health Link hacker exposes lawmakers’ personal information | The Hill
Last week DC Health Link, the program responsible for managing healthcare plans for members of Congress, suffered a significant data breach. The breach affected both lawmakers and staff employed across the United States. CyberScoop investigated a data set posted in a hacking forum and discovered sensitive information belonging to twenty-one members of Congress. Reportedly, the user who uploaded the data set threatened to release more stolen information. House leaders commented that the scope of the data breach is still unknown, but recognized the severity of the situation. The DC Health Benefit Exchange Authority reported that over 56,000 customers were affected by the breach and has launched an investigation with assistance from law enforcement and Mandiant, a third-party forensics firm.
State & Local Tech Ecosystems
Panic and recrimination: inside Silicon Valley’s first real financial crisis | Insider
Last week, the FDIC took control of Silicon Valley Bank (SVB) when, after a full-on bank run stoked by a social media frenzy, it became the second-largest bank failure in US history. SVB was a key pillar of the startup and venture capital (VC) community and serviced almost half of all US VC-backed startups. However, concerns about the bank’s liquidity began to circulate in late 2022. At the start of 2023, VC funding had decreased significantly, the Federal Reserve had increased interest rates, much of SVB’s cash was tied up in long-term bonds, and the bank had been without a risk manager for the better part of a year. On March 8th, SVB announced a $2.25 billion capital raise and in twenty-four hours, fearful customers withdrew $42 billion from SVB accounts. After the FDIC took over, Silicon Valley faced a secondary existential threat: the thousands of customers that didn’t withdraw from their accounts had approximately $151.6 billion of uninsured cash tied up at SVB. This seemed to turn the tide among VCs, which lobbied for depositors to be made whole and some committed to keeping 50 percent of their deposits with SVB and recommend the same to their portfolio companies. However, as a result of the crisis, many VCs and startups are turning to diversification and the perceived security of “too big to fail” banks like JPMorgan.
Democracy Online
California’s COVID misinformation law is entangled in lawsuits, conflicting rulings | Los Angeles Times
California’s COVID-19 misinformation law, enacted on January 1st, is under legal scrutiny after two US federal judges issued contradictory rulings. The law is meant to discipline doctors who give false information about COVID-19 to patients. However, critics argue that the law is too vague and, as a result, may have a chilling effect on doctors’ willingness to speak freely with their patients in ways that could worsen patient care. This perspective is shared by a health policy professor at George Washington University as well as an attorney with the ACLU of Northern California. Others argue that the law is unnecessary because medical boards already have the authority to punish unprofessional conduct. Proponents of the law seek to clamp down on doctors who advocate unproven treatments or make exaggerated claims about vaccine risks. But the law simply defines misinformation as “false information that is contradicted by contemporary scientific consensus contrary to the standard of care.” For now, the law remains intact.
