by Frieda Park

The remarkable rise of tech companies in the 21^st century, tells its own story of their power and importance.

At the end of 2023 of the top ten companies in the world by market capitalisation eight were tech companies and nine of the ten were US – the only other one being the Taiwan Semiconductor Manufacturing Company (TSMC). (1) For decades US companies have dominated the top ten, but the profile of those companies has shifted over time. Ten years ago there were just three tech companies, and going back 20 years to 2003 only two.

Other sectors, like oil and finance, remain vital to capitalism’s interests, but tech and control of the production of its components are now of central strategic importance to capitalism. This is reflected in the West’s growing confrontation with China, the core of which is about who controls the most advanced tech.

TECHNOLOGICAL ADVANCES  

From the industrial revolution onwards, capitalism has made major advances in developing the means of production, from steam engines and electrification to, in the 20^th century, the age of electronics – technologies including radio, telephony, television, lasers, radar, computers, digital cameras and mobile phones.

Computerisation and, increasingly, artificial intelligence (AI) are qualitative steps up from previous developments. They are ubiquitous and as essential as electrification, but with the ability not just to be applied in manufacturing, but to be used to greatly enhance processes, goods and services. This technology represents a further stage in replacing human labour with machines and it is not just robots engaging in increasingly skilled labour as AI is replacing intellectual as well as manual labour. Advanced electronics and computing power are central to making almost everything in our daily lives work from washing machines to cars. They are the principle means of communication and manage processes in work and at home. This tech is the life blood of capitalism in the 21^st century, underpinning most of the world’s GDP. As the figures at the start of this article show US companies and US interests dominate this technology.

The core of electronic devices and computers are microscopic transistors etched onto chips which are tiny pieces of semiconducting material such as silicon. Over the decades since they were first developed chips have become mind bogglingly complex. Even as they have become smaller and smaller, their power, importance and numbers manufactured have increased. The A14 chip which powers the iPhone 12 has 11.8 billion transistors. Sixty years ago the most advanced chip had only 4. (2) Millions of chips are produced every year.

US MILITARY SUPPORT

Although there is a romantic capitalist legend spun around tech pioneers as individual entrepreneurs forging ahead with visionary ideas, in fact public procurement and support has been vital to the chip industry, coming first and foremost in the shape of the US military. The first programable computer, built in 1946, was funded by the US army to calculate firing tables for artillery use. (3) Texas Instruments’ first major order for integrated circuits was for nuclear missiles. From the outset advanced tech was dependent on military orders with companies producing the chips that the military needed to make more advanced weaponry. Civilian demand only began to overtake military uses in the mid-60s and it was not until 1968 that the civilian computer industry was buying more chips than the military. (4)

In addition to contracts, the Pentagon’s Defense Advanced Research Projects Agency (DARPA) directly funded research into projects benefiting the tech industry. From the Second World War onwards work began to produce accurate missiles, as against dropping lots of bombs more or less on target. Guided missiles, programmable to hit targets, were first used in the Vietnam war and by the early 1980s DARPA was funding research into the design of cruise missiles which could adjust course whilst in flight. This meant funding the development of advanced chips as well as other military systems and hardware. Subsequent wars, like Iraq, have not only been about achieving imperialism’s geo-political objectives, but about testing and showcasing military hardware.

That symbiotic relationship with the military continues today and is another reason the chip industry is vital to imperialism as it fights wars across the globe and prepares for war with China. The more advanced the weapons systems then the more complex the chips that control them and the more competitors need to be excluded from developing these advanced chips.

The application of AI to warfare, where the technology itself can identifying targets and guide, for example, drones is a recent development in military/tech collaboration and is currently being used in the war in Ukraine and in Israel’s war in Gaza.

FABLESS COMPANIES  

Up until the mid 1970s the companies that designed chips also manufactured them in factories known as fabs. Then things began to change. Influenced by neo-liberal imperatives like accessing cheaper labour overseas, production of chips was increasingly not only off-shored but also outsourced, with companies stopping manufacturing their own chips. The principal driver and beneficiary was the Taiwan Semiconductor Manufacturing Company (TSMC). It was founded in 1981 with financial and political support from the Taiwanese government, which wanted to promote semiconductor production. TSCM’s strategy was to enter into partnerships with existing chip companies in which they would retain design but hand over production to TSCM. The first company to do this was the Dutch company Philips. The “fabless” chip company was born and from the late 1980s became a model for the industry.

A prime example of the fabless company is Nvidia. It is headquartered in Santa Clara, California and designs and supplies chips which are essential to AI systems. The growth in AI has led it to become the world’s most valuable chip company. In February this year it reported a 265% increase in its quarterly revenues and predicted bigger sales to come. It is now the 3^rd most valuable company listed in the US after Microsoft and Apple. (5) Its production, however, is all outsourced, with TSMC making many of its chips and other companies fulfilling roles like testing and packaging. One of the features of chip manufacture is how complex and expensive it is, requiring highly specialised equipment, controlled environments, and rigorous quality control. In addition as chips evolve so must their expensive production processes. As a relative newcomer to the field establishing its own fabrication plants would have been technically difficult and prohibitively expensive for Nvidia. The outsourcing of chip manufacture since the 80s means that it is difficult now for companies to bring production back inhouse.

Most chip production is outsourced and East Asia manufactures almost all the world’s chips. Taken together Taiwan, South Korea, Japan, China and Singapore produce 90% of all memory chips, 75% of all processor chips and 80% of silicon wafers. Over 90% of the most advanced chips are produced in Taiwan. (6) Despite the top tech companies being headquartered in the US they are reliant on TSMC, Samsung and others for chip production.

 A Dutch company ASML produces 100% of extreme ultraviolet (EUV) lithography machines required to make the most advanced chips. (7) This, then, is a highly specialised and concentrated industry, with only a very small number of leading companies. Tight control over the technology is essential to advanced capitalist economies and the high degree of concentration and specialisation also make that control possible in a way that could not be achieved with previous technologies and resources. As Pat Gelsinger, CEO of Intel said, “God decided where the oil reserves are, we get to decide where the fabs are.” (8)

The complexity of fabs and chips means that it is difficult for any other countries or companies to catch up with those leading the field. Only China, has the economic size and technological knowhow to have any chance of challenging them. Preventing that challenge and maintaining western control is the essential objective for the US and lies at the root of its hostility to China. But as mentioned, it no longer has manufacturing dominance of chips, where Intel was once the leading force. However, especially since the Covid pandemic, there has developed an awareness of the fragility of global supply chains and, with strategically vital goods like chips, the potential dangers of not having control.

US RESHORING 

In an attempt to address this problem, President Biden signed into law the Chips and Science Act on 9^th August 2022. It provides for around $280 billion new funding for research and production of chips to be located within the US and aims to bring 20% of the most advanced chip production onshore by 2030. Whilst it is designed to counter Chinese progress in this area and reshore the chip industry from Asia to the US, it will also allow Intel to attempt to re-establish market share in the development and manufacturing of chips relative to other competitors. In March this year President Biden unveiled $8.5 billion in grants and $11 billion in loans for Intel. Under Gelsinger, who was appointed CEO in 2021, Intel has declared the aim of overtaking TSMC and Samsung in the production of chips. To this end it has cut a deal with ASLM to get the first of its new generation of EUV lithography machines due in 2025, which it hopes will allow it to steal a march on these other companies. It is also setting up its own fabs in the US and Europe.

Meanwhile the US has persuaded TSMC to invest in more advanced chip manufacturing in the US than it had previously committed to. It will now manufacture its most advanced chips in a fab it is currently building in Phoenix, Arizona due to open in 2028. It is planning another fab to be completed in 2030, also producing advanced chips. It will receive $6.6 billion in grants and $5 billion in loans from the US government for these projects. (9) However, production of advanced chips on US soil will not happen overnight and in the meantime companies will remain highly dependent on TSMC, which is also ramping up its production in Taiwan building “multiple” new fabs. Although chips will be produced in the US they will not be enough to meet the needs of US companies, which will still have to source large numbers of chips from Taiwan and other places. How successful Intel and the Chips Act will be in achieving their objectives remains to be seen and for the foreseeable future the US will be enmeshed with Taiwan and dependent on its chips.

GERMANY  

Meanwhile one glaring feature of the tech landscape is how far behind European countries are in this field. With the exception of ASLM in the Netherlands there are no cutting edge tech firms based in Europe. European countries have recognised the problem, but they have a mountain to climb to try to make up ground in semi-conductor and hi-tech industries.

Germany wants to try to tackle this problem and had earmarked billions of Euros to support chip manufacture in Germany – albeit a lot of this was to attract foreign companies like TSCM and Intel with generous subsidies. The plan would also have made Germany the centre of European chip production, however it ran into trouble as the German Constitutional Court declared the finance for it unconstitutional. The German government had tried to get round the country’s stringent limits on deficit spending by creating funds which were off-budget. It was from one such fund the cash to develop the industry was to come, but the Court decided that this was a sleight of hand. (10)

The budget crisis has now passed, but it is not clear what funds will remain available to promote the chip industry, especially since the government is putting financing the war in Ukraine over other priorities. This could be another win for the US having already hamstrung Germany’s energy supplies in the interests of its proxy war with Russia, that war may also stymie Germany’s ambitions to build its chip industry. This will be not only a blow to Germany but the whole of the EU.

TAIWAN FLASHPOINT FOR WAR  

China’s growing economic power and its progress in advanced technology were what prompted waves of US sanctions against it, starting under Donald Trump and continued since. These sanctions were also imposed on US allies who were required to break off tech collaborations with China. Huawei was a particular target. As is often the case with US sanctions the countries targeted are incentivised to become more self-reliant and paradoxically can become more of a challenge to the US. Recently the Financial Times (11) reported that Huawei and SMIC, the country’s biggest chip maker, expect to be manufacturing next generation chips for smartphones this year. Huawei will also look to produce more advanced AI chips. Whilst still lagging behind US chips, nevertheless, despite sanctions China is making progress.

Fighting to maintain its economic and military advantage over China the US is now going a step further than sanctions and talking up the possibility of war with China over Taiwan.

Even with the US reshoring some production, Taiwan and TSMC are absolutely central to the chip industry and the production of the military (and other goods) which contain those chips. It is not just the development of Chinese tech industries and China’s growing economic power that are perceived as a threat by the US, but also its future relationship to Taiwan. Taiwan and China, by international agreement, are recognised as one country and China has long called for reunification. Whilst recently there have been pro-US governments elected in Taiwan there is also substantial support within the country for better relations with China. The US has a lot to fear from the two growing closer and peaceful relations being established. Anything which allowed Chinese access to the Taiwanese semiconductor industry would be viewed as a disaster by the US, so it prefers war to possible peaceful collaboration. Taiwan, therefore, remains a key flashpoint for war internationally, with access to the technology and production of chips as the driver.

Just as historically we have seen imperialist wars instigated to control land and natural resources, so now we are seeing preparations for war to control the production of chips and advanced technologies.

 

(1) List of public corporations by market capitalization - Wikipedia

(2) Chip war – Chris Miller, Simon and Shuster 2023

(3) The rise of the robots – Martin Ford, Oneworld 2015

(4) Chip war – Chris Miller, Simon and Shuster 2023

(5) Nvidia sales surge on AI ‘tipping point’ (ft.com)

(6) Chip war – Chris Miller, Simon and Shuster 2023

(7) Ibid

(8) Ibid

(9)  TSMC boosts Joe Biden’s AI chip ambitions with $11.6bn US production deal (ft.com)

(10) Germany’s budget crisis threatens chipmaking ambitions (ft.com)

(11) China on cusp of next-generation chip production despite US curbs (ft.com)

 

Huawei store at Beijing airport, pic by N509FZ

That symbiotic relationship with the military continues today and is another reason the chip industry is vital to imperialism as it fights wars across the globe and prepares for war with China.

Nvidia chip made in Taiwan, pic by Phiarc

China’s growing economic power and its progress in advanced technology were what prompted waves of US sanctions against it, starting under Donald Trump and continued since.