There’s a popular story of how the U.S. attained technological dominance. That story is one of public-sector investments — mostly in aerospace and defense — spurring innovation that delivered trickle-down benefits to businesses and consumers years, sometimes decades, later. Think email and the internet having their roots in ARPANET, the pioneering computer network set up by the Advanced Research Projects Agency of the Department of Defense at the end of the ’60s. Or GPS originating as a Cold War military project to strengthen the U.S. nuclear triad. Or digital cameras first being developed for military surveillance. The list goes on.
This story is true as far as it goes. But as Henry Farrell and Abraham Newman make clear in Underground Empire, it’s also incomplete. U.S. technological dominance extends to the realm of global finance. Washington has unmatched leverage over the infrastructure, IP, and tech that power the world economy. And if the internet was spurred on by the state, the modern system of international banking is very much the fruit of the private sector.
In a fascinating tour of post-war global economic and technological development, Farrell and Newman walk the reader through how global banking infrastructure evolved from “a clattering steampunk engine of rusting pistons and gutta-percha-covered cables, with a few incongruously modern parts bolted on,” to the complex financial instruments, near-instantaneous cross-border transactions, and standard-setting institutions we know today. At the center of it all was one institution: Citibank.
The “great man” theory of history may have fallen out of fashion, but it’s very much present in Underground Empire. The authors credit Walter Wriston, the longtime CEO of Citibank, with having an outsize influence on the growth and evolution of the global financial system. Wriston, the authors contend, understood that banking was fundamentally an information business and that investing in the right tech around inter-bank communication and international payments systems could lead to unprecedented competitive advantage. He went so far as to set up Citibank’s internal equivalent of Skunk Works (Lockheed Martin’s famous innovation lab that built, among other aircraft, the U-2 spy plane) to drive R & D breakthroughs in banking hardware and software. Eventually, Citibank proved so successful in what we now call “fintech” that the threat that its proprietary system would dominate global payments-processing is what led other banks to rally around the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is still in place today.
Wriston thought that making it easier for money to cross borders would curb the power of the state and subordinate governments to the discipline of free markets. And yet, Farrell and Newman argue, a major irony underlay his life’s work. This disciple of Hayek (alongside whom his father, Henry Wriston, founded the Mont Pelerin Society) who did so much to foster globalization may have considered himself an anti-statist, but he unintentionally created a system that gave at least one state — the U.S. — distinct new powers and mechanisms of control over the global economy: Wriston and other business leaders
built world-spanning networks that centered on a few key choke points. Eurodollar markets and global payment systems redirected the world’s financial flows through U.S. banks and U.S.-dominated institutions. Global information flowed through networks centered on U.S. territory and subject to U.S. surveillance. And as global manufacturing came to rely on information and financial networks, it, too, became concentrated in ways that made it vulnerable to U.S. authority. The tragedy of globalization was that men and women like Wriston built a world that seemed to escape the control of government but in fact was wide open to government power and its own undoing.
In the techno-economic sphere, hard power is built on hardware. The internet and the like were digital breakthroughs powered by physical infrastructure — server farms, fiber-optic cables, satellites, etc. — that exist in key clusters and choke points on U.S. territory or fall under U.S. jurisdiction in some other way. Ashburn, Va., for example, is singled out by the authors as “the bull’- eye of the internet” owing to its being the headquarters of MCI WorldCom, the company that laid the first national fiber-optic cable, which powered the internet in its earliest days. Decades after the internet’s establishment, cloud-computing behemoths such as Amazon Web Services still cluster around Ashburn.
This network of financial and telecommunication plumbing that the U.S. exercises so much control over is the “underground empire” that gives the book its title. And in the years since 9/11, Washington has become more and more comfortable weaponizing this network in order to further its national-security and geopolitical goals. What began as individual instances of surgically targeting terrorist financing after the al-Qaeda attacks, they contend, has grown into an increasingly blunt, unwieldy, and at times incoherent policy that alienates allies while encouraging rivals and enemies to build alternative infrastructure outside Washington’s reach. They mention several instances that marked clear escalation points in U.S. sanctions tactics. These include cutting off Iranian banks from the SWIFT system in 2012, adding the Chinese telecoms giant Huawei to its “entity list” of companies in 2019 (thereby blocking its access to U.S. exports and even foreign tech components that make use of U.S. intellectual property), and, most recently, freezing the assets of International Criminal Court officials investigating potential U.S. human-rights violations in Afghanistan in 2020.
The implications of this escalation have prompted warnings from within the federal government itself, most notably in a 2016 speech by then–treasury secretary Jack Lew, who cautioned that “financial transactions may begin to move outside of the United States entirely — which could threaten the central role of the U.S. financial system globally.” Similar warnings have been given about global telecommunications in the wake of Edward Snowden’s revelations of U.S. mass surveillance. To judge by the behavior of Washington’s chief geopolitical rival, these warnings have proven correct. The U.S. remains the superpower over financial and telecoms tech, but Beijing is making a credible effort to seize that role by cultivating its own “national champion” companies. Despite Washington’s deploying the full force of its sanctions toolkit against Huawei, for example — including blocking its access to the world’s most advanced semiconductors, currently manufactured in Taiwan — the Chinese behemoth continues to outcompete its Western counterparts (mainly Nokia and Ericsson) on 5G infrastructure when it comes to price. It has thereby made considerable headway in providing much of the world (especially the developing world) with the next generation of telecoms infrastructure — infrastructure Washington rightly sees as a security risk.
In most current-affairs and policy books, the third act is usually the weakest, and Farrell and Newman’s book is no exception. After a masterly history of how the underground empire came to be and a comprehensive survey of the threats, self-inflicted or otherwise, that the empire faces today, we arrive at the question of the best path forward. But it is curious, given their (understandable, in my view) worry about U.S. hubris in the overuse of sanctions, that they recommend that Washington turn away from aggressively targeting entities such as Huawei or the mullahs in Tehran in favor of using its powers to “fight climate change” or crack down on tax havens. This undermines the thrust of the book by giving the impression that it’s not so much the excessive weaponization of the financial system as its targets that bother the authors. Yet even if their prescriptive powers don’t measure up to their diagnostic ones, Farrell and Newman have written a necessary guide to a dimension of U.S. power that’s been too often overlooked.
“I’ve never been certain whether the moral of the Icarus story should only be, as is generally accepted, ‘don’t try to fly too high,’ or whether it might also be thought of as ‘forget the wax and feathers, and do a better job on the wings,’” said the film director Stanley Kubrick in one of his last public addresses. For Washington and its telecoms-financial empire, the moral should be both. On the one hand, policy-makers need to formulate a more coherent, consistent, and targeted approach to sanctions. As misguided or cynical as the International Criminal Court may be for investigating U.S. officials over Afghanistan, for instance, the proper response is not to place ICC officials on the same sanctions list as North Korean or Russian malicious actors.
At the same time, the way to stop your geopolitical rival from overtaking you in tomorrow’s tech is to invest more in winning the future of tech yourself. China watchers such as Asia Times’ David P. Goldman have been sounding the alarm on this for years. America simply does not spend a large enough share of its GDP on hard R & D to compete with China in many areas of next-generation tech, and using its clout today to box Beijing out of dominating telecoms tomorrow will work only for so long. Innovation is the name of the game, and it’s a game mainland China could well win. Reports recently emerged, for example, that Huawei was building its own network of plants to manufacture advanced-semiconductors and thereby overcome U.S. sanctions. To paraphrase Benjamin Franklin, we have in today’s United States a techno-economic hegemon — if we can keep it.
