Technology
OPINION OF THE WEEK: How Silicon Chips Drive So Much Of Our Wealth
To coincide with this news organisation's fintech summit event in Manhattan today, the editor considers the role of the silicon chip in our lives, and why wealth managers should reflect.
I imagine that one of the pleasures gained by being a wealth
manager is working with people who have created their riches by
excelling in innovative, important enterprises that change lives
for the better. To advise a hard-charging entrepreneur who knows
how to “look around corners,” who anticipates patterns of
demand and products yet undreamed of, must be quite a buzz.
More than half a century after the academics, entrepreneurs and
European emigrés in California’s Silicon Valley began to create
the modern world we know of today, the skill and determination
involved in producing transistors and semiconductor chips still
has the capacity (forgive an electrical pun) to blow my mind.
Fantastically small and precise equipment, such as laser
machines, and remarkably smooth mirrors and other materials, are
used in creating chips. Tiny “grooves” the width of a few
nanometres are cut into silicon and all kinds of chemicals are
used, the names of which I cannot easily recall. Chip design is
itself so complex that specialist software firms write it.
Hundreds of billions of dollars are required to run chip
foundries. They are probably the most complex factories in human
history, involving staggeringly elaborate supply chains and
management.
In all their variety and complexity, these chips are the base of
so much of our commerce, entertainment, communication and yes,
military forces. A modern automobile uses hundreds of chips;
a F-35 fighter aircraft of the sort used today would fall
from the sky like a brick without them. Elon Musk’s recoverable
rockets, drones (civilian and military), TV screens,
refrigerators, cell phones, tablets, autonomous vacuum cleaners
(I have a small one) and digital cameras use them. The whole
phenonemon of bitcoin would not exist without modern computing
power.
The computer system that a US immigration officer used to check
me out at passport control in Chicago this week used them; air
traffic controllers use computers – and we see what happens when
systems go wonky. The wealth management sector, once a
pen-and-ink industry, is now moving to be digital by the second.
(Arguably, it lags certain other sectors and there’s more to do.)
Many of the articles you read here, for example, about AI,
“embedded finance,” and onboarding systems, all rest on the
presumption that we have chips. Loads of them.
I thought about all this for several reasons. Firstly, this week
the team at ClearView is in New York for its
fintech summit, and that’s a natural place to think about
tech. It’s going to be a great event.
Second, trade and geopolitical tensions, particularly between the
West and China, have the tech issue in the background, as
brilliantly explained by Chris Miller, in his recent book
Chip War: The Fight For The World’s Most Critical
Technology. Taiwan, the jurisdiction that Beijing insists is
a part of China, is home to a business that produces most of the
world’s most advanced chips. (Naturally, I read the Miller book
on a tablet reader during a flight in a plane where the avionics
are digital.) The Covid-19 pandemic, and China’s stance on
Taiwan, naturally beg the question of how the world can adjust
its supply chains in case of conflict (and don’t discount natural
events such as earthquakes). The recent moves by the US Biden
administration to encourage chip manufacturing in the US may be a
wise move, or an expensive, statist folly. In some of the
investment notes from wealth managers, these issues are in mind.
Asset allocators need to take this “chip force” into
account.
Family offices, private banks and wealth managers more generally
want to know about themes to invest in, and with some, they
provide the kind of “patient capital” needed to get chip
production up and running. While the most ambitious manufacturing
may be beyond the pockets of even larger family offices,
specialist areas can be attractive, although the risks involved
can be high. A good chunk of the newly-minted family offices in
the US and internationally are tech-driven, and natural sources
of investors as well.
A related point about investment is that government intervention
in this sector is a mixed bag. The Cold War and Space Race
encouraged a lot of the initial miniaturisation and development
of chips; Taiwan’s government has arguably played a blinder in
this, and the US defence organisation DARPA is an important
actor, but heavy-handed regulation and the dangers of reliance on
subsidy are a danger (Miller writes about all this
incisively).
Another thought that inspired me to write about semiconductors is
that private bankers, and other financial professionals, live and
die by accuracy and a commitment to precision. There’s an
argument to be made that much of the prosperity we enjoy today
isn’t just down to a division of labour, as Adam Smith worked out
in the 1770s, or comparative advantage via trade, or the
harnessing of fossil fuels and other fuels to multiply Man’s
productive power during the Industrial Revolution and in
subsequent phases with the development of electricity. (These are
clearly important.) It’s also down to precision: cutting
tools, microscopes, lasers, rulers, thermostats, compasses,
gyros, navigational sextants, radar, X-rays, MRI scanners, etc.
And bankers of all people should see this mirrored in their
industry: ledgers, bills, reports of meetings, investment
reports, analysts’ studies of investments, etc.
At the core is something deeper and moral: a commitment not just
to telling the truth, but to seek objective reality in its
tiniest details. The bankers of Switzerland, for example, can see
the examples of when this happens in the dazzlingly precise
wristwatches that country is famous for – Rolex, Patek Philippe
and Vacheron Constantin, to name a few. And they can, alas, see
when a commitment to accuracy goes wrong in the misadventures of
some of the world's banks. (Would Silicon Valley Bank have gone
down the tubes had management been tighter on risk reporting and
oversight?) A relentless focus on accuracy speaks to a
culture that takes things seriously and avoids distractions from
fashionable ideologies and obsessions.
As Miller eloquently puts it, while not without its dangers and
temptations to raise tech into an almost a religion, the chip is
so much part of our lives that we take it for granted. We
shouldn’t. And above all, we should acknowledge the genius, work
ethic and passion of the people who have driven this sector and
made many people – including the clients of private bankers –
rich beyond their dreams, and lifted the living standards of
billions of people.