🌌 Reshaped #52
Competition for rare-earth metals, privacy and facial recognition, mRNA for gene editing and much more
Welcome to a new issue of Reshaped, a newsletter on the social and economic factors that are driving the huge transformations of our time. Every Saturday, you will receive my best picks on global markets, Big Tech, finance, startups, government regulation, and economic policy.
🎙 You can listen to The DART Bullseye on Spotify, Google Podcasts or Apple Podcasts. This week, Matthieu met Salvatore Di Dio, co-founder of MUV B Corp.
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Policy
Regulation
The Council of Europe has adopted a new set of guidelines on facial recognition that “provide a set of reference measures that governments, facial recognition developers, manufacturers, service providers and entities using facial recognition technologies should follow and apply to ensure that they do not adversely affect the human dignity, human rights and fundamental freedoms of any person, including the right to protection of personal data”. As reported by Karen Hao on the MIT Technology Review, this is made even more critical by recent research showing how much this technology is threatening individual privacy.
[…] researchers, driven by the exploding data requirements of deep learning, gradually abandoned asking for people’s consent. This has led more and more of people’s personal photos to be incorporated into systems of surveillance without their knowledge. It has also led to far messier data sets: they may unintentionally include photos of minors, use racist and sexist labels, or have inconsistent quality and lighting.
These risks are correlated with the data source distribution of facial recognition technologies (see chart below). The increase in web search as a source of data for training algorithms in the third (2007-14) and fourth era (2014-onwards) means that individuals are more exposed to data extraction due to their online presence.
➡️ In a recent paper, Tommaso Fia explores the Commons approach as an alternative to the data ownership model for non-personal data.
➡️ After intense lobbying from rival companies, UK and EU antitrust enforcers will scrutinize the Nvidia-Arm deal (Financial Times). The deal is already under intense scrutiny in the US and China.
Industrial policy
The US Department of Defense signed a contract with the Australian mining company Lynas to finance the construction of a rare earth metal processing plant in Texas (Fortune). This is another attempt by the US to break its dependency on Chinese exports of rare metals, which is particularly relevant for the development of renewable energy and EV markets. At the moment, China controls about 40% of the global reserves of these metals (see chart below).
China’s dominance of this market, however, is not only a matter of geological luck.
Although rare earths aren’t really rare—their ores are about as common as copper and lead—processing them into metals is a costly and polluting endeavor, which is why few countries objected when China decided to take on the job and expanded rare earth production to surpass the U.S. in the 1980s.
The growing need for these metals in a variety of sectors translates into public efforts to develop domestic industries — which would have an impact not only on global supply chains but also on the emergence of new companies with more advanced mining technologies.
Proposals from Sen. Ted Cruz (R–Texas), for example, offer tax breaks for mining companies operating in the U.S. and require the Pentagon to source all military-use rare earth metals from the U.S. The bills haven’t passed the Senate yet, but the Pentagon is already sponsoring more production at home.
The pandemic caused a massive drop in global exports of Chinese rare metals. If, on one hand, this would make it easier for other countries to redesign supply chains, on the other it means that China has the chance to increase its domestic stock to boost its own technological industries and improve its control on global prices. State-owned mining companies in China already operate at loss, which means they can sustain price and volume shocks more easily than private competitors worldwide. In addition, China will soon strengthen rare-earth metals regulation (now primarily concentrated on the production stage) to have more control of logistics and exports (Nikkei Asia).
➡️ The “debt-trap diplomacy” could be nothing more than a narrative to simplify the investment relationships between China and developing countries. And it could be a wrong one (The Atlantic).
➡️ On Palladium, Ben Landau-Taylor argues that “new industries come from crazy people” and that societies have to cope with a trade-off between disruptive mindsets and conformity.
Technology
Biotech
Two months ago, I delved into the potential consequences of mRNA applications for biotech investing (see Reshaped #42). The basic assumption was that the use of mRNA for vaccines and other treatments could systematically reduce the technological risk of biotech ventures and make their funding path more similar to that of a standard tech startup. Now, a new article on the MIT Technology Review investigates these potential applications, with a particular focus on gene editing.
There is one application in addition to vaccines, however, where brief exposure to messenger RNA could have effects lasting years, or even a lifetime. […] the fatty particles of messenger RNA may become a way to edit genomes at massive scales, and on the cheap. A drip drug that allows engineering of the blood system could become a public health boon as significant as vaccines. […] Moderna and BioNTech have been selling their covid-19 vaccine shots for $20 to $40 a dose. What if that were the cost of genetic modification, too?
This opportunity for mRNA was deeply analyzed one year ago in an article on Nature, which focused on how mRNA compares to CRISPR for gene editing.
Many see RNA editing as an important alternative to DNA editing using techniques such as CRISPR. CRISPR technology is improving, but DNA editing can cause unwanted mutations in other parts of the genome — ‘off-target effects’ — which might create new problems. […] As a treatment, RNA editing might be less likely to cause a potentially dangerous immune reaction than are CRISPR-based approaches.
➡️ In a beautiful article, The New York Times explains how the Johnson & Johnson vaccine works.
Big Tech
Big Tech companies reported their Q4 earnings (see chart below, all data in $ billion). The most interesting insights come from cloud businesses. Amazon reported another quarter of strong growth for AWS, which now accounts for more than half of the total operating income of the company. Google reported the financial results of its cloud division for the first time: despite being still unprofitable, with a $5.6 billion annual loss, Google Cloud is growing faster than competitors. Finally, Microsoft Azure continues to grow at a falling rate (47%), which, however, is in line with its size. The value of the cloud market is now estimated at $129 billion, up from $97 billion in 2019 (TechCrunch).
In addition, as reported by CNBC, Apple is close to finalizing a deal with Hyundai to manufacture its autonomous electric vehicle. Horace Dediu’s analysis on this topic is very informative and, based on the estimation of potential margins, explains that Apple is primarily interested in positioning its brand in a high-growth sector.
Apple’s entry is not going to be motivated by the pursuit of a quick buck. It will, as it should, be aimed at making a valuable contribution beyond sales value. For that reason the technology being developed and brought to this table will emphasize efficiency, high utilization, services and experiences. Not just utility.
Meanwhile, Jeff Bezos announced he will step down as Amazon CEO to become Executive Chair of the Board. In doing so, he will have the chance to dedicate more time to the Bezos Earth Fund and Blue Origin, his initiatives in climate and space tech respectively. Of course, it is easy to see a lot of potential in these sectors, where the infrastructure phase is still incomplete and provides opportunities for market dominance. However, as argued by Matt Shaw on The Guardian, allowing tech barons to design the future of humanity comes at a risk.
[…] a majority of the compelling and visible ideas about tomorrow are being conceived and developed by a tiny minority of ultra-wealthy individuals and private-sector companies. […] This kind of speculation is ultimately about dictating policy and ownership. If companies control the image of the future, then they control the future itself, and can control the infrastructure. Ultimately, they will define how society functions. […] Bezos’s space colonization plan, Blue Origin, nearly copies the work of the physicist Gerard O’Neill’s 1975 work for Nasa. However, the politics are much different. Silicon Valley’s libertarian, technocratic ideals – themselves a curious mutation of the California counterculture – could extend the darker aspects of hyper-capitalism.
➡️ For a comprehensive profile of Jeff Bezos, see Mark O’Connell’s long piece on The Guardian (very recommended read).
➡️ A new report by CB Insights explores the most interesting tech trends of 2020, concluding that “the largest M&A deals spanned computing, telehealth, and fantasy sports”.
Finance
Expectations about the return of inflation continue to rise as a result of stimulus packages and economic recovery forecasts (Reuters). Consistently with these expectations, investors are driving their money into funds that invest in US leveraged loans — an explicit bet on the rise of interest rates (see table below).
Moreover, this week Eurostat reported a 0.9% rise in annual inflation. This could be more than enough to justify expectations about the comeback of inflation in the EU. However, in the Financial Times, Claire Jones points out that there are at least two reasons for this rise. First, “taxes […] as well as the timing of winter retail sales in France and Italy”; this is even more significant due to the shock in offline retail sales caused by the pandemic. Second, a “change to the basket of goods and services Eurostat use to calculate inflation”.
It seems that there is a persistent inconsistency between periodical fears of inflation and its actual rise. On The New York Times, Neil Irwin mentions four techniques to gauge whether there is a real change in inflation or not, based on the rise of prices.
➡️ TikTok rival Kuaishou went public in the Hong Kong stock exchange with a successful $5 billion IPO (CNBC).
➡️ The Bank of England told British banks to prepare for negative interest rates aimed at stimulating lending (The New York Times).
➡️ Joseph Stiglitz authored a new paper that analyzes the pseudo-wealth generated by trades in speculative assets. He defines pseudo-wealth as “wealth that individuals believe they have on the basis of expectations of returns on these gambles”.
Thanks for reading.
As always, I am waiting for your opinion on the topics covered in this issue. If you enjoyed reading it, please leave a like (heart button above) and share Reshaped with potentially interested people.
Have a nice weekend!
Federico