In October of 2022, Goldman Sachs started an internal organization called Applied Innovation. The thesis behind its creation was that the intersection between geopolitics and technology is increasingly determinative to the way that the world will evolve. The company also theorized that the way money and value will move around the world is set to change significantly in the next 10 to 15 years.
One of the co-heads of the Applied Innovation organization is George Lee. He has been with Goldman Sachs for nearly 29 years and has had numerous consequential technology roles at the company, including Partner and Co-Head of Global Technology, Media and Telecom Banking, as well as co-CIO, a role he held for four years prior to taking on his current responsibilities.
Lee noted that the company refers to his group as “applied innovation” to differentiate it from a research and development lab. This group is intended to develop ideas that tangibly impact and benefit Goldman Sachs’ customers and its broader ecosystem. The team is not shooting for prototypes.
“We want Goldman Sachs to be both facilitator of [innovation] and a leader in [innovation], to do as much as we can inside the four walls of the firm to elevate and encourage [innovation], but also take the opportunity, potentially, to build businesses outside our four walls that participate in lead in that area,” Lee said. “For us, innovation is a story about differentiation. That can come in the form of building new platforms. It can come in the form of engaging clients in new ways. It can come in the form of thought leadership that inspires our clients to think differently about the world.”
Lee’s co-head of Applied Innovation is Jared Cohen, who is also the bank’s President of Global Affairs. Cohen has had a remarkably varied career. He was a Rhodes Scholar who spent the early part of his career at the United States Department of State working on policy planning before spending more than eight years at Google, both as a director of Google Ideas and as the chief advisor to Eric Schmidt, the executive chairman of the company.
George Lee & Jared Cohen of Goldman Sachs
“Geopolitics and technology are these twin seismic areas that are creating more change than they have in the last two decades,” Cohen said. He noted that an extended period of hyper-globalization is a contributing factor. Where some might think COVID was the death knell for it, though, he believes that it ended several years prior to 2020.
“It just took a global pandemic to reveal a lot about the supply chain,” Cohen said. “It took a war in Ukraine to reveal a lot about dollar dominance. It took escalating tensions between the U.S. and China to realize that despite the fact that there are winners from globalization, there are no real winners.”
The rise of ‘geopolitical swing states’
Cohen dismissed the shibboleth that the rivalry between the U.S. and China is akin to the Cold War between the United States and the Soviet Union. “First of all, it’s unprecedented for a country’s most formidable adversary to also be their largest trading partner,” he said. “We’ve never had that in history. Second, this doesn’t have the same ideological component as the Cold War. Third, neither country is trying to destroy the other. It’s not in either country’s interest. This isn’t communism versus capitalism. It’s a competitive coexistence.”
Cohen noted that neither country can gain an extra edge without relying on other countries. The major powers are, in fact, constrained. This provides remarkable leverage for what Cohen refers to as “geopolitical swing states.” These swing states have a momentary period of influence based on the combination of their stability and certain economic advantages.
This is not about a country swinging toward the United States or China; it is the opposite. These geopolitical swing states recognize that they have an opportunity based on their economic advantage, giving them agency to swing on an issue-by-issue basis. Examples include:
- Norway, with its massive sovereign wealth fund
- Singapore, and its remarkably differentiated part of the supply chain
- Several Gulf countries, many of which have sovereign wealth funds, energy resources, and food nutrients
- Brazil, due to its agricultural commodities
- Indonesia, which has the highest concentration of nickel in the world
- Morocco, which has 70% of the world’s phosphate
A surprising example to some is Vietnam, which has surpassed the United Kingdom as the United States’ seventh largest trading partner. “On the surface, they have no business being ahead of the U.K. as a trading partner, except for the fact that they recognized a moment and they spent a decade putting in place the right regulatory environment and making the right policy changes to condition themselves to be positioned to take advantage of this,” Cohen noted.
Another category of geopolitical swing state includes largely developed countries whose leaders have a clear vision of that country’s role in the world but lack unilateral agency to execute on it because they’re either constrained by a multilateral body or because they are a junior country in a larger geography. Cohen notes France and Germany as examples, as both countries are constrained to some extent by the European Union, but they still act unilaterally as individual countries.
Cohen notes that the ultimate geopolitical swing state is India, which has low-cost labor, pharmaceuticals, technology and innovation, and important parts of the supply chain. “India swings toward the U.S. on China and it stays neutral on Ukraine. This is very significant. When the war happened in Ukraine and the Biden administration wanted to cast it as the great battle between autocracies and democracies, the fact that India, even as a member of the prestigious quad, a multilateral informal architecture with a protectionist posture against China … felt sufficiently empowered to say, as the world’s largest democracy: we’re going to stay neutral.”
India’s neutral position make it easier for a country like Israel to also remain neutral. Thus, the Biden Administration has not been able to truly cast the war in Ukraine as a battle between autocracies and democracies. Why would India remain neutral? “They get 90% of their weapons from Russia, particularly submarines that they need for nuclear deterrents against Pakistan,” Cohen said. “They wanted to increase their trade with Russia.”
The transformative power of generative AI
Lee underscored the power of perhaps the most transformative emerging technology: generative AI.
“I think one really important element of this revolution is the conversational interface,” he said. “We shouldn’t miss that that is a unique property of this technology. One of the things that makes it so alluring and startling to people is this ability to be in direct dialogue … with a different form of intelligence in a way that feels like it’s a person-to-person communication. These new applications have a creative dimension that just very different than the historical paradigm of how we’ve built applications and IT in the world.”
Lee emphasized that that pace of change in generative AI is such that anyone confident in the direction the technology is going is wrong. In fact, those who are closest to the technology – its creators – are regularly surprised by the progress it has made. He finds it equal parts fascinating and disturbing.
Lee suggested there will be profound implications for software-as-a-service companies that have not yet been fully explored. “The first-order objectives of a lot of B2B SaaS companies in the past 10 years has been to take human activities, harness them, and build them into a digital workflow,” he said. “In a world of increasingly capable generative AI, one of the things that it’s exceptional at is taking broad, scattered, unstructured information from multiple sources, integrating it, and bringing a sense of meaning, reason, and inspectability to that data. That doesn’t require all that workflow channeling.”
Lee believes that this will advantage companies that are currently data rich and revenue poor. “There’s a great potential for smaller models, lower parameter counts, but more clever reinforcement learning and really salient data sets can make these interfaces and these algorithms super valuable. There’s just a bunch of companies out there who have unique proprietary data stores that are not in the common crawl, and their ability to add value to decisions and activity by clients, I think, is extremely high.”
Lee doesn’t believe that generative AI is evolving in a direction in which it will be governed primarily by governments and corporate behemoths. “This is federated and democratic with a small “D,” or egalitarian technology, for better or worse,” he said. That doesn’t mean that governments won’t attempt to control it, especially those governments that see freer flow of information as a threat. Those countries will create data perimeters, leaning away from the openness that generative AI fosters. Perhaps some of those same countries will also see the opportunity for disinformation and mischief at scale, Lee noted.
Cohen highlighted that he has never seen a technology advance and be adopted so quickly. He believes that we have not been given sufficient time to fully contemplate the negative use cases.
Cohen co-authored a book with Eric Schmidt in 2013 entitled, The New Digital Age: Transforming Nations, Businesses, and Our Lives. In it, they argued that the internet is the greatest thing that human beings have ever built that they don’t fully understand and that it is the greatest experiment in anarchy the world has ever seen. Cohen notes that this was true until November of 2022 with the release of OpenAI’s ChatGPT 3.5.
“It’s the first thing that I have seen since the invention of the internet that I think is an even greater experiment in anarchy,” he said. “This will become even more true when we see costs come down, speed accelerate, barriers to entry drop.”
The breadth of topics covered in our conversation is emblematic of the catholicity of their reach in their new roles. The topics that they are covering are worthy of all of our attention for the foreseeable future.
Peter High is President of Metis Strategy, a business and IT advisory firm. He has written three bestselling books, including his latest Getting to Nimble. He also moderates the Technovation podcast series and speaks at conferences around the world. Follow him on Twitter @PeterAHigh.