Reversion to Mean

By Dee Smith

About a decade ago, we entered into a period of escalating social and political chaos, increasingly “hot” geopolitical conflict, and growing economic crises — a time that seems uncharacteristic given the previous decades. Unfortunately, the current period may represent a return to the norms of human history. The relatively peaceful, prosperous time we lived through may have been the deviation.

While not halcyon days, the 70 years after 1945 were a period in which great-power conflict was avoided, more than a billion people were lifted out of poverty, life expectancy — due to advances in sanitation, medicine, and living conditions — increased significantly, and norms regarding the value of human life changed dramatically. Murder, for example, was very common in most societies 200 years ago as a means of “solving problems.” Today, it is much less so.

The financial stability of recent decades was also new. There were no true global depressions, and highly disruptive events like sovereign defaults by major economies were absent. This was not true in the past.

Simply put, this relative economic stability was purchased by an overwhelming surfeit of debt. Two occasions on which this debt was used stand out: to rescue institutions deemed “too big to fail” in the financial crisis of 2008, and to stabilize world economies during the Covid pandemic. But debt has mounted continuously in most countries. In the US, public (government) debt is over $36 trillion. Private US debt is between $20 trillion and $30 trillion, depending on how it is counted. The extreme efforts to avert financial disasters mean that markets have never been allowed to clear. Like a forest in which fires are suppressed and undergrowth is never cleared by smaller burns, the fire, when it comes, may be cataclysmic.

After many years of increases in democratic governance in the 20th century, the 21st is seeing considerable backsliding. According to Transparency International:

In every region of the world, democracy is under attack by populist leaders and groups that reject pluralism and demand unchecked power to advance the particular interests of their supporters, usually at the expense of minorities and other perceived foes.

The form of democracy endures. In 2024, more people voted in elections than ever before in history. But with the rise of illiberal democracies, many countries are preserving the form but not the substance of democracy as it has been defined over the past 250 years. It is of particular interest that young people in many places are increasingly dissatisfied with democracy.

Why is all this happening? There are many interacting reasons, but I would suggest that four factors should be singled out.

First, as I have written before, are the broken promises so many people perceive in their lives. They feel that they played by the rules and were promised that their lives would improve and their children’s lives would be even better than their own. If anyone reading this sincerely believes this now, I would be surprised.

Second, the underlying conviction that economic well-being is the primary motivation of almost everyone and the most reliable source of human happiness — and that humans are rational self-interested agents who pursue and maximize their own well-being. This is the basis of not only capitalism, but also socialism and communism.

But, as it turns out, Marx was wrong in his estimation that economics is the moving force of history. It could rather be said that economic forces are moving history away from economics and toward identity politics. As people move or are moved en masse for jobs and economic production, community structures come apart, engendering an urgent need for identity. That need frequently takes the form of a desire to belong to some group that excludes others (social, religious, political, economic, even place-based).

A third factor is technology, particularly the technology of connectivity, and most particularly, mobile visual connectivity (smart phones, tablets, etc.). Not only do these devices demonstrably increase loneliness and affect cognition, as continues to be shown in studies, they also contribute two additional, crucial elements. The first is transparency. People now are intimately aware of how other people live to an extent that has never occurred previously. Whether such accounts are exaggerated, false, or accurate doesn’t matter much, the effects are often the same: envy, sadness, depression, and anger.

Second, mobile visual connectivity allows people with similar interests and thoughts —  including politically aggressive and polarizing ideas or destructive and self-destructive desires — to find one another, create relationships, share and develop ideas, and then act on them. It is perhaps most important that they are all able to do this from a distance and almost instantly. In the past, it was much more difficult for people whose thoughts were outside the norm to find one another and act in concert.

Fourth, much of the avoidance of major wars during the past 8 decades was due to the so-called Pax Americana, a system imposed on the world by the United States and made possible by American military power. Recently, with changes in military technology and the rise of other powers as near peers in military terms, this superiority begun to erode. Other factors are contributing to the eclipse of the Pax Americana, especially the debt load mentioned above. For the first time, the US last year spent more on government debt service than on its military.

All of these factors augur a more conflictual, impoverished, and insecure world. In other words, reversion to the conditions of most of human history. Perhaps some change or series of changes can avert this fate, and we should hope that they do. But if trends continue on their current path, life may be very different.

Feeling Better and Feeling Worse – Part 6

by Dee Smith

We have quite recently left a period of history that was anomalous in several important ways. To understand what is happening now, it is essential to be aware of this and to understand how it is changing.

For the past 25 years, we have been moving from a period of relative quiescence into a period with very different characteristics. In some ways, this represents a return to unhappy norms of human history. In other ways, it represents a radical departure. But in all ways, it is leading to a very different world: one that is becoming less and less familiar, more and more quickly.

Unfortunately, many of the changes underway have produced or could produce very unpleasant and threatening outcomes. The series has looked at a few of these trends, but many cannot be included for obvious reasons of space. I have given short shrift to genetic engineering and its twin children, bio-error and bio-terror. And to AI, to resource depletion, to population and demographic changes. And to trans-national crime, the rise of authoritarianism and nationalism. And perhaps the most significant omissions: the twin potentially existential threats of climate change and environmental degradation.

Especially when considered in combination, these departures from perceived norms of the last half of the 20th century also represent a major, mass psychological problem. First, we are attuned, by both biological and cultural evolution, to expect that the near future will be like the recent past. Change was very slow through much of human pre-history. This expectation of continuity is now called recency bias and is closely related to the problem of induction in philosophy. Because we expect things essentially to remain the same, we are very alarmed when they change abruptly. But many major changes are often very abrupt. What this means is that we are unprepared to envision and come to terms with, let alone navigate, what is hurtling toward us with accelerating velocity — in fact, what is already happening. Our ability to grasp where change is leading, even change we see widespread evidence of, is woefully inadequate.

Second, the post-WWII period is commonly remembered now as a golden era that has since been lost. We want to think that the past was better and can be regained. The reason this is a mass problem is that in fact, for those of us who lived through it, the postwar period was enormously stressful. The US and the Soviet Union had arsenals trained on each other that could destroy human civilization several times over (and there were several close calls). There was also a stream of smaller conflicts and crises, often proxy wars engaged in by the two superpowers. This was not a short list. Ranging from Somalia to the Congo, from the Balkans to Iran, and from Peru to, of course, Iraq, many also featured repeating cycles of violence and conflict.

When the Cold War finally ended, social expectations were shaped by the  “long decade” between the fall of the Berlin Wall in 1989 and the World Trade Center attacks in 2001, a period during which almost everyone, in the West at least, fooled themselves into believing that we had entered a new, optimistic, and peaceful era — Francis Fukuyama’s “end of history”.  

The post-war half-century was indeed one of positive social and economic change in which millions of lives were improved markedly. People in many (but certainly not all) parts of the world today live with advantages — luxuries, even — unimaginable even to royalty 500 years ago. To give just a few examples: we mostly do not suffer from unremitting pain, as people once did from something as simple as an infected tooth. Many today have clean drinking water most of the time. We have such a high-calorie diet that obesity has become a huge problem, one that — again through more technology — is beginning to be addressed by pharmaceuticals.

The relative political and economic stability of the post-war period enabled these trends to advance dramatically. Eventually, despite all the conflicts and problems, more than a billion people were pulled out of extreme poverty. And the relative social quiescence extended to many aspects of life in general. Murder, for example, was very frequent globally 100 years ago; now it is much less so in most societies.

Strangely, the relative quiescence of this period included the climate as well. Most of the 20th century was fairly stable and predictable from a climate standpoint. This stability, combined with the technologies of the green revolution, allowed modern society to feed many more people that anyone had ever imagined. Although the increased human production of greenhouse gases (GHG) began to escalate in the 19th century, the concentrations were too low to have noticeable climate effects. And even as the levels increased in the 20th century, the parallel escalating injection of aerosol pollutants into the atmosphere from industrial civilization, which reflect sunlight, more or less balanced out the effects of increasing carbon and other GHGs. Global temperatures not only did not rise, in some decades they fell. But that ended around 1980, and a key cause was the global — and successful — effort to dramatically reduce air pollution. There was a kind of Faustian bargain to this: reducing industrial aerosol pollution (which was sickening and killing people) removed the “cap” it had placed on warming from GHGs.

And that is a prime example of unintended consequences, a concept key to understanding what is happening today.

Feeling Better and Feeling Worse, Part 5

by Dee Smith

The severe economic crisis of 2008 led to the crumbling of another pillar of American and Western power. The so-called wizards of Wall Street had not anticipated the crisis and were only able to contain it, partially, with enormous collateral damage and repercussions felt to this day.

Central to the 2008 crisis was the creation of complex new financial products known as derivatives and including collateralized debt obligations (CDOs). These were based on highly sophisticated mathematical models, had astonishing levels of risk, were poorly understood even by those who used them, and were placed in a market characterized by a boom mentality, with hyper-intense competition animated by a fear of missing out (FOMO). CDOs and the like grouped together what had been illiquid assets, particularly US home mortgages, and “derived” (hence the term derivatives) from them liquid—that is, tradable—securities. These were heavily exchanged. The entire edifice collapsed, with dire repercussions reaching from sovereign states to investment banks to individuals.

 At that point, the post-Cold War global Washington Consensus (that economic development and political activity should follow the US model) was mortally wounded. It was seen to be deficient, even deceptive, in its assumptions. And it became clear to Americans themselves that their own faith in the system seemed unwarranted.

Blame has accrued to the investor class of asset owners and asset managers. But is this really a fair assessment? Isn’t almost everyone in effect an asset owner? Doesn’t everyone want more money, all the time? Doesn’t every retiree want more, even when this exceeds what can readily (or even realistically) be produced from returns on the assets underlying their pensions and 401ks? If you are going to blame greed, then blame has to be apportioned very widely. The fund managers have essentially been working for all of us. We are all to blame.

A long decade later, the COVID-19 pandemic resulted in a feeding frenzy of misinformation and disinformation, largely deployed for political preservation. The idea that COVID originated from wild animals rather than from a lab leak is still wielded politically by the Chinese government (while they refuse to release information that could demonstrate it one way or the other). And misinformation came from sources that were supposed to be trustworthy. For example, the World Health Organization said at the beginning of the pandemic that Covid was NOT transmitted through the air (they capitalized “not”), and early efforts focused on sanitizing surfaces when, in fact, the vast majority of transmissions are airborne. It took 2 years and far too many deaths to correct this misinformation.

The central point is that all of this has coalesced into a disdain for expertise: financial, political, medical, scientific, even religious.

People see that, over and over, experts and leaders make pronouncements that soon prove to be inaccurate at best, or outright lies at worst. Increasingly, people deduce from this that they should not trust or believe experts and leaders at all.

The problem is not that science is unsure and proceeds by creating hypotheses and testing them to try to falsify or verify them. That is the only way it could function. Science is by its nature a work in progress. It is the best method we have for producing valid and effective information.

The problem is that leaders and experts make overstated or even false claims to establish and buttress their own authority, and then try to stake a claim to protect their individual and collective territory — while framing alternative ideas as threats. The fundamental issue with the early WHO’s response to COVID was not just that it presented inaccurate information. It was that it did not admit that it really did not know and that the information was tentative. This entire phenomenon of overstated pronouncements is made even worse by experts trying to hide the fact that they have changed their minds when they are forced by events to do so.

Academia these days provides severe examples of all these tendencies. Over the course of working with and leading advisory boards for academic institutions, I have experienced situations where certain things were not permitted to be said or to happen because they were seen to be against the way the wind was blowing at a given place and time. I was actually in one situation where the director of a program was insisting on preventing a qualified speaker from presenting because of that speaker’s background. He finally told me: “Listen, I have children and a family to support, and I cannot put my job at risk even though I agree in principle he should speak.” Could I ask him to endanger his family? Needless to say, that speaker did not deliver his talk. This occurs on both the left and the right, which is why the term “woke” is at best incomplete.

I mention this to adduce a key reason why this kind of situation so often occurs. It is not necessarily personal adherence to an ideology. It is fear of retribution from one’s colleagues and administrative superiors, masquerading as fealty to one set of ideas or another. The noisy minorities expressing grievances to advance their interests (at both ends of the political spectrum) not only yell louder than the silent majority, but they threaten the spirit of free inquiry on which Western academic life has for centuries been based. If it lasts, this is a sea-change.

Feeling Better and Feeling Worse, Part 4

By Dee Smith

Several of the most important “pillars” supporting U.S. influence and power are now in danger of falling apart.

As noted earlier in this series, the U.S. was effectively the guarantor of global stability from the end of World War II until around 2010-2015. And a key reason it could do this was that the U.S. had unquestioned military superiority.

Not long ago, I was speaking to a senior military officer in an important (friendly) developing nation. He recounted how, 15 or 20 years ago, it was widely discussed among his peers in various countries that “you just don’t want to tangle with the U.S.—you will come off on the bad end of it.” This is why the U.S. could essentially send an aircraft carrier off the shore of a country and change its internal situation without firing a single shot.

But the U.S. is losing its military edge, hence more and more countries are less afraid of such a tangle. Why?

One straightforward reason is that the nature of conflict continues to change, as do its tools: drones, anti-drone systems, robots, autonomous weapons, lasers, cheaper missiles, fast missiles like “hypersonics,” and so forth are transforming war at an escalating pace. Generally, these technologies mean it is becoming easier for smaller forces to engage successfully with larger ones. But it is more than that. In the classic logic of an arms race, each new advance in weaponry is met by a countering system, which means the improvement may have limited effect. There is a “flavor of the month” quality to these advances—today’s favorite may not work that well tomorrow.

Even more important are the changes in battlefield dynamics. As Mara Karlin writes in the current issue of Foreign Affairs:

What theorists call “the continuum of conflict” has changed. In an earlier era, one might have seen the terrorism and insurgency of Hamas, Hezbollah, and the Houthis as inhabiting the low end of the spectrum, the armies waging conventional warfare in Ukraine as residing in the middle, and the nuclear threats shaping Russia’s war and China’s growing arsenal as sitting at the high end. Today, however, there is no sense of mutual exclusivity; the continuum has returned but also collapsed. In Ukraine, “robot dogs” patrol the ground and autonomous drones launch missiles from the sky amid trench warfare that looks like World War I—all under the specter of nuclear weapons. In the Middle East, combatants have combined sophisticated air and missile defense systems with individual shooting attacks by armed men riding motorcycles. In the Indo-Pacific, Chinese and Philippine forces face off over a sole dilapidated ship while the skies and seas surrounding Taiwan get squeezed by threatening maneuvers from China’s air force and navy.

There are reasons to believe, as Karlin proposes, that we are entering a new era of comprehensive conflict, for which she invokes the old term “total war.”  She defines this as a situation in which “combatants draw on vast resources, mobilize their societies, prioritize warfare over all other state activities, attack a broad variety of targets, and reshape their economies and those of other countries.”

There are many elements to this evolution, but the return of maritime warfare is notable among them. In the post-9/11 “war on terror” period, most attacks, even by naval ships, were towards targets on the ground. But the naval military environment has quickly reemerged as a key area of conflict: in the Ukraine war, in the Houthi attacks against shipping in the Red Sea, in Chinese squabbles with its neighbors over territorial rights, and so forth. (Inter alia, the Houthi attacks are an excellent example of the rise of effective non-state—although often state-supported—actors in conflicts.)

Put simply, the U.S. has not invested enough in its navy, which by some measures is now smaller than China’s (although not in tonnage), to continue to deter other major powers at sea globally.

The pace of change and the scope of the demands that all this places on the U.S. military continue to escalate. The U.S. is responding to this need with upgrades, more rapid deployment of materiel (including to allies), and new or revived alliances, such as AUKUS and the Quad.

But all of this requires a great deal of money, and the U.S. military remains underfunded. Consider the Arctic, which is warming fast and may be partially ice-free year-round as early as 2030. It has enormous deposits of oil and gas, many already claimed—outside international territorial norms—by Russia. The thawing Arctic is also going to become a major global shipping route, offering enormous savings of time and money over traditional routes between the Pacific and Europe. In other words, the Arctic is already on its way to becoming an area of serious geopolitical conflict.

To address this important region, the U.S. has 5 operational icebreakers, but only 2 are heavy icebreakers (and none are nuclear-powered). Three more are planned.

Russia has 46 icebreakers—5 nuclear-powered—plus 14 on the way, 11 of which are under construction.

The U.S. spent so much treasure on ill-conceived wars in the Middle East that it not only diverted funding from much-needed military improvements and upgrades for many years, but it also provoked a reaction within the country.

As observed earlier, it would be hard to over-emphasize how tired the bulk of the U.S. population is of foreign wars, foreign commitments, foreign entanglements, foreign aid—they don’t believe any of it works to help them. The days of the American electorate accepting that they benefit when the U.S. defends other nations are gone. Instead, many Americans believe it just enriches the ruling elites of such countries, who, they think, play the U.S. like fools. Americans are done paying for this type of foreign policy.

And the question of money leads to consideration of another crumbling pillar of global American (and Western) influence: the post-Cold War primacy of the U.S. financial and governance model.

Feeling Better and Feeling Worse, Part 3

By Dee Smith

After WWII, the US originated and enforced an international order based on rules. It worked in terms of avoiding nuclear war. However, many Americans are ready to ditch it because they do not see that it worked in terms of making their lives better.

They are also ready to unwind globalization.

This is very significant, because the whole world is now linked through globalization, so American unwinding will affect everyone. As globalization is unwound—through rising trade barriers, tariffs, and other protectionist measures—people in more and more countries are likely to turn against it as not being beneficial to them. De-globalization can become a self-reinforcing cycle. Even if globalization merely changes its shape, it will be much altered.

Perhaps even more significant, much of the US population wants the US to quit being “policeman of the world” and guarantor of the security of the international order.

Ten years ago, the admiral of the U.S. Pacific Fleet observed to me that the U.S. military and their families were already exhausted. And what has the succeeding 10 years brought?

Americans see that more than $8 trillion was expended in Middle East wars, and ask: for what? Iraq is a mess, Iran is stronger, Afghanistan is back under Taliban control (the result of a deal negotiated by the Trump I administration and implemented by the Biden administration), Israel and its neighbors are at war, and the Middle East is a seething cauldron.

The failure of 20 years of war—pursued by both U.S. political parties—further eroded trust in U.S. leadership and in the global position of America. Russia put its plan to attack and take Ukraine into effect after it saw the chaotic U.S. withdrawal from Afghanistan (on the heels of not much American reaction against previous Russian action in Georgia and Crimea).

As the U.S. pulls back, players like China and Russia—and smaller “middle” powers like Iran—will take advantage of American absence and become more aggressive. This is the single greatest potential source of immediate and near-term major conflict.

Parties in the U.S. also want to undo being banker to the world: Americans increasingly don’t see why defending the dollar as a global reserve currency is important to their lives.

There is even a detectable desire to back off American global moral leadership —democracy promotion, anti-corruption, keeping various countries “in line” by creating policy conditions that have to be followed if you want U.S. money (which many Americans believe should not be meted out anyway). The U.S. is being out-competed by the Chinese, who provide (lend) money and don’t make autocrats give up coercive techniques or corruption—in fact, they sometimes aid these.

The modern West—the U.S.-centered set of ideas, concepts, rules, and alliances, based conceptually on democracy, free trade, and engendering rising living standards around the world—is at significant risk of being discarded by Americans themselves.

Within, the U.S. is unraveling as a country with a set of shared ideals. Americans are largely tired of being a “beacon” and a refuge. They don’t believe, themselves, that it has worked. They don’t want the openness towards immigration that is expressed by Emma Lazarus’s famous poem on Statue of Liberty:

Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.

The erosion of internal American cohesion and resolve, and loss of self-esteem and self-confidence, together with the palpable fear of the future, has created a backlash against immigration of enormous breadth and power. For a nation built by immigrants, this shift in fundamental American attitudes is striking.

Isolationist sentiment is not just American. Josep Borrell Fontelles, High Representative for Foreign Affairs and Security Policy of the European Union, recently said:

The European Project [the EU] was built against the idea of power. Europeans . . . were fighting against [each] other for centuries. We . . . finally we decided to stop doing it and make peace. And the European project was founded on the idea of peace, exchange, cooperation, interdependency, vanishing borders, sharing the same currency. But today, this situation has become untenable.

Why is this? Because we have realized that economic interdependency in which our project was based is being captured by political and geostrategic rivalries.

We used to believe that trade will be in itself a source of security . . . trading among people will prevent them from making war . . . But then every interdependency became a weapon, and it obliged us to think differently.

Many Europeans want true borders again between their countries. They do not want the Schengen system of open travel and migration within the EU.

What went largely unrealized in setting up aspects of the globalized system was that, once it reaches a certain scale, immigration changes the culture and demographic composition of a nation in a way that no one bargained for or expected. People are not equipped to handle this, particularly given the inequality in outcomes of economic globalization and financialization, and the disorientation and fear from technological development.

But immigration is about to become much more pronounced, as climate change works its inexorable effects in making regions less and less habitable. Today, there are about 120 million forcibly displaced persons worldwide, doubling from around 60 million 10 years ago.

There will be many, many more. Global forced displacement is projected by IEP, an international think-tank, to rise to 1.2 billion in 25 years, as far from now as the year 2000 is in the past. Think of more than the entire population of North America and South America on the move! This is almost incomprehensible in its scope and effects. Combined with rising anti-immigration sentiment worldwide, it brings to mind the ancient paradox of what happens when an irresistible force meets an immovable object.

Feeling Better and Feeling Worse, Part 2

By Dee Smith

If I told you that my analytical take is that the U.S. is poised on a change so profound that it may become almost unrecognizable, you would probably assume I was referring to the incoming second presidency of Donald Trump.

I am not.

The second election of Donald Trump is a manifestation of a much more profound set of changes that the U.S.—and much of the rest of the world—is undergoing.

Let’s back up a bit.

It is worth remembering how the world we have been living in came to be.

After the devastation of World War II—following on the devastation of World War I and the subsequent global depression—the U.S. led an effort over a period of decades to invent a new world order. In some ways it was an illusion, in some ways it was defined ex post facto, and it was certainly self-serving, but it did bring some real change, particularly because the U.S. had the power to create, impose, and defend it.

This international world order was based on the idea that a set of governing rules would be put in place that would not only shape global order but would try to prevent the kind of conflict that had been so catastrophic in the first half of the 20th century.

The U.S. invited, and sometimes compelled, other nations to join, under US leadership. A kind of alternative system was offered by the Soviet Union, but even the USSR ultimately cooperated with the rules-based global order—the “liberal international order” (or LIO) as it came to be called (“liberal” here does not denote the political left).

The U.S. led and supported the creation of multilateral institutions, like the World Bank, and the United Nations and its multitude of sub-divisions (such as the COP meetings on climate). A primary role of these institutions in theory was to prevent conflict by providing a forum to address disputes, under the watchful eyes of the powers that triumphed in World War II—represented by the UN Security Council.

The U.S.—and this is critical—was the guarantor of this global peace and order, as well as the enforcer of the rules (and the rules were largely America’s). It had not only the influence but also the military might to prevail in many situations.

This system was seen by a large consensus of left and right in the U.S. to be profoundly beneficial to the country. The U.S. dollar became the reserve currency of the world, allowing the United States to sell its debt and finance its operations to an almost unlimited extent.

Eventually, the so-called “neo-liberal” economic order, based on the ideas of economists like Milton Friedman, and put in place particularly by Ronald Reagan and Margaret Thatcher, led to lowered trade barriers and massive globalization. Production went to the lowest-cost producers, resulting in cheap flat-screen TVs and the like. As mentioned above, it was obviously a self-serving system, but it did arguably pull a billion people out of extreme poverty (and of course, they could then become consumers of the products of U.S. corporations—although in an increasing number of cases, not products actually made in the U.S.).

That whole vision is now being abandoned by a majority of Americans, across the political spectrum. This was underway before Trump took office the first time (and led to his victory then), it continued during the Biden administration, and would have continued if Harris had won the election in November. Trump will simply accelerate it.

It is being abandoned not least for the straightforward reason that it is seen by a large and increasing number of Americans as not having worked, in the specific sense that it has not made their lives better.

This is particularly true for blue-collar workers, who feel that they have been “left behind” by developments in the modern world (including globalization and technology), and also feel their jobs have been increasingly taken by immigrants.

Last year, a self-produced song entitled “Rich Men North of Richmond” was put out by a singer called Oliver Anthony. It made a huge impact and debuted as No. 1 on the Billboard list—the first time anyone has done so with no prior chart history.  

“Rich Men North of Richmond” (Washington, D.C., is, of course, north of Richmond) is very telling and has serious implications, and is worth listening to for its political and social import.

The song touches on government power, inflation, taxes, low wages, food insecurity, welfare abuse, and child trafficking—as well as the general sense of dismay.

Here’s how the song begins:

I've been sellin' my soul, workin' all day / Overtime hours for bullshit pay / So I can sit out here and waste my life away / Drag back home and drown my troubles away.

And here is how it ends:

Well, God, if you're 5-foot-3 and you're 300 pounds / Taxes ought not to pay for your bags of fudge rounds / Young men are puttin' themselves six feet in the ground / 'Cause all this damn country does is keep on kickin' them down.

Anthony is a young, white male—and his song hits home for many. He was apparently very upset about the song’s invocation during last summer’s Republican National Convention: he means it as a condemnation of both parties, a sort of “pox on all your houses” approach.

The scope of the turn against the incumbent order in the U.S. (and not just in the U.S.) is breathtaking, especially when considered as a whole.

There is a massive reaction in the U.S. against the entire range of LIO ideas described above, which is a non-partisan. Martin Wolf, who writes for the Financial Times, has accurately described it as “an undoing project”. It is essential to understand the details, the causes, and the effects.

Wicked Problems and North Carolina

By Dee Smith

The continuously escalating complexity of the world that we have built has arguably outstripped our ability to understand and deal with it. The tools we have are insufficient. Change is becoming more radical, meaning that it takes us further and further away from what we have known, and from what we have assumed would exist in the near future. This accelerated, non-linear, radical change has very real and immediate effects on us all.

Enter the “hyperobject.” This is a term that came to public attention in the mid-2010s through the work of Timothy Morton (it had been used by computer scientists since the mid-1960s). Hyperobjects, as Morton described them, are massive agglomerations of people, institutions, technologies, ideas, and other elements that we can barely comprehend, let alone control or make sensible decisions about. They increasingly constitute the world today. In technical terms, hyperobjects are “n-dimensional non-local entities.”

Examples of hyperobjects include . . . oil spills, all plastic ever manufactured, capitalism, tectonic plates . . . the solar system . . . the sum total of Styrofoam and plutonium we have littered across the Earth over the past century, which will remain for millennia. A human being may see evidence of hyperobjects—pollution here, a hurricane there—but try gazing off into the distance to see the totality of them . . . and they disappear into a vanishing point.

Hyperobjects engender and embody non-linear risk. A great deal was learned about non-linear complex systems during the 20th century. Sophisticated mathematical analytical tools to understand them were developed. Very generally put, the more complex a system is, the more non-linear it becomes. The more non-linear it becomes, the more unpredictable its effects and outcomes will be. And the more suddenly it can change. Since we have the most complex human system ever to exist, we are dealing with levels and types of risks that we never imagined: risks that are unexpected, sudden, long-tailed, fat-tailed, multiplicative, and cascading.

Our incumbent complex systems developed during a time of relative stability, from the end of WWII until just a few years ago. That period, it seems clear, is now ending.

All of these changes drastically increase the incidence of “wicked problems.” A term developed by city planners, a “wicked problem” is a singular problem that typically has no clear definition, in part because it overlaps with other problems. It can probably never be completely solved. Wicked problems have multiple causes and exhibit effects at multiple levels and scales. They also have multiple stakeholders (affected parties), who have conflicting agendas and needs. Wicked problems cut across organizations, disciplines, and sectors. Even attempting to understand them and evaluate possible solutions is very difficult. When applied, such solutions often ricochet unpredictably across the system. Solutions are only better or worse, not right or wrong.

Sound familiar?

Hyperobjects engender such wicked problems, which can manifest in “polycrises”—although that is far too linear a description of the processes, which is filled with hidden, “n-order” feedback loops. According to historian Adam Tooze, a polycrisis represents the “coming together at a single moment of things which, on the face of it, don't have anything to do with each other, but seem to pile onto each other to create a situation in the minds of policymakers, business people, families, individuals.” In other words, a polycrisis occurs when multiple separate but interconnected crises amplify one another, with wide, systemic, sometimes irreversible effects. This “piling on” effect is devastating to our ability to manage such crises—and to our individual or collective physical and psychological well-being. It has always been the American way—the ethos of the entire modern world, really—to tackle problems one piece at a time, until we can wrestle them to the ground. Polycrises make this extraordinarily difficult.

Now to the U.S. elections and North Carolina in particular. An important swing state, North Carolina was devastated by Hurricane Helene’s massive rain in early October: a release of water due to the much warmer-than-“normal” ocean temperatures in the Gulf of Mexico feeding the storm—which is a result of climate change. Large sections of important road arteries were simply washed away, leaving no way to reach many communities by ground. Absentee ballots were in the mail, and many have probably been destroyed. At least one post office in Ashe County is reported to have been flooded and hundreds of mailboxes simply lost. We do not yet have a reliable estimate of the total destruction.

One storm and one election! Think about it. This is not at all theoretical.

What if polling cannot be restored to a sufficient level by Election Day for the votes of North Carolinians to be accurately recorded and counted? Is North Carolina simply ignored? What if the situation randomly skews the results by enabling voting in an area that is strong for one party, while removing it in an area that is strong for the other? What if another storm creates similar effects in another state? (Milton? Florida?) Where is the line crossed . . . and indeed, what is the “line” that might be crossed?

An additional part of this polycrisis concerns the flooded mines in Spruce Pine. This one mountain produces about 90 percent of the world’s ultra-pure quartz, a pristine sand essential for producing the high-grade silicon on which semiconductors rely. It is not known the extent of the damage or length of time that the mines may be offline, nor the effects on global semiconductor manufacturing. It is, however, a clear demonstration of the fragility of our systems, with their single points of failure.

Put simply, socio-economic systems developed in the last 300 years, honed and applied particularly in the last half of the 20th century, were attuned to conditions that no longer exist. We and our legacy systems are woefully unprepared for the kind of future we face. We are on very thin ice.

Multilateralism’s Long Goodbye?

The regiments of black SUVS and the delighted faces of shopkeepers on Madison and Park avenues in Manhattan this week contrasted sharply with what International Crisis Group’s Richard Gowan characterized as “the real sense of worry and gloom that is quite prevalent in Turtle Bay at the moment,” Turtle Bay being the Upper East Side neighborhood where the UN has its headquarters. The annual UN General Assembly meeting is the only must-do on the global diplomatic calendar, and it was supplemented this year by Climate Week. (There were said to be over 1,000 meet-and-greet events just around Climate Week, with champagne, smoked salmon and a heavy carbon footprint: a harvest of good business for NYC caterers.) The massive attendance in itself suggested a felt need for global, and even globalist, political conversations. Nonetheless, news events and the varied and numerous meetings SIG participated in during the week supported the view of Secretary-General Antonio Guterres that multilateralism in its post-1945 forms is in an accelerating crisis with no clear routes forward.

Familiar items on the UN agenda remained unchanged. Israel and the United States, Hamas and Hezbollah, and other regional actors continued to enact their policies without important reference to the United Nations, including the US-backed ceasefire proposal of June. Ukraine’s defense of its territory against Russian arms continued much as it has been, with a slow extension of the battle into Russian territory, Russian pushback, and no near prospect of victory or diplomatic resolution for either side. Guterres’s dire warnings about the climate crisis were generally thought to be hyperbolic. The desperate situation in Sudan was much discussed but there was very little sense that the available multilateral mechanisms were going to be able to advance peace.

President Biden’s farewell speech received polite but modest attention. Vladimir Putin, of course, did not attend, nor did Xi Jinping. (They sent their foreign ministers. Xi had already met with Guterres in Beijing earlier in the month.) The domestic political vulnerabilities of Keir Starmer and Emmanuel Macron tempered enthusiasm for their own speeches, which were in any case unremarkable. Such was the UNGA-week presence of the veto-wielding Permanent Five (P5) of the Security Council, the only members of the council with serious power and the generators of any successful council resolutions. France called, as it has before, for Security Council reforms to re-legitimize the council politically by broadening its membership beyond domination by the victors of World War II and modifying its rules. Any momentum for such reform remains doubtful.

What was happening beyond the Upper East Side frame of UNGA was more significant. On the weekend prior, President Biden focused on the Quad meeting — India, Australia, Japan and the US — at his home in Delaware. This type of security-driven minilateralism has only grown in importance during the Biden presidency. It is not necessarily to the administration’s taste, and in 2021 Biden had committed, as Obama had 12 years before, to a revival of multilateral engagement, including at the UN. But the significance and productivity of the four-nation grouping did form a contrast to those of the General Assembly with its 193 member states.

On the economic front, the dominant theme of the week was protectionism. It is telling that Keir Starmer positioned his announcement of Britain’s return to internationalism in terms of British “self-interest.” Donald Trump and Kamala Harris both ignored the internationalist week with calls for “a new American industrialism” (Trump on Wednesday)  followeed by Harris’s promise on Thursday of $100 billion in new government spending aimed at the same goal by different means. Meanwhile China put forward massive new government plans to stimulate production and consumption in its own economy. In such ways the retreat by major powers from open global markets continued even in this week of internationalism.

Fascinatingly, though, the odd nation out during the week was the United Arab Emirates. On one hand, the UAE has come under growing criticism for its backing of one side in the Sudanese civil war. On the other hand, the UAE’s unusual political creativity and energy made it an outsized player in the Climate Week events and in UNGA side meetings. The UAE has become, in a short time, a significant player in the ongoing refurbishment of internationalism, while hardly big enough (except in its budget and ambitions) to begin to qualify as a “middling power.” Among other things, the UAE’s talent for navigating a middle way between the US and China (part of a trend sometimes called “active non-alignment”) was on display, as was that government’s commitment to fielding senior women ministers in international fora.

The prospect of Persian Gulf emirates as pioneers of a future-oriented multilateralism does not seem obvious. Multilateralism since 1919, if not 1815, has been Western-based both conceptually and in operational terms. A revival of that model seemed no more likely in New York this week than it has for the past decade or more. There are several reasons for this, but fundamentally, peoples and nations of the world increasingly want to chart their own paths, and increasingly simply do not agree on philosophies, policies and actions. The operational norms governing issues from aircraft movement to satellite positioning remain, but the development of new norms has stalled.

This has a number of implications for investors. One is that UN-based multilateral initiatives in areas like climate change and artificial intelligence are not likely to shape the sociopolitical or investment landscape in the near future. Another is that the momentum for open markets will probably come as much from the middling and less-than-middling powers seeking recognition and economic advantage as it will from the greater ones, a reversal of the pattern that held into the Obama administration. With each party fundamentally pursuing its own interests, the need for multilateralism grows but the means for its achievement shrink. Finding investment opportunities then depends less on identifying global patterns than on following the more difficult strategy of betting dynamically on different horses.

Are We Already in World War III?

By Dee Smith

The question in the title has been asked in policy forums, and often dismissed. But there are recent developments that make it important to take the possibility more seriously.

First in importance is what is being called an “Axis of Disruption”: China, Russia, Iran, North Korea. These states are arguably more coordinated today than the old Axis powers were at the beginning of World War II. They have mutually reinforcing interests. Primary among these is an interest in weakening the United States, Western allies and the so-called rules-based international order.

It is not so much that Axis of Disruption goals are shared as it is that the interests of the players are self-reinforcing. China would welcome a situation in which the military and diplomatic attention of the US is drawn into simultaneous conflicts in the Middle East, centered on an Israel-Iran confrontation, and in the North China Sea, focused on sharpened tensions between North and South Korea. The focus of the US on these two theaters of action would draw its capabilities away from other areas, particularly Taiwan. Russia likewise would prefer to have the attention of the US pulled away from Ukraine. In this analysis, China would be the sub rosa moving force behind seemingly disparate actions — all of which satisfy the interests of it and its allies.

Simultaneous major military action by members of the Axis of Disruption in the Korean Peninsula, Taiwan/South China Sea, the Middle East and Ukraine could be considered to constitute world war.

Is this realistic?

It depends to a significant extent on whether China really wants to pursue a forceful reunification with Taiwan, and if so, when. China considers Taiwan a breakaway province, and in some ways sees it as the last pillar standing of the “century of humiliation” Chinese schoolchildren are taught: “100 years of national disgrace” of China at the hands of Western powers and Japan. Chinese leader Xi Jinping has clearly stated that he sees his legacy as the reunification of Taiwan with the mainland, by force or otherwise. For several reasons, including changing demographics (an older population and the results of the one-child policy in the 20th century), his own advancing age, and the changes resulting from ever closer ties between tech sectors and defense, Xi may see his window of opportunity closing.

On the other side, the outlines of a broad counter-alliance are emerging. NATO has significantly expanded its territory along the border of Russia. A number of cooperative groups of nations who share strategic interests in various ways — the European Union, the “Five Eyes” (Australia, Canada, New Zealand, the UK and the  US, with varying collaboration with France, Israel, Singapore, South Korea and Japan), AUKUS (Australia, UK, US), the Quad (Quadrilateral Security Dialogue: Australia, India, Japan, and the US), the Abraham Accords (Bahrain, Israel, the UAE and, indirectly, Morocco and the US) — seem also to be consolidating into something like an informal alliance.

The US has just entered into an expanded defense agreement with Japan. And Israeli Prime Minister Benjamin Netanyahu’s speech before the US Congress on 24 July could almost be read as a statement of intent to go to war with Iran.

The situation is unlike the Cold War, in which there were more clearly delineated sides. There are many countries sitting on the fence with regard to their alliances. The new non-aligned movement is expanding, with significant “middle powers” like Turkey exploring options outside its long-standing associations with the West. It is no longer outlandish to ask if Turkey might leave NATO. The BRICS (Brazil, Russia, India, China, South Africa) group of nations is expanding, with countries like Egypt joining, and is seeking to introduce its own currency.

India is both a member of the US-oriented Quad and of the BRICS group, and the UAE of BRICS and the Abraham Accords. Which way would they fall if the proverbial push comes to shove?

Adding further instability, the US dollar — the world’s reserve currency — is under mounting pressure due to continuing US government budget deficits and the US debt load of over $35 trillion. A number of nations, China among them, have been dumping dollars and buying gold (this includes Chinese households). The US may eventually find it difficult to finance its debt.

When a world war begins is often a matter of hindsight. It still seems unimaginable to many, and it is to be fervently hoped it never happens. “Recency bias” is the belief that the near future will be like the recent past. Most people cannot believe things outside their experience can happen. But they can . . . and do.

After the New Cold War

To what extent will the U.S.-China struggle take the rest of the world along with it? Recent developments in the technology sector suggest that containment of China has a long way yet to run, regardless of who becomes the next U.S. president. At the same time, China is showing no signs of abandoning its core strategy of using state policy to control citizens at home, build Chinese companies that can crush competition abroad, and exert maximal autarkic control of its domestic market. However, the great success of globalization has been the creation of a global middle class with incomes, educations and expectations all on an unprecedented scale. There is now a generation or two in adulthood that has grown up watching the West destroy itself and slowly abandon the freedom of movement of capital, goods, services and people that was the premise of globalization. This generation, outside the West and (perhaps) China, does not think it is helpless. SIG’s view is that the global generation in its late 20s and early 30s is already pivoting away from attachment to the world of their parents and the disastrous end-game that appears to be their parents’ legacy.

U.S. policy for the technological isolation of China has been steady and focused since about halfway through the first Trump administration. It has expanded in breadth and sophistication under the Biden administration. Technology companies have integrated this into their strategies, giving what began in the government sector strong private momentum. Consider a project with the very Bondian acronym HEIST. It is a private-public-academic partnership now backed by NATO. Its goal is to create ways for Internet traffic to be switched from undersea cables to networked outer-space satellites in the event an ocean cable is disrupted. (Students of Internet history will recall that the Internet itself was developed out of private-public-academic programs for ensuring continuity of communications in the event that land-based systems were disrupted.) HEIST is just one example of how the private and academic sectors are factoring in a long-term tech conflict between the U.S. and China. Another is OpenAI’s decision to clamp down on use by Chinese developers of ChatGPT. China was never on OpenAI’s list of “supported countries and territories,” but the move is nonetheless significant.

Of course, moves like this all call forward responses from China and Chinese companies. China’s GPS alternative, BeiDou, has had this problem set firmly in view for over 20 years. Coverage of the OpenAI decision has emphasized how quickly — measured in days if not hours — Chinese tech companies offered “moving packages” to OpenAI customers on the mainland whose VPN and other outward connections to OpenAI would no longer work. Huawei has retooled itself to deal with the expanding bans on its use overseas. It is too much to say that U.S. tech containment of China has been a good thing for Chinese businesses but it has been a spur, if of a peculiar kind.

The Trump policies on China that Biden kept and developed were guided by people such as Robert Lighthizer (Trump’s trade representative) and Matt Pottinger (Trump’s deputy national security advisor), who are expected to be part of any second Trump administration. There is every reason to anticipate policy consistency, in this particular field, regardless of the victor in November. The same is true in China.

In a real Cold War, this bifurcation between two hostile major powers would extend itself to the rest of the world. There is an element of that today. Germany, for example, after years of U.S. pressure, has decided to take Chinese technology (from Huawei and state-owned ZTE) out of its 5G networks. However, most states and national economies with any choice in the matter have opted either to blend U.S. and Chinese systems or, better yet, to develop their own.

To opt out of a forced choice between major-power antagonists while opting in to the cross-border platforms that are being shaped by that antagonism is a characteristic move for the generation that is now starting its first companies and reaching the lower rungs of government. Chinese autarky and U.S. industrial policy alike have made it clear to the rest of the world that its interests are not of lasting concern to the major powers. At the same time, the spread of middle-class wealth, education and expectations has empowered people around the world to feel they have options. Their politics is shaped by the possibilities for identifying and exercising those options. Ironically, perhaps, for a generation formed by borderless globalization, the chosen venue for exercising those options is not a transnational one but the nation and national or regional economies.

This should not be surprising. Neither the U.S. nor the EU is in any mood to guarantee the sanctity of the global public sphere. China, despite its protestations, is even less globally minded. The fact that addressing global climate change, the signature challenge of the coming generation, is being hobbled by electric-vehicle and solar-panel legislation is truly telling. The major powers that are alone in a position to see through global solutions to global problems are now the very powers making them impossible.

In such a situation, for the world outside the West and China (plus Russia), nationalism and regionalism are the least-worst solutions. The coming generation will be elderly by the time COP75 rolls around and the U.S., EU, Russia and China all bury their many hatchets and rediscover globalism. Meanwhile, away from the current agon, a busy world is identifying problems and designing solutions with no expectation of rising to the universal plane. Globalization has lost its teleology.  But it has created a world in which ambitious people can remain anchored and protected in national economies while also staying closely connected to the world outside, steering their diverse courses with as little reference as possible to great-power conflict.

Our Age of Political Nostalgia

By Dee Smith

If homo sapiens has been around for about 300,000 years, then we have lived all but 3 percent of that in circumstances almost entirely different from the present day. To put it another way: even with a generous allowance of 10,000 years or so for settled life in something like cities (which is what “civil”-ization means), for 97 percent of our existence we lived in very small groups and, except for wide-ranging nomads, with very little change over vast periods of time (centuries or even millennia). And even the nomads could usually count on migration routes leading them to familiar places, over and over again.

We are now thrust into a world where we are clustered into groups of a size unimaginable to our ancestors. They would seldom encounter anyone outside their little bands; now we all meet people every day whom we don’t know and who are different from us, and we need to co-exist with them. We are required to deal with levels of novelty, complexity and social regulation for which we are not adapted.

This goes a long way, I think, towards explaining what is happening politically and socially around the world today. Our lives are full of what scientists call “baseline resets” — we have to recalibrate our understandings and expectations over and over. We hardly become accustomed to a certain configuration of things, and then it changes. And it changes yet again. Some people embrace this. The “move fast and break things” entrepreneurs claim to do so. For most of us, however, it is highly disorienting, uncomfortable and emotionally distressing.

If we could just go back to the way things were! Vast numbers of people, of all socio-economic groups, pine for a world in their past — often a world that never existed in the way that they believe it did.

In the US, for example, so-called “liberals” — Democrats and their ilk — bemoan the loss of a US-led Liberal International Order, a rules-based international system that many analysts believe never actually existed in the way that it is remembered. This brand of nostalgics sees the post-WWII era, and particularly the “long decade” between the fall of the Berlin Wall and the 9/11 attacks, as a golden age of international cooperation, when in fact it was a short period of unipolar U.S. dominance following the collapse of the Soviet Union, a period in which there was a great deal of conflict. Of course, it seems like a golden age to those who found themselves briefly its masters! But they fear an approaching age when the “progressive” system and message no longer resonate or hold, and overt authoritarians, operating from positions that they abhor and see as threatening, are ascendant.

On the other side, in the US, many Republicans and members of right-wing movements harken back to a lost age of white social dominance. To some extent, this did exist, but it was not the halcyon period they that think they remember. Firstly, most of them were not actually alive at the time. It was a period filled with hatred and civil violence. Furthermore, the definition of who and what is “white” has never been clear. For example, Italians in the US were not, and then they were. Some Hispanics would be considered, or consider themselves, white; others would not. Besides, return to a lost white world is no longer even a possibility. The US has become “minority-majority.” White nostalgics fear an age when what are remembered as traditional white values, if not white people, become sidelined.

Similarly, the term “conservative” has been warped beyond recognition. What is it, exactly, that conservatives wish to conserve? The fact that “move fast and break things” tech leaders call themselves conservative and support conservative politicians is an oxymoron in the most literal sense.

The situation is similar in many other places around the world, whether the past is Soviet Russia, Maoist China, or various strongman dictatorships or ephemeral democratic Camelots. For much of the last couple of centuries, the Enlightenment doctrine of progress imagined the golden era in the future. As human life seemed to improve (or was said to be improving) through new systems of governance and technology, life would generally become better and better. We have now reverted to what has been the norm for most of our history, an assumption that golden ages lay in a mythic past.

The political and social status quo is increasingly seen as having failed to deliver. Life is not better than it was—and it is not getting better—for most people. They do not believe that the lives of their children will be better than their own. In fact, they increasingly just “don’t believe” in the current system, wherever they live and whatever the system is. When I presented the television series A World on the Brink in 2017, I found that there was one phrase with which everyone agreed, regardless of where they lived: “what we have is not working.” That was already 7 years ago! Since then, the needs and concerns of most peoples have really not been addressed.

The bottom line is this: conditions have changed radically; whatever happens next, they are going to change even more. The answers are unlikely to be found in any of the dominant political systems of the past few centuries. We need to think again and we need to think quickly. We need to come up with new approaches that are relevant and adaptive to the very different age we are living in and the even more different ages that are emerging. I say “approaches” because need to give up on universalism — there can be no universal system that will fit the bill, or so it seems. There may well be, and will probably be, many different and divergent systems in different places and for different people.

But they won’t be like it is now, or like it was. And that is hard.

The Dystopia Fund

The pessimistic worldview reached a new stage this week as the Economist declared that “the liberal international order is falling apart.” SIGnal readers will already be familiar with this idea, but for the Economist to adopt it might reasonably be taken as a sign of the Apocalypse. Meanwhile, the distinguished demographer Nicholas Eberstadt showed at length in Foreign Affairs what a profound demographic crisis East Asia is facing — another SIGnal theme, underlined this week at a desperate press conference given by South Korea’s President Yoon Suk Yeol in which he announced the formation of a Ministry of Low Birth Rate Counter-planning. It was a bad week for optimists, but perhaps the right time to think about a Dystopia Fund.

Macro short-selling is usually done on a national basis, by betting on (or against) currencies. A Dystopia Fund would look to sectors and sub-sectors that would be likely to benefit from long-term negative trends. Humans, even investors, tend to be optimistic, but reality is not. This creates a sort of information disparity that can be exploited.

Last week’s post looked at artificial intelligence in this context. AI, potentially, provides a way for problems of demographic decline to be compensated for by increased productivity within a given national market. The national is important: states large and small have registered that while technology-enabled globalization did indeed bring many tens of millions of people up from poverty, it was driven not by charity but by the extraordinary profits and monopolies that accrued to the companies, overwhelmingly Western, that produced the technology. Now that incomes have grown and capital has accumulated in countries from Saudi Arabia to Singapore, states want to harness technology to grow their own economies and keep wealth in domestic markets. AI promises to do that in that it can increase productivity despite declining populations and, perhaps, poor local education systems.

Other Dystopia Fund targets could be in travel and entertainment for the very old, a growing demographic. Various forms of nostalgia would be investable. Great sums of money in recent decades have gone into market research on people in prime consumer age ranges. Not so much money has gone into understanding elderly consumers. The market-research firm that embraces demographic decline would be worth backing.

An aging population puts transport innovations like self-driving cars into a different light. Most transport systems are only friendly to people who can walk and drive. Companies designing systems for the elderly will find their consumer market steadily increasing. By the same token, tele-medicine, home drug delivery, home medical-testing, and other services for the home-bound will also find growing markets. Working from home, despite its many disadvantages, will provide a way to keep older people active in the job market as the (traditional) working-age population shrinks.

Parag Khanna has led the way in identifying regions that will do relatively well out of climate change — a perfect Dystopia Fund sector. Khanna sees climate-driven emigration as something to be optimized for rather than bemoaned, for the simple reason that it is inevitable. Technologies that can extend the habitability of currently populated areas would be another way to approach the challenges of real estate in a changing climate.

One frequently cited reason to regret the demise of the liberal international order is that challenges like demographic shrinkage and climate change are on such a scale that they would benefit from international coordination. While that is certainly true, liberal internationalism’s vitality has been rooted in optimism, whereas what might be needed now is investment strategies based on a pessimism that accepts the profundity of climate and demographic change and their effects on the status quo. 

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AI Family Values

Theories of economic growth do not deal well with demographic decline. How can an economy with ever fewer consumers and producers still grow? Artificial intelligence, looked at a certain way, is an attempt to answer that question. Worries about AI taking jobs are somewhat misplaced. The opposite would probably be worse: shrinking, ageing societies unable to replace lost labor.

AI anxiety usually flourishes in wealthier, industrialized societies. So, for a change, consider Saudi Arabia. It intends to invest $40 billion in AI, which would make it a world leader. Amazon has announced $5.3 billion in AI and data center investments in the Kingdom. Nearby, Microsoft is putting $1.5 billion into a joint venture with Abu Dhabi firm G42, which would also involve the use of Microsoft’s Azure data-center platform. Why such levels of investment?

Yes, there is a geopolitical aspect. Chinese companies dominated the mobile-infrastructure wave of investment in the region in the early part of this century. China’s security-related firms, often banned by the U.S., thrived in the Middle East. Chinese firms used these ties to move into data-center construction. When, sometime late in the Obama administration, the U.S. realized that a great deal of digital real estate was being settled by a hostile power — and that a great deal of American tech capacity was being exiled along globalization’s supply chains — a reaction set in. But even that, by itself, was not enough to get U.S. tech giants investing in the pokey market of data centers in less-developed countries. AI is what made the difference, because AI, in its current configurations, depends on massive, non-latent computing power. The Internet temporarily freed data from physical constraints. AI is helping bring it back to Earth. This happens to coincide with governments’ unquenchable desire to control citizens’ information, in every sense.

But more important is what may be called the gender aspect. To an often underappreciated degree, women are driving technological change. While female workforce-participation rates vary greatly among countries, they have generally been going up for decades, while fertility has gone down. Birth-control technology has been absolutely critical to this change, but its availability and use are social phenomena, driven by choices. The Gulf Arab countries have seen steadily declining fertility rates for years now, along with an easing of prohibitions on the education of women and their participation in the workplace.

In many countries, female workforce participation — greatly enabled by birth control as well as home labor-saving technologies — made productivity and consumer-demand gains possible when male workforce numbers stagnated. In Western countries in particular, there was a sort of internal labor migration from the home to the wage-based workplace. The economic benefits can top out, however — and waged productivity’s gain is fertility’s loss.

Internet-enabled globalization made a second renewal of growth possible. Much like the movement of women into the workforce, globalization put developed-world capital in a position to increase productivity by bringing new labor into the workforce, especially Chinese labor. But this was done at a distance, with laborers outside the home markets of the highly developed economies. Globalization had enormous benefits for even the poorest rich-world consumers, but it did not necessarily make the poor more productive.

AI has the potential to restore bounded, domestic productivity. That makes it intensely attractive to a wide variety of societies, all of which are facing demographic slowdowns or  reverses but have the domestic capital to invest in technological solutions to what is, in the end, a question of power and social cohesion. This is emphatically not about human capital. The Gulf Arab states, despite their wealth, do not have high levels of citizen education such as you find in East Asia or Europe. Saudi Arabia imports human capital, whether laborers or surgeons. About 40% of its population is foreign. Saudi Arabia is a de facto nation of immigrants, but it is not understood as such because it does not expect that 40% of its population to become Saudis. The Saudi state is certainly not worried about AI taking jobs from Saudis. What the Saudi state aims at is achieving the domestic productivity mix that will make it possible for Saudi Arabia to be Saudi, in whatever way the Saudis themselves might define it. Globalization was not especially good for that. Female workforce participation is, as long as it doesn’t undermine “being Saudi.” AI might be even better: in effect, a set of tools for enhancing the productivity of domestic human capital and thereby providing growth without undermining the Saudiness of Saudi, the Japaneseness of Japan, or the Chineseness of China.

AI, then, can be seen as compatible with de-globalization, or more precisely with a decentralization of capital productivity, very much including human capital. It could, in short, enable an increase in domestic production despite a decrease in reproduction.

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Green Protectionism

Geopolitical competition seems to be leading away from the greening of global production. Major players like China, the European Union, and the United States are all trying to spur green industries like electric-vehicle production in their own territories and with their own companies. Taken as a whole, this has the effect of stimulating production and innovation, which should be beneficial for the planet. But it also raises prices by directing capital to redundant production, and it establishes a kind of green protectionism that seems certain to have unforeseen consequences. Successful investing in an industry whose major players include several antagonistic and powerful state entities is difficult at best.

The most interesting recent development has been the US decision to pressure Mexico not to welcome Chinese investment in electric-vehicle production. Mexico has, of course, benefitted from US-China competition in that companies like Tesla, Samsung, and Nissan have shifted production away from China to Mexico as part of global de-risking. Note that Samsung and Nissan are not US companies. The great appeal of Mexico apart from its workforce is proximity to US consumer demand. By pressuring Mexico to keep Chinese EV companies like BYD, Chery, and SAIC at arm’s length, the US is using the size of its consumer market as a political weapon in foreign policy. The policy goal is to deprive Chinese companies, private or not, of markets. (BYD is private, Chery and SAIC state-owned.)

The European Union has been doing something similar, having become alarmed last year at the growth of European demand for Chinese EVs and the barriers erected by the Biden administration to European companies prospering in the US market. Europe’s car manufacturers don’t want to lose their future domestic market to Chinese competitors. Biden moves to protect US domestic EV production deprived the Europeans of a crucial export market at the same time that Chinese manufacturers were selling high-quality EVs to European drivers at a 30% discount to European prices. These political-economic factors have combined on the Continent with a growing distrust of Chinese tech companies and China — rather, the Chinese Communist Party — more generally. The EU raid this week on Nuctech, a Poland-based Chinese scanner manufacturer long held in suspicion by Western China analysts, was made on economic grounds but has a strong security aspect as well.

Many Chinese argue that the root of these EV conflicts is that Chinese companies are simply better. Europeans and Americans counter that Chinese EV companies are state-backed, which is certainly true, such that the competition is unfair. None of this is wrong exactly but it misses the macro point: the major Western economies embraced extended global manufacturing supply chains and China did not, with the result that China now has innovative vertically integrated large-scale manufacturing companies that can compete globally. Because so many of those supply chains ran through China, the US and the EU are playing catch-up, and they are weaponizing their own consumer populations as well as alliances (as with Mexico) to do so.

One result is likely to be chronic high prices for North American and European electric vehicles, which means (in the absence of Chinese imports) a slowdown in EV adoption — which is already occurring. That in turn means a slowdown in carbon reduction. China’s aggressive, state-led pursuit of green industries was driven, to a great extent, by a desire to innovate out of a global climate crisis that has hit China quite hard. China’s pre-eminence in solar panels was initiallya responseto German rules on energy efficiency that could not be addressed with European products. But US-China competition has now transformed an environmental policy into something that has anti-environmental results. One can hope that all this duplicative effort will result, over the long term, in electric-vehicle and other green industries that will be able to expand around the globe and save the planet. But picking winners in such a roiling political environment is very hard, as Tesla’s investors will have been reflecting this week.

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Networks of Confrontation

When political scientists and policy wonks wrestled with the prospect of a world war that was not, in any conventional sense, winnable — that is, a nuclear war of comprehensive destructiveness — they turned hopefully to “escalation dynamics.” They tried to find a set of reversible steps between chronic conflict and mutual obliteration. It was a way to imagine how to manage the unmanageable. Today, with widespread access to drones and ubiquitous access to the Internet, it is difficult even to define “escalation.” The means for crossing borders, whether in the air or online, have proliferated to such a degree that actors engaged in conflict seem to lose sight of the de-escalation part of the old “escalation ladder.” Having escalated online, they can next escalate with drones, or by activating proxies of one kind or another, or by directing industrial policies toward harming the enemy at one remove. The jumpy, somewhat hysterical, mode of constant irritation of the status quo — constant escalation — was once the signature style of North Korea alone. Now it is worryingly common. 

 There is an argument that the United States was the first mover in this trend toward border-jumping provocation. The U.S., having done far more than any other state to advance the Internet, did tend to treat it as a network for espionage overseas, if not often for conflict. Having pioneered drone technology, which was greatly telecommunications technology, the U.S. made frequent use of it in others’ sovereign territories. With an economy uniquely globalized because of the nearly universal use of the dollar as an exchange currency, the U.S. had another planetary network it could use against its enemies, for example through financial sanctions. And having driven a globalized trading and manufacturing economy, to its own great benefit, the U.S. is now exploiting the resulting global network dependencies by weaponizing industrial and trade policies.

In each of these networks of confrontation, all of which have developed immensely since the end of the Cold War, the U.S. has moved first.

Now so many others are in the game of what the Oxford scholar Lucas Kello, optimistically limiting himself to cyberspace, once labeled “unpeace.” There is so much signaling of malign intent, expressed over cross-border networks, that the foreign-affairs signaling becomes more like noise. Russia’s appetite for information operations directed at undermining U.S. power around the world seems possibly insatiable. One reliable analyst sees Russia’s government as behind a recent infrastructure attack — all executed remotely — on Texas water systems. China increasingly looks to its diaspora as a population physically outside its own borders that is nonetheless expected to show loyalty to the mainland government. Overseas Chinese are monitored and influenced both physically (through embassy and consular staffs) and online. Iran launches an enormous drone attack against Israel and now awaits retaliation, confident that it will not be in the old, pre-1990 form of actual war but in some new “escalatory” move. But escalation without some logic to it is just random warfare. It is unpeace. A lot of aggressive noise without much clear signaling.

For investors, and for everyone else, the challenge is to identify sources and patterns of stability as well as to identify threats. It is not easy. China and Russia are trying to stabilize themselves through a striking combination of patriotism and ethnicity, rallying the tribe of consumers and producers to defend against the external enemy — a method of stabilization that runs quickly into each country’s dependence on external markets for survival. Autarky only feels stable.

The U.S. has the advantage of corporate and entrepreneurial cultures, as well as multinationals, that accept government direction only when they must. Of course the U.S. has many other advantages, and its lack of supervisory power over business has not always been a good thing. But in the present circumstances, when globalized and globalizing networks are both necessary for growth and increasingly dangerous and unpredictable as platforms for political confrontation, the U.S.’s, or perhaps more accurately North America’s, ability as an economy to resist government direction seems to be a distinctive strength. It creates a resilience in unpeace that, one hopes, can survive changes in government. An economy that can thrive under Obama, Trump, and Biden alike is a resilient economy.

Headlines for the IMF annual meeting this week emphasized American economic strength, with growth far outstripping that in the other Group of 7 members. At the same time, the U.S. was at bottom in a poll looking at G7 public confidence in institutions like the military and courts. Politics must dwell on the latter and strive for improvement. But stability comes mainly from the economic side.

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Dealing with Corruption: Part Four of Four

By Dee Smith

In the first 3 parts of this post, I discussed the nature and history of corruption in non-Western cultures and in the modern West.

Whatever we in the West tell ourselves about the “objectivity” of our institutions, a great deal of life still operates in terms of familial and friendship connections, affinity with like persons, membership in groups (from criminal gangs to professional and religious organizations), and reciprocal obligations. This is the result of human evolution. As we evolved in small societies of like individuals based on trust, outsiders were seen as untrustworthy at best and often presumed to be enemies unless proven otherwise. In many cultures, they still are. Group belonging and identity in all its forms is one of the constants across cultures and time.

There have been many concerted efforts to change these embedded practices. For example, “legacy” admissions of students at universities in the US have recently come under attack as being unfair (which they are). Sweeping efforts are being made to eliminate them, but it is likely they will change only in form, not in substance.

Corruption in Africa, the Middle East, South and East Asia, and Latin America has been profoundly influenced by European conquest and colonization. As an example (and to vastly oversimplify): Latin America was mostly colonized by the imperial powers of Spain and Portugal, and their fundamental goal was to extract wealth and send it back to the regent. The British colonization of India, in contrast, was for centuries managed by a private enterprise, the East India Company, and the goal was to enrich shareholders back in the homeland.

Enriching shareholders in the homeland was also sometimes the goal in North America, for example with the Hudson Bay Company. In many cases, however, North America was settled by individuals and small groups (who were not state-sanctioned), often from the lower rungs of society, fleeing religious and other persecution, and seeking to create a new life in a “new world”—essentially by seizing it from its inhabitants. The goal of these colonists was to produce material prosperity for themselves, in their new homes, not to send it back to the motherland. The legacy of those very different goals informs social realities in Latin America and North America, respectively, to the present day.

Corruption, as we have seen, is a complex issue, and trying to understand it is a monumental task. Generally, it is over-simplified to the point that the descriptions correspond little with the actuality. And all too often, it is simply a blame game where “I’m right and you are wrong.”

From a practical standpoint, what is a Western businessperson to do when confronted with corruption in Africa, Latin America, or anywhere? Lecturing people from other cultures about “their” corruption is very bad form and therefore often bad for business. Furthermore, as we have seen, corruption is equally present in the West—it just works in a different direction—and much of the pronounced culture of corruption that exists in such countries is a legacy of the colonial and commercial goals of the Western powers that colonized these countries and extracted their wealth.

On a practical basis, for many reasons—legal, ethical, moral, or financial—a businessperson from the U.S., the U.K., or many other Western countries simply cannot engage in activities that their own jurisdiction defines as illegal corruption, however endemic it may be in a country in which they are working.

My advice is threefold: first, do your homework and make sure before you initiate talks with a potential partner that they do not represent an individual, family, company, or other party known for egregious corruption. Stay away from those.

Second, be very well informed in advance of what specifically is defined as corruption in the laws of your country, of the country where you are operating, and of the countries in which your investors or other partners are based. All are crucially important.

Third, if and when you are confronted by corruption, the best procedure is legalistic. Something like the following is a good approach: “I simply cannot do that or anything associated with it. It is against the law in my country. If I did it, it would threaten my ability to continue to do business, and quite possibly threaten my personal freedom.”

In that way, you are not “calling out” anyone, you are not making a value judgement of right or wrong, and you are not on a high horse criticizing anybody’s culture. You are simply drawing a bright-line around what you can and cannot do—a bright-line required by the legal regime of your country.

And then, if you have to, you need to be willing simply to walk away.

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Dealing With Corruption: Part Three of Four

By Dee Smith, CEO

The 18th century European Enlightenment made the West quite distinct in terms of intellectual, social, economic forms, even WEIRD:  Western, Educated, Industrialized, Rich, and Democratic, as the phrase goes.  In parts one and two of this series, I looked at how corruption in many non-Western societies has been structured by “social pyramids” that link the high and low of a specific social group in mutual obligations, including cooperation in securing political power in order to succeed economically. This structure I contrasted to that of the post-Enlightenment West, where corruption uses money to get political power. I then argued that Western rules-based social orders, which made it possible to separate corruption from the social pyramids, are breaking down. One way to look at the rise of identity politics in the West is as the re-emergence of kinship- and identity-based structures similar to those of societies structured by social pyramids. The implications of this for society and for the evolution of corruption will be substantial.

Nineteenth-century European and North American societies, as they industrialized and previously rural people were forced to compete for survival in fast-growing cities, came to depend on science, technology, and eventually modern education. These societies developed distinctive hierarchies to manage their growing complexity, increase productivity, and compete with rival societies. Complex hierarchical structures were very different from the old social-pyramid hierarchies, although the two long existed side-by-side and in some ways still do. One difference was that they required social mobility and the possibility of advancement by merit. Dynamic merit-based hierarchies gradually replaced the social-pyramid hierarchies and developed merit-based elites.

“Merit” was and is a social relation, changing over time according to social demand. Imperial China’s merit-based examination system for civil servants rewarded expertise in classics of Chinese literature, rather as Britain’s elite educations emphasized classical Greek and Latin. When social demand for very different kinds of merit strengthened, these systems had to adapt or die, particularly as societies like Japan and the newly unified Germany quickened their pace of industrialization, militarization and social engineering.

Merit-based modern societies create a particular kind of private anxiety in that the creation of open opportunities for personal advancement puts the burden of failure, as well as success, on the individual. The protectiveness  of social pyramids, as well as of mass participation in collective religious rituals and a shared spiritual life, could not survive the rise of merit-based hierarchical societies. The old social pyramids had cared for the people within their structures through a sense and practice of reciprocal responsibility. Modern societies deracinated this—each person is on his or her own. Official, bureaucratic systems now “care” for those who, because of nature, nurture, or accident, cannot care for themselves. Everyone else is homo economicus.

“Economic man” and societies based on competition and maximal efficiency dominated the 20th century to such a degree that almost everything was seen to operate in terms of economic “laws.” Yet markets are human constructs, and we forget that at our peril. The disruptions and anger we see in societies today may be connected to this in more ways than one.

Market-based maximal efficiency undermines social structures in part because it directs capital to technologies that themselves lead, unpredictably, to social transformation. More than 80 percent of unemployment in manufacturing in the US in the last 2 decades is due to automation, not to offshoring (whatever politicians may say). With the rise of generative AI, we face a tsunami of unemployment, coming now for white-collar employees. As Yuval Noah Hariri has noted, we are living for the first time in history without any real idea at all of what jobs will look like in 10 years! What’s a young person—or anyone—to do? People feel profound uncertainty about change that does not seem to have an identifiable logic or purpose but is nonetheless pushed forward relentlessly by developments in technology, from dependence on cyber systems and their vulnerabilities, to bio-error and bio-terror, to generative AI and the possibilities of Artificial General Intelligence.

In such an environment, people long for connection to something meaningful and concrete. They long for stability.  “I don’t even recognize my own country any more” is a phrase I have heard all over the world, in societies very distinct from one another. People thus seek kinship, identity, and affinity with others who share their culture, concerns, maladies, and even bloodlines. And if they do not have a community offline they will find one online, with results that, over the past decade, seem to have been more negative than positive.

It is possible that these changes represent not partial revolutions, as in 1848, nor even the kinds of anti-capitalist revolutions seen in the first half of the 20th century, which were also built around homo economicus. The changes to come may represent a more profound transmutation, into a system (or systems—the outcomes may be very different from place to place) whose nature we cannot, at present, see. If large numbers of people decide their future looks worse than their present—which many perceive as already worse than their past—they may decide that the systems and rule sets and leaders they have been living under are no longer serving their needs. That they are no longer fit for purpose.

And then what? Will we see the rise of a revised form of social pyramids with internal obligations, because people do not feel they can rely on government promises and systems, and do not like the isolation and radical uncertainty that modern life forces upon them? Will the nature of corruption in the West begin (again) to resemble that of the non-Western world? Or will we see something entirely new?

Dealing With Corruption: Part Two of Four

By Dee Smith, CEO

Understanding corruption is difficult because often there are detectable trends and tendencies that go in more than one direction and can even seem contradictory or paradoxical. However, it is essential to understand it to know how to deal with it. As I noted in Part 1, in many regions, society can be conceived of as organized into “social pyramids” that stretch from a very wealthy family at the top to street sweepers at the bottom, with reciprocal obligations up and down the social pyramid. As I also noted—via an excursion through the arguments of Bernard Lewis—corruption is widespread in the West, it just generally flows in the opposite direction: using money to get political power, rather than using political power to get money.

It is impossible to understand why these structures are—or seem to be—different in the West than in the rest of the world without understanding the backstory, which starts with the birth of the modern era. Drawing on Enlightenment ideas of the 18th century, and building on even earlier, primarily British ideas about governance, the past 300 years have constituted a great social experiment to see whether society could be organized rationally, formally and institutionally, instead of along more hereditary, informal and relational lines. This was related to the advance of science and decline of religion: Given the revelations of science and empirical observation, an increasing number of people could no longer believe in an active god and a life after death. For example, science had started to reveal what the heavens really were: other suns and planets, not a supernatural realm.

If there was no paradisiacal afterlife credibly on offer, quite a few European thinkers and political figures became enamored of trying to construct paradise on earth. This social experiment produced the United States, the French Revolution (and an early example of the dystopias that result from such idealism, the French Terror), modern European states, communism, socialism, commercial capitalism, state capitalism, the industrial revolution and all that followed it (up to the computer revolution and the current AI revolution), consumer culture, and a number of other rationalist and “scientific” approaches to better organizing human society.

For this Enlightenment project, the primary motivator of human beings was conceived to be rational (here, read economic) self-interest—an idea that has held until very recently, and may just be beginning to come apart under the growing realization that idealistic attempts to produce perfected societies often result in hell on earth.

In order to secure a society based on Enlightenment values like equality, liberty, fairness and freedom, many new kinds of “rationalist” rules governing behavior would paradoxically have to be developed by the state, and human needs provided for or guaranteed by the state,  rather than by the informal, kinship-based social structures that had existed since time immemorial.

Expanding population was also a factor. The argument was that you had to have more rational, directed, scientific management or you risked the kind of scenarios outlined by Thomas Malthus (1766-1834), in which population growth leads to poverty, famine, disease and war.

An alternative interpretation is now arising. Its adherents feel that they cannot trust governments to decide on their behalf, that they want to emphasize culture and family over traditional political organizations, and that they want to focus on smaller structures. They want radical action to stop climate change and environmental degradation, which governments—seen to be in thrall to moneyed interests—are believed to be unable to do. They are often strongly attracted to exclusive social groupings, often newly created but presented as ancient, defined by ideology, ethnicity or race. Equally confusingly, the extremes of what used to be left and right often meet in a kind of atavistic libertarianism.

To the extent that some of this is called “conservative,” it is not your father’s conservatism, and it is only really conservatism in that it harkens back to an earlier form of human social organization. It is to a certain extent related to the trends towards splintering so readily observable today in affairs from global to local, which can be understood as representing a rejection of the logic and rationality of economic structures and rationales (such as globalization) in favor of what economists sometimes call “animal spirits” alongside a desire for closely defined belonging and identity.

There are currently a number of variants of the reaction against the doctrine of progress and the presumed supremacy of rationality among human motivations. For example, in the UK, some proponents of Brexit said they would be happy to be measurably less wealthy if they could be measurably more British. A willingness to become less wealthy has not been seen in recent times as a politically conservative attitude. If these trends rejecting recent distinctions between legacy liberal and conservative orders continue to spread, what could this mean for existing political and business structures? That will be the subject of part three.

Dealing with Corruption: Part One of Four

By Dee Smith, CEO

In Latin America, Eastern Europe, the Middle East, Asia, and Africa, corruption is one of the most difficult and feared realities that businesspeople confront. There is certainly corruption also in North America, Europe, Japan and Australasia, but it is not as familial, for lack of a better word, and legal prosecution is far more thorough and predictable. Corruption in a place like Africa or Latin America isfundamentally based on the structure of society and inseparable from it. Dealing with it as an investor is fraught with risk.

In Latin America, for example, society can be conceived of as generally organized into social pyramids. These can stretch from a very wealthy family, or set of families, at the top, all the way down to street sweepers at the bottom. It is an extended family, whose members have obligations to one another, up and down the social pyramid. If someone becomes ill, it is the responsibility of persons around and above her to take care of her. If a member of this extended family gets into trouble, it is the obligation of the others to do whatever they can to help him. Or, in some cases, to discipline him.

At the top of this kind of pyramid sits one person, usually male: the patrón. The job — more than the job, the social responsibility — of that person is to provide for everyone below him in the pyramid. That is his primary social responsibility, even if it involves taking money illegally from the state, which is not necessarily seen as socially wrong. This is because the extended family surpasses all other considerations. The social system is geared to the patrón and his activities on behalf of the people beneath him. Isn’t the patrón enriching himself and his immediate family? Of course he is. But he isn’t just doing that. He is providing for the well-being, even the continued existence, of the entire social pyramid beneath him and of the lives of the people within it, even if he is also often ruling it with an authoritarian hand.

Within this kind of society there are many patróns with their social pyramids beneath them. Some of these pyramids are larger and richer, some smaller and less rich; some much taller or much shorter. The major families keep smaller families from growing beyond a certain point — unless there is a merger, for example, via marriage. This is why it is so important to have the right business partners in such countries If you haven’t done your homework, you can find that you are in business with a local partner who simply cannot grow your joint venture past a certain level. His business is allowed to continue to exist, because it would be morally wrong, and socially disruptive and dangerous, to remove the support for a whole social pyramid. But its growth may be strictly limited.

This overall structure of neighboring social pyramids is a fundamental part of the organization of this kind of society. Here is where history and anthropology become extremely relevant. There is evidence that this is a foundational structure of most human societies that become complex beyond a certain point. It was the social structure brought to the Americas by the conquering Spanish and Portuguese, which is why a certain amount of generalization is relevant for areas colonized by them. But it was also the social structure already present in ancient America. Ancient civilizations in what is now Latin America, like the Aztec civilization, had very similar social structures. So did ancient Rome. Similar structures are widespread in the Middle East and in many other parts of the world, from the rise of early chiefdoms more than 10,000 years ago to the present.

Bernard Lewis, the British-American historian of the Middle East, observed that there is just as much corruption in the Western world as there is in the Middle East. But, he said, in the Middle East, corruption means using political power to get money. He was correct in that, and this is true in much of the world. However, he also stated that, in the kind of corruption prevalent in the West, money is used to get political power. So the two work in opposite directions, so to speak. Lewis said they were technically equivalent, but he believed that this change in the “direction” of corruption made a huge difference and that the Western version is less damaging.

But is it? It is easy to argue that they are equivalent in effect. Certainly, there are in the West many examples of people using money to get political power and, partly as a result, the wishes of the electorate often have little to do with what legislation is passed by the US Congress. What does influence what gets passed by Congress is money, as a Princeton study showed in 2014. We all see how the wielding of money puts certain people in a position of primacy and gets certain people elected, whatever their merits.

(Continued in Part 2.)

The Davos Myth

The peculiarities of the World Economic Forum meeting at Davos look more peculiar each year. The WEF’s 2024 risks report again used a proprietary poll of global leaders to foresee global trends, but the Davos definition of “global” may finally have transitioned from eccentric (or nostalgic) to misleading: 38% of respondents were from Europe, 18% from “Northern America”, and just 5% from “Eastern Asia”. In the breakdown of national responses, China was notably missing. In what sense is this global?

Similarly, the Davos analytical frame continues to look at world trends independently of particular actors. The 2024 report, in line with WEF tradition, leaves out names: no Trump, no Xi Jinping. Nations also get little attention as independent political-economic actors.

The idea of the WEF was always to both reflect and nurture a view of globalization in which economic forces could be relied on to overwhelm politics, preferably for the better. In that odd way that neoliberalism and Marxism have of blending into each other, the Davos view is of what Marxists call “the forces of production” structuring the surface phenomena of states and political leaders. As long as the theory is sound, then it might not matter that only 5% of respondents are from China/Japan/Korea/Taiwan, which is presumably the group forming the “Eastern Asia” category.

But the theory is not sound, which is why the 2024 report looks so odd. Xi Jinping’s mode of responding to globalization — remaining open to foreign capital and technology while protecting domestic firms from competition in the home market and subsidizing their growth abroad — made WEF globalization anachronistic, as did the self-protecting responses of the US, India, and to a degree Europe. The relief with which Xi was greeted at the 2017 WEF did not last very long. Neither did its embrace of India, which weakened under the pressure of Narendra Modi’s India-first policies. Vladimir Putin crushed WEF’s Ostpolitik while Donald Trump made “economic nationalism” great again in the US. Individuals, states and politics really do matter.

This week South Korea, for example, announced it would direct nearly half a trillion dollars to improving semiconductor production on its own territory. Korea, whose Samsung currently runs a distant second in semiconductor production to Taiwan’s TSMC, is partly reacting to increased domestic semiconductor subsidies in Taiwan and Japan.

Meanwhile, in the US the grip of national-security priorities on the tech sector has steadily increased. Concerns about the sturdiness of the American DIB (Defense Industrial Base) were once a fringe obsession, but now every four-star is an authority on the economics of manufacturing.

Interestingly, some WEF survey respondents identified this bending of national economies to a kind of security-driven tech hoarding as a major risk in 2024. SIG’s view is that they are right to do so.

Investors, therefore, are wise to continue evolving away from a faith in globalizing forces and toward close analysis of particular people, states, policies, and political pressures. The most difficult, and most important, area to watch is the intersection of nationalist priorities and globalized markets. It is the Xi Jinping intersection, but it has grown far beyond his signature twinning of Made in China 2025 and the Belt and Road Initiative. Now all the major economies are playing the same game. When economies as diverse as those of the US, Korea, Japan and India are reaching for many of the same policy levers in trying to achieve the China goal of insulation from global forces combined with export promotion, globalization has changed its nature. It is not about less-developed countries “catching up” with more-developed ones. The process, if that is the right word, is much more discontinuous than that, more subtle and less predictable. Against most post-Cold War predictions, the power of states and individual leaders is increasing, as are popular expectations about what states can and ought to do for them.  All of this fuels interstate competition in ways that the Davos worldview is ill equipped to handle.