Can AI Make a Country Great Again?

Much recent commentary on artificial intelligence (AI) has focused on the prospect of a company or a country winning a race for artificial general intelligence (AGI) or more-than-human “superintelligence.” However, that goal, which seems rather more religious than technological, is both elusive and, should it ever be achieved, fragile (see SIGnal, “Mutual Assured Malfunction,” March 13, 2025). Investors are focusing instead on “little tech” and firm-level or industry-level AI that uses specific data sets to engineer specific productivity gains. In SIG’s view, this more modest course seems both economically more promising and politically much more sustainable. But it definitely does have risks of its own.

The appeal of “little tech” AI is partly that it leaves to one side the many serious questions about data privacy and other more existential matters that are posed by AGI. Smaller AI systems can run on the contained, often proprietary data sets involved in industrial processes, especially in manufacturing. The goal is not to replicate the human brain but to make industrial processes more efficient, raising productivity. It is a type of automation, using new technology yet still familiar enough from the history of industrial production.

With little-tech AI, startups can focus on specific problems whose solutions will provide a payoff in the relatively short term. In other words, AI would be monetizable. This has an obvious appeal not just to startup investors but also to industrial incumbents whose processes would be improved and whose productivity would be raised in competition with their rivals. Startups are not alone in this sphere. The German giant Siemens, for example, has put industrial AI at the core of its offering.

Politically, this approach to AI is much more appealing to most governments, only a few of which (the US, China) can have much hope of achieving global dominance by winning a race for AGI, at which point they might well regret getting what they wished for. Leaving aside the large question of AI data-center electricity demands, it offers the attractive prospect of raising productivity while reducing carbon use — because your factory in Texas, enhanced by AI, will no longer have to source so many of its components from East Asia, with all the carbon-using transport that entails. The little-AI approach also means states would not have to expose their citizens’ data to foreign tech multinationals, possibly based in hostile or overweening states, in order to participate in the later 21st century. That would be a gain for state sovereignty; and given that so many of the tensions around globalization have had to do with the way it threatens sovereignty and the democratic (or otherwise) accountability of governments to citizens, the little-AI approach could conceivably enhance global stability and the prospects for peace. Little AI, by improving productivity within a given national domestic workforce, could help states that are facing demographic stagnation — which is pretty much all industrialized states and many less-industrialized ones — to nonetheless grow on the basis of domestic labor (see SIGnal, “AI Family Values,” May 3, 2024). As Marc Andreessen and Ben Horowitz wrote in July 2024, “little tech” could make it possible “to reconstruct the American manufacturing sector around automation and AI, reshoring entire industries and creating millions of new middle class jobs” while also having green benefits. Technology could, in effect, provide the “labor” that would solve the biggest challenge facing President Trump’s vision of a more self-sufficient US: the lack of workers operating at a sufficient level of productivity (see SIGnal, “Trade Wars and US Labor,” April 11 2025).

Less carbon use, stabilization of the international sovereign-state system, a growing middle class, a renewal of rich-world domestic manufacturing but with higher wages and less grim manual work…What could possibly go wrong?

AI-enhanced production aimed at reshoring manufacturing to high-wage economies would square the circle of productivity growth and de-globalization. It would revive the pre-1975 global industrial status quo with the crucial addition of China (but not so much India or Southeast Asia). If you have the good fortune to live and work in a benefitting state, this would be a positive outcome. It could, however, also fuel techno-nationalism in the rich world (plus China) and make growth outside the AI-enhanced nations highly problematic. One key issue raised by the US-China struggle — a protected US market deprives non-American producers of consumers, while a protected Chinese economy, likewise deprived, dumps its production for the pre-tariffs US market onto the rest of the world’s economies — would be gravely worsened as the world’s two largest economies reduce their dependence on the rest of the world for both supply and demand.

AI-enhanced de-globalization could, in short, reverse the global redistribution of labor productivity that led to the greatest poverty reduction in human history. In theory, the gains from little AI could be more equally distributed. After all, the AI enhancements that would lift an underemployed person in Oklahoma or eastern Germany into the middle class of his or her domestic economy could do the same for a person in Nigeria or Thailand. But that outcome is not the goal for the people, states, and companies that are driving the growth in AI monetization. Their goal is nearly the opposite. For investors, the greatest gains will come from identifying companies and sectors best positioned to gain from AI-enhanced de-globalization.

Subscribe to SIGnal

A View From Europe

By Dee Smith

I recently returned from 6 weeks in Europe — Austria, Italy, Switzerland, and the United Kingdom. My trip coincided with the build-up to President Trump’s tariff announcement on “Liberation Day” and the reactions that followed it. The most interesting element of the trip was the evolution, or devolution, in views of the United States.

At the end of February, the attitude I first encountered was a mix of perplexity about the changes in the US and sadness that they were occurring. Even people who were disposed to dislike the US discovered that they had nonetheless kept within themselves a kind of hope based on belief in America and its distinctive experiment in democracy and freedom. Even with all its flaws the US seemed, so they said, to represent a possibility that humans might be better than we fear we are. One remark I heard summarized the attitude: “It seems that the lights have gone off in the shining city on the hill.” It was a sense of tragedy, almost of grief. Now, some said, they see that the U.S. is “just another country.”

But as the tariffs were imposed, this recessional mood changed. The attitude of heartache began palpably to transform into fear, and into anger. It was not as if the winds of change had not been blowing, and they knew that. There had, for example, been warning signs over the years that the US was pulling back militarily from Europe. And the Europeans were certainly aware of the fractures in US political structures, as in their own.

However, the tariffs were something different. The universality of them, the suddenness, and the way they were applied — with a chart apparently developed with the help of ChatGPT based on an arbitrary calculation — was disorienting, then frightening, and finally angering.

When the White House suddenly, and apparently temporarily, backed away from the tariffs soon after they were announced, it simply added confusion to the fear and anger around the entire issue and in many minds further undermined the stability of the US governance and financial system. “I really don’t know what to think” was a comment I heard more than once, sometimes followed by “but I’m angry.”

Although they may not have known what to think, they did know how they felt. People have cancelled trips to the US and taken other personally expensive measures, so off-putting have they found the developments.

There was still, amid the feelings of loss and anger, the wish that the old US would come back to something like what it was and an ember of hope that it might. But the dominant note was fear, driven by US actions but not only about them. People fear the Ukraine war continuing while they also fear it being settled: they fear Russia’s intentions once it is loosed from the constraints of fighting in Ukraine. They fear war in other hot spots: Iran, Taiwan, the Koreas. They fear the non-sustainability of their economic situation. They fear having to dial back their social support systems to increase their military budgets. They fear they will be outcompeted by other areas of the world. They fear for their supply chains. They fear more and larger waves of immigration from the Middle East and Africa, particularly if war escalates in the Middle East. They fear for the social and political stability of their countries. They fear unfair competition from China, and they fear what kinds of collusion China and Russia may be up to. And, as a constant, chronic theme, many fear the impact of climate change.

Europe is, like the rest of the world, in the midst of extraordinarily large transformations with unknown trajectories. The changes seem to have come on very suddenly, although of course they have not: there have been harbingers for years. The causes of the changes also elude many. That of course is for history to judge, but I did not find a single person who disagreed with the idea that fundamentally, beneath it all, lie broken promises. I have written about this previously, and will not go into any detail here, but people see that, although they played by the rules, the implied promises they believe were made by the political and economic system — that their children’s lives would be better than theirs, for example — have been irreparably broken.

Most surprising to me, I heard more than a few people in Europe, including investors and businesspeople, say quite seriously that they thought we were at the point of a very big change. And a number said the period between the end of the old and the beginning of the (unknown) new will be very tumultuous and dangerous.

Europe was the birthplace of the Enlightenment, and it was on Enlightenment ideas and ideals that not only the American system but also every system in Europe, and now far beyond, were based. Holding that the world is fundamentally comprehensible, the Enlightenment posited that humans make decisions rationally, in their own best interests, and thus that society can be rationally organized in a purposeful and predictable way. Not just democracy and capitalism, but socialism, Marxism, and communism are all based on different views of how to apply European Enlightenment ideas about organizing society rationally, purposefully, and predictably. Unfortunately, this rationalism simply does not seem to be an accurate take: we make our decisions emotionally.

So I found I was asking myself many times on this trip: if this whole superstructure of concepts does not in the end work — if it cannot work because of the nature of the drivers of human behavior — well . . . then what? That is the largely unspoken fear lying underneath all the other fears, perhaps not just in Europe.

Trade Wars and US Labor

Janan Ganesh at the Financial Times spoke for many when he said, “there are just too many contradictions in the Trump worldview to warrant any talk of a grand plan.” SIG’s view is that there is indeed a Trump strategy, it just does not have much to do with the world outside the United States. It is a strategy of maximal national self-sufficiency, with as much as possible made in the US — the American version of Xi Jinping’s strategy for China.  And as in China, the main challenges to the strategy have to do with the labor force.

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.

Subscribe to SIGnal

Mutual Assured Malfunction

The past week has been a lively one for the eternal battle between digital networks and national, sovereign security. After a two-year standoff, Elon Musk’s Starlink was able to reach deals with India’s #1 and #2 telecommunications companies, Reliance Jio and Bharti Airtel, on providing satellite Internet to the subcontinent’s vast and underserved rural market. A few days earlier, Dan Hendrycks, Eric Schmidt, and Alexander Wang — respectively, director of the nonprofit Center for AI Safety, former chairman of Google, and the CEO of Scale AI — released a paper , “Superintelligence Strategy,” arguing that no one state will ever be able to win the AI race.

In the first instance, a technology company with, it is fair to say, its own distinctive geopolitical interests could potentially gain a hold over the telecommunications of the world’s second largest national market. In the second instance, tech industry leaders with, particularly in the case of Schmidt, a strong record of advocating US technology dominance in competition with China are asserting that such dominance can never be complete. Indian digital sovereignty and US digital sovereignty are rendered highly problematic if not impossible. If a state is on the networks, as all powerful states are and will be, then their sovereignty is inherently partial. Taking these two major developments together, the future of digital self-determination can be seen to be rather weak. In SIG’s view, this represents an overdue recognition of the interdependence of states even as they engage in fierce geopolitical competition.

Reliance Jio has, in the past five years, revolutionized India’s telecommunications, particularly mobile communications, bringing huge numbers of Indians online. Bharti Airtel has done a surprisingly good job at catching up, giving Reliance Jio much-needed competition. The Indian state has not been idly observing these developments. Its vigorous advocacy of an indigenous digital infrastructure, often now referred to as the “India Stack,” has become an example to others, including the European Union. (See the SIGnal post “The America Stack,” Feb. 5, 2025.) India is determined to become a major tech power. It has also, with the world’s fourth-largest defense budget after the US, China, and Russia, aggressively advanced its own space program and its own space-based navigational system to rival GPS (US), Glonass (Russia), and BeiDou (China). Balancing US and Chinese telecommunications majors over the past decade-plus, India has artfully and purposefully pursued its desire to achieve digital self-determination.

 

That made the Starlink deal a surprise. It appears to have been hammered out between Musk and Indian President Narendra Modi during the latter’s recent visit to Washington. The Indian government has an interest in nurturing Reliance Jio and Bharti Airtel, but it also has an interest in good relations with the US under President Donald Trump and in making sure that neither Reliance nor Airtel accumulates too much power domestically. Both the US and China have faced a similar problematic in simultaneously backing and controlling their own tech majors. The deal with SpaceX, Starlink’s parent company, provides one way for India to meet these several challenges. Indian reaction to the Starlink deal has been understandably wary and somewhat confused. After all, the Indian government, at various junctures, has humbled Facebook, Google, Amazon, Microsoft, Huawei, and ZTE, among other foreign firms eager to reach the Indian market. A recent Indian report characterized Starlink as “a technology of geopolitical control,” pointing meaningfully to Starlink’s role as the guarantor and master of Ukraine’s Internet access in that country’s struggle with Russia.

SIG’s view is that Starlink will not be able to repeat its Ukraine dominance in India, any more than its US and Chinese rivals have been able to subdue the subcontinent — not for want of trying. It is nonetheless striking that Modi, Reliance, and Airtel — the latter two have long opposed letting Starlink into the tent — now believe that the advantages of working with SpaceX outweigh the disadvantages. At the very least, Musk has dramatically proved that having the ear of the US president provides enormous business benefits.

While the “Superintelligence Strategy” has been in the works for some time, it is difficult not to read it in the context of the Trump administration’s declared determination to press the US’s AI dominance. One of Trump’s first moves was a $500 billion AI infrastructure project, and Vice President J.D. Vance later stressed in a landmark speech in Paris that the US “will ensure that American AI technology continues to be the gold standard worldwide and we are the partner of choice for others — foreign countries and certainly businesses — as they expand their own use of AI.” Vance held back from a simple declaration of hegemony but the administration’s message has clearly been that US AI should indefinitely be the parent in comparison to the efforts of other nations, especially China.

The “Superintelligence Strategy” has at its core the highly convincing argument that any large-scale AI system, even an American one, will always be vulnerable to infiltration and disruption by rivals. The strategy offers a very worldly solution, based on, but distinct from, earlier strategic arguments about nuclear weaponry. It is called Mutual Assured AI Malfunction (MAIM): the acceptance that there will be a balance of AI power, not a resolution or well-meaning regulation of it. Further, MAIM “already describes the strategic picture AI superpowers find themselves in.” A new Mutual Assured Destruction (MAD), AI version, is already with us. As in the earlier, nuclear version, there can be no victors.

There is much here for China and others to digest. The old, US-led idea of a free and open Internet, so recently repudiated, can be seen as returning, but in a much darker form appropriate perhaps for darker times. How states and companies react is the crucial question for investors. The venerable commercial goal of scaling, ideally to a global level, is not going to be achievable. AI-fueled tech companies, which increasingly means most tech companies, will face geopolitical limits. Commercial cooperation within those limits — and successful digital competition is inherently commercial — seems to be the only way forward. Musk, Modi, and the authors of the “Superintelligence Strategy” are simply ahead of the curve, and showing the rest of us where it bends.

Subscribe to SIGnal

The Rollback

Two tripartite acronyms that came to represent some of the most important policy packages of the post-Cold War West — ESG (Environment, Social, Governance) and DEI (Diversity, Equity, and Inclusion) — are becoming obsolete at an impressive speed. President Trump’s opposition to both was clearly articulated during his campaign. It was part of his electoral appeal to a variety of American constituencies. He has now used his powers to roll them back. European officials are rushing to keep up. Corporates generally welcome all this, although they refrain from saying so publicly. ESG and DEI both added costs. Their repeal is part of the expected package of deregulation and tax cuts that was the foundation for corporate and investor support of Trump’s second candidacy. But a new world after ESG and DEI might not be as commercially liberated as many are anticipating.

The Europeans tend to draw a distinction between the US initiatives, which they see as driven by “ideology,” and their own, which they characterize as driven by a need to compete with US companies that will henceforth be operating by a different set of rules that entails reduced costs. Since, in the European view, the initial impetus comes from US ideology, European governments and companies are rendered blameless as they are only reacting to the US abandonment of what were, until recently, held to be common Western values. For people whose environment, as a result of these changes, is poisoned, or whose workers are returned to labor conditions describable as “modern slavery,” this will seem like a very fine distinction. If one’s values can be overturned in a matter of weeks by a fear of future market pressures, then those values cannot be reckoned to be very strong.

Will abandoning them have the desired effects? Since the US-European playing field is, by virtue of this shared rollback, being not so much leveled as lowered, the strictly economic effects, in competitive terms, are not likely to be impressive. If all firms save the same costs in the same way, then the benefit to any individual firm is not great. What this common downward leveling will do, however, is reduce the barriers to competition for companies from economies that did not much subscribe to Western-led DEI and ESG initiatives in the first place: China, Russia, much of Southeast Asia, parts of Eastern Europe and Latin America. The dominant Western economies, fixated on competition with each other, are abandoning policy levers that, given the importance of their consumer markets, would have given them a type of comparative advantage. Some would say that was what made those levers politically viable in the first place.

This is especially the case with ESG. The DEI situation is interestingly different. One reason the US economy is distinct from those in industrialized Europe and East Asia is that the US has always been a multi-racial and multi-ethnic society dependent on immigration for growth. While DEI as such is quite new, the inclusion of diverse peoples with at least a horizon of equity to aim for — expressed in ideas of Americanization, assimilation, the melting pot, color-blindness, and market-based opportunity, among others — has been a feature of the US from its beginnings, even if it has always been extremely contested. European and East Asian societies, by contrast, have been constructed much more around a central ethnos, the preservation and advancement of which have been seen as constituting much of the purpose of the nation. While there are many, many exceptions to this, the European and East Asian varieties of DEI really have to do with immigration (and gender equality). They are features of just the last few decades. In the US, they are part of a long-established social contract.

Perhaps the distinction is not that important. Ultimately, in both cases, the central question is the supply of labor and its price. Neither the white population in the US nor the Korean or Japanese or German or Dutch labor forces are growing. Robotics and AI and the suite of labor-saving (or job-replacing) technologies may manage to reduce the drag that this lack of population growth has on national economies. Technological protectionism (and other kinds) might also increase employment of skilled nationals. But the demographic and other counter-trends are very strong. The US and other powerful states are expecting capital to be more patriotic, which might create some domestic jobs but could also reduce the returns to capital that were had by outsourcing the rich world’s working class. Meanwhile globalization gave many less-developed economies enough of a middle class to increase domestic demand for domestic production.

The US is, as ever, an outlier. Unemployment is and has been low, unlike in every other major economy. And DEI in the US, unlike in other countries, does not have principally to do with immigration but with the relationship between white and non-white. So does the anti-DEI wave. The Department of Education took the Supreme Court’s ruling against using race as a factor in elite college admissions and decided that it applied, or should apply, to every school of whatever kind in the United States that takes federal funds. The Supreme Court is encouraging white Americans to equate their experiences of racial discrimination with those suffered by non-whites. Missouri’s attorney general is suing Starbucks on charges of discriminating against white men. The secretary of defense, Peter Hegseth, fired senior Pentagon officials he seems to have thought were DEI hires, on a gender as well as racial basis.

All of these moves represent a dramatic change in US social relations, one whose implications can only be guessed at. The unemployment rate for white men is at 3.1 percent. (Its lowest previous rate in memory was 1.7, in December 1968.) White unemployment rates run slightly higher than those for Asians but significantly below those for other groups. If there has been discrimination against white men, and if immigration is held at bay, then employment of white American men is likely to go up at the expense of other groups — perhaps not Asians? — whose unemployment rates are already higher. Over time, the US might return to having an unusually empowered white male working class, recreating to some degree the era when trade unionism, which discriminated heavily in favor of white men, was at its peak and income inequality at its lowest. But it is hard to imagine the nonwhite working class, which is today (unlike in the 1950s and 1960s) the majority of the working class, going along with such a social order. Nor is the unemployed part of the white population likely to jump at jobs that it currently tends not to accept. Corporates and investors have not liked DEI and are abandoning it with impressive alacrity, but the post-DEI world, like the post-ESG world, may not be quite as commercially successful as expected.

Subscribe to SIGnal

The Importance of Ideology

Humans seek patterns in order to stabilize their relationship to their surroundings. The first month of Donald Trump’s second term has been rich in new policies, staff reductions, bureaucratic reorganizations, and diplomatic initiatives. The patterns have not been so easy to identify, though. So people take inadequate information and construct what patterns they can with it — patterns that make sense to them, but might not be related to what the prime actor, in this case the Trump administration, thinks it is doing.

For example, officials of the Department of Government Efficiency (DOGE) are extracting datasets from a number of government agencies; Elon Musk seems to be running DOGE; Elon Musk has an AI company, xAI; so maybe DOGE is extracting data to feed xAI? That is a pattern, but is it in any way truthful? Similarly, the president’s Ukraine policy is seen by some as part of a larger strategy to lure Russia away from its partnership with China; others see the same policy as encouraging aggressive states to acquire territory by force, which could spur both Russia and China to greater belligerence, contrary to US interests, while not harming their current partnership at all. These are opposite patterns, both mildly supported by current information but still fundamentally speculative. This kind of chaos does not render decision-making easy, for investors or anyone else.

SIG’s view is that there is an identifiable pattern to the White House’s initiatives. The core intention is to counter what the Center for Renewing America calls the censorship-industrial complex. One example of this complex identified by the center is the National Endowment for Democracy, which they say is “a ‘quasi-independent’ non-governmental organization (NGO) that operates as a front for the State Department and Central Intelligence Agency (CIA) [and] serves as the tip of the proverbial iceberg for a sprawling censorship industrial complex.” The sprawl, as envisioned by the center in a report dated 7 February 2025, reaches across federal agencies, universities, and corporations, particularly any corporations that deal in information, creating a “global nexus of governmental, non-profit, and private sector entities that work together to monitor and stifle speech that threatens the elite political and ideological consensus. These entities include agencies like the Cybersecurity and Infrastructure Security Agency (CISA), tech giants like Meta or Twitter, higher-education affiliated centers like the Stanford Internet Observatory, and non-profits such as Meedan. These organizations are utilizing the strands of institutional power to establish the political, policy, and moral predicate to justify the policing of free expression in a direct threat to foundational God-given rights recognized in the U.S. Constitution.”

The center sees this process as decades-long, originating in American disinformation abroad by intelligence and security agencies which eventually enabled these agencies to “cultivate an ecosystem — through partnerships with NGOs and the private sector — that quickly took root at the domestic level” (emphasis in original). The center concludes that “it remains to be seen whether or not it is even possible to fully defang the progressive orthodoxy in these agencies without dismantling them and starting over. It may very well be the case that there is no other choice but to take it all down.” 

The Center for Renewing America is a vigorous non-governmental organization founded by Russell Vought in January 2021. Vought served in the first Trump administration as deputy director of the Office of Management and Budget, then as its director. While Trump was out of office, Vought and the center published (December 2022) a budget plan for Congress called “A Commitment to End Woke and Weaponized Government.” Vought and the center played a major role in the Heritage Foundation’s Project 2025, an effort to construct an agenda for a second Trump presidency. Vought was policy director for the Republican National Committee’s platform committee during the successful 2024 campaign. (The author of the February 2025 report quoted above, CRA senior advisor Wade Miller, was political director for Texas Senator Ted Cruz’s 2018 campaign then chief of staff for Texas Congressman Chip Roy, himself a former Cruz chief of staff.) Vought became budget director for the current administration on 7 February as well as acting administrator for the Consumer Financial Protection Bureau. The center published a brief on 10 February urging that the consumer bureau be closed.

The point here is not that the Center for Renewing America and Russell Vought are influential in the Trump administration, although they clearly are. (The US budget director is not a trivial position. The center’s policy papers on Ukraine, the State Department, and immigration, among other topics, anticipated as well as anything the policies that the Trump administration is now adopting.) The point rather is that the worldview expressed in Wade Miller’s article quoted above, which stresses a long-standing US government conspiracy with NGOs and tech corporations to suppress conservative speech, appears to be an animating force within the administration. Vought, Miller, and the center are not the originators of this worldview, they are simply articulating it.

Seeing Trump administration policies through this lens helps to make sense of them. For example, Vice President Vance’s speech at the annual Munich security conference last week baffled many observers with its exclusive emphasis on threats to freedom of speech in Europe. “The organizers of this very conference,” Vance said, “have banned lawmakers representing populist parties on both the left and the right from participating in these conversations….[T]o many of us on the other side of the Atlantic, it looks more and more like old, entrenched interests hiding behind ugly, Soviet-era words like ‘misinformation’ and ‘disinformation,’ who simply don’t like the idea that somebody with an alternative viewpoint might express a different opinion.”

Reluctant to understand Vance’s words as meaning more or less what they said, commentators sought other explanatory patterns, such as a White House effort to further US dominance of European technology markets. A similar disconnect applied to criticisms of the administration’s dismantling of USAID and the State Department’s foreign-aid infrastructure, of its rejection of environmental legislation to combat climate change, and its Ukraine policy. But claims that USAID was pursuing a woke agenda or that pre-Trump Ukraine policy involved “spending American blood and treasure to ensure the continuation of a liberal and feminist social revolution in the furthest corners of Europe,” regardless of their accuracy, were genuinely felt.

Two notable recent failures of political-risk analysis were the underestimation of Trump’s “economic nationalism” in his first term and of Xi Jinping’s commitment to Communist Party control of the private sector. In both cases, ideology was discounted by an analytical confidence in constraints that reality was expected to impose on ideological ambition. Certainly those constraints existed, but their ability to prevail was wildly overestimated. Something similar is happening today with the Trump administration. People look to oligarchic power grabs or oil-company influence or Russian disinformation campaigns — patterns that make sense to them — rather than to the stated beliefs of powerful actors.

Nonetheless those beliefs are real. Looking for other, supposedly more sensible explanations can lead to poor analysis.   

Subscribe to SIGnal

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.

Subscribe to SIGnal

The America Stack

Investing in technology got a lot harder in the past two weeks. Tech investors, particularly in AI, have traditionally assumed the best products would scale: pick the winner, and you will win big. That assumption will sometimes still prove valid, but it now seems fundamentally outdated. Technology markets are fragmenting for reasons that are not changing soon. That is making investors’ lives difficult.

The proximate cause for the drop in US tech stocks was DeepSeek’s launch of AI products that seemed to perform tasks that the company’s American competitors do at much greater cost. A Chinese company whose actual workings are opaque even by Chinese standards, DeepSeek surprised markets. The specific instance was indeed unanticipated, but the broader phenomenon, as SIGnal readers know, should not have been. The US has been tightening the screws on Chinese technology for years. The first Trump administration took technology containment to a new level and the Biden administration went further still. Neither administration explained what a realistic endgame was. But it was obvious that China and Chinese companies were not simply going to yield and give up. Every US sanction and prohibition has been met with Chinese innovation. The resulting products might not match their US analogues byte-for-byte, but they don’t have to. They just have to be good enough to enter the markets. Then they can win on price.

DeepSeek’s ability to do that burst the AI bubble, which was inflated by confidence in the US tech sector’s ability — supported by government spending and other encouragements — to prevail on the global scale. That confidence is now weakening, not just because a Chinese tech company can compete with America’s best but because the “global scale” has been shown to be a fiction. Neither of the world’s two largest economies is going to either give up on protecting and subsidizing its tech companies or open its digital markets to the other.

More profoundly, though, the extraordinarily tight relationship between the second Trump administration and US tech majors, symbolized by the prominent display of the leaders of X/SpaceX/Starlink, Meta/Facebook, and Google/Alphabet at the new president’s inauguration, signaled that the distinction between Silicon Valley and Washington is disappearing. The paradox is that this will make the US less dominant internationally, even if the opposite was the goal. The power of the Valley was rooted in its capacity for transcending American nationalism. Now that it has full White House backing, the Valley is losing that capacity.

Apart from China, one example of this phenomenon is the Eurostack. The term has an interesting past as it is derivative of the “India stack,” or the subcontinent’s attempt under Narendra Modi to develop domestic digital infrastructure based on control of data, payment systems, and citizen/consumer identity. This is commonly referred to by the acronym DPI (data, payments, identity). When a state can shape and integrate all three of these as the basis for a national digital infrastructure, it can control the nature of its own digital development. Historians of imperialism will savor the irony of the European Union, whose leading members all have imperial pasts of varying extent, looking to the land of the Raj and the Princely States for a model of how to gain control over its digital future. Europe has not often turned to India for geopolitical policy solutions. But that is what it is doing today.

There are counter-currents. For countries like Australia or Taiwan, which find themselves on the frontline of resistance to Chinese digital dominance, joining the US tech sphere of influence makes an immediate sense. The EU is much less sure, and the Trump administration’s indifference to European opinion can only increase its doubts. The US has inadvertently become a driver of digital non-alignment. Assuming India sticks to current policy — and there is every reason to think it will, even if Modi’s own power slips — then the world’s most populous nation and the world’s three largest economies are all pulling in the same direction, which is away from each other.

What of the rest? Consider the UAE. At the end of last year, the UAE’s position, arrived at after long debate and involving considerable discomfort, was to align digitally with what we might have to start calling the America Stack. The symbol of this was the deal last spring between G42, the UAE’s AI-investment flagship, and Microsoft. G42 is run by the UAE’s national security adviser and financed by the state’s sovereign wealth fund, Mubadala. Once the Trump administration’s tech direction became clear, however, G42 pivoted and announced (January 28) that it had become agnostic as to technology.

The demise of global scaling has been gradual over the past decade-plus, but as Ernest Hemingway said of bankruptcy, it can happen “gradually, then suddenly.” Investors now have to pick their way among the India Stack, the China Stack, the America Stack, and (if it happens) the Eurostack. It is unlikely that any invested company will be able to participate, much less thrive, in all four.

Subscribe to SIGnal

The Change is Already Here

The commentary on how Donald Trump’s presidency might transform global reality after his inauguration on Monday has been boundless. So has commentary in individual countries on what Trump might mean for them. But as commentators anticipate the Trump future they often miss how much the furniture has already been moved, before Trump’s actual ascension to office. Trump the negotiator may value his own unpredictability, but much of the reaction to his second presidency is baked in. He is not a novelty and neither, from a foreign perspective, is the America that decided to re-elect him.  

The 16 years of Obama-Trump-Biden isn’t quite a generation, but those are usually reckoned at 20-30 years, so 4 more years of Trump just about gets there. The 16 years of Bill Clinton and George W. Bush formed a fairly coherent mini-era of strong growth (ending with the 2008 collapse) and post-Cold War openness (ending with terrorist action and reaction, and the emergence of the China-US relationship as the core of geopolitics and geoeconomics). The past 16 years have been much more about the re-shaping, and relative diminution, of the West and the institutions it built and dominated; the rise of leaderless regions to economic prominence, utterly dependent on globalized markets but without the power or ambition to decisively shape them (Southeast Asia and the Gulf, in particular, but also Central/Eastern Europe, Africa and, perhaps, Latin America, as well as not-so-leaderless India); and the none too successful efforts of the US and China to assert dominance. The resulting “order” has been described as multi-polar, but there is a noticeable shortage of effective poles. 

It is this second era that was solidified by the defeat of Biden-Harris and the victory of Trump. There were once expectations (or hopes) among some that the first Trump administration was an anomaly and Biden would effect a restoration of sorts, pushing the US and the world order it dominated back toward a Clinton-Bush-Obama normalcy. Such expectations underestimated a number of deeper transformations after 2008, notably technological transformations but also changes in the US itself as well as the endurance of Xi Jinping’s version of China. Both Xi’s China and Trump’s US were often seen as exceptions to post-Cold War rules of globalization and the spread of liberal democracy and peace. That view finally expired last November. 

The speed with which businesses have adjusted to Trump reflects an acceptance of realities that predated the last election cycle.  So too do the policies of foreign actors. Many of these have been discussed in previous SIGnal posts, most recently on the Gulf. Japan is reluctantly adjusting its relationship with China. Europe is coming to accept that the sweeping and radical proposals of Enrico Letta and Mario Draghi, both commissioned by the EU, may actually have to be followed if the EU is to last. The heads of Europe’s telecommunications champions, Nokia and Ericsson, have recently pressed, along with SAP, for the Italians’ proposals to be implemented. These three tech giants do not know what Trump’s tech policies will be. They are simply acknowledging that the landscape has permanently changed.

In developed-world national politics, the dominant mode is one of turbulence (Canada, Britain, Taiwan, Germany, the Netherlands, France) sometimes veering into chaos (South Korea). Governments struggle to manage deep transformations in technology, demographics, climate, geopolitics, and geoeconomics. What they are being compelled to accept is that the United States is no longer willing or able to back even an imperfect ordering of world power along lines that will benefit all. Despite some false dawns along the way, that trend began sometime in the younger Bush’s presidency. What has changed is the sense of its permanence.

All of this has occurred before the inauguration. The new president and Congress may believe that they can control this process but the major work has already been done.

The Uses of “Overcapacity”

Since US Treasury Secretary Janet Yellen’s visit to China in April 2024, during which she focused on “China’s industrial overcapacity,” the belief has settled in that China’s protection of its own market and mercantile approach to everyone else’s markets amounts to a massive unfair trade practice based on state-sponsored hyperproduction. Yellen and the European Union both focused on green-economy sectors (solar panels, electric vehicles), conjuring a scenario in which China would underprice the Western green economy to such an extent that it would never develop, giving China a geo-economic stranglehold on the post-carbon future. At that point, economic policy began to seem actually immoral. SIG’s view is that this popular argument is partial at best and certainly misleading.

Strictly speaking, “overcapacity” means having a production capacity in excess of demand. It is measured by the capacity-utilization rate. In an efficient, market-based economy capacity utilization should be around 80 percent. In China’s electric-vehicle industry, the capacity utilization rate is much higher than that, which means that the sector has the opposite of overcapacity. There is enough demand, domestic and international, for China’s biggest electric-vehicle maker (and largest private employer), BYD, to operate at close to 100% capacity. It is true that capacity-utilization rates  in China’s solar-panel industry are much lower, but that tends to depress prices (in order to stimulate demand). Affordable Chinese solar panels have been the key to the spread of solar-panel usage across the globe, speeding the green transition and stimulating the growth of panel-installation and maintenance industries. With cheap panels available, the cost of solar energy in the US dropped 40 percent over the past decade, and solar’s share of electrical power generation has gone from 0.1 percent in 2010 to 6 percent.

The current narrative on Chinese overcapacity also overemphasizes the China part. The three leading electric-vehicle exporters in China are BYD, SAIC, and  … Tesla. BYD’s largest shareholder for years has been Berkshire Hathaway. Pension-fund favorite BlackRock has also been a major and long-time shareholder. BYD certainly did receive government incentives for EV development and production but the benefits of its ensuing success did not only accrue to China or the Chinese.

The case of state-owned SAIC might seem simpler. However, SAIC and its state-owned competitor FAW have both been leaders in joining with Western automakers. There are FAW-Toyota and FAW-Volkswagen, along with SAIC-GM-Wuling, SAIC-GM, and SAIC-Volkswagen. These ventures, many begun in the 1990s, were created to bring Japanese, German, and American internal-combustion-engine manufacturing technology and expertise into Chinese industry, and to get Chinese-market access for the Western partners. FAW-Volkswagen was second to BYD in 2023 car sales in China. Other similar joint ventures (SAIC-Volkswagen, GAC-Toyota, SAIC-GM, FAW-Toyota) were in the top 10.

These corporate relationships have changed over time. Non-Chinese venture partners today learn at least as much as their Chinese counterparts do from working together. That process occurs with green companies as well. SAIC-GM-Wuling is third in the 2023 ranking of Chinese sales of new-energy vehicles (NEVs, which includes battery electric vehicles and plug-in hybrids), after Tesla and market leader BYD.

In short, Western and Japanese multinationals and investors have been part of, and have benefitted from, the growth of Chinese production and consumption that is behind the charge of overcapacity.

That is not so true of these sectors in countries like India, Brazil, or Turkey. They have perhaps piggy-backed on the overcapacity narrative, joining “the chorus of naysayers voicing concerns over China’s overcapacity conundrum,” as Bloomberg put it. The number of investigations brought by China’s trading partners against it more than doubled from 2023 to 2024 (from 69 to 160). Among the 28 trading partners involved, developing countries played an unusually large role. The major sources of complaint in 2024 were, in order of importance, India, the EU, Brazil, and the US, rather drawing into question BRICS solidarity, but Thailand, Peru, and Chinese ally Pakistan were also active. A strikingly high number of cases were brought after Yellen’s China visit and the related publicity given to overcapacity.

What is going on? States are using tariffs, non-tariff trade barriers, dumping complaints, and so on partly because of genuine concerns about unfair trade practices, partly in response to political pressure from domestic sources, and partly to force Chinese companies (including those with Western and Japanese investors or partners) to relocate manufacturing from China to their own territories, transfer technology to their own industries, and create jobs for their own citizens. The charge of overcapacity, especially in green industries like electric-vehicle production, gives a moral sheen to the unedifying process of using consumers as hostages to force in-country location of production. It is a hard pill for China to swallow. China has ample unemployment problems of its own. But the successes of Chinese manufacturing lead competing countries to desperate measures, particularly as US-China decoupling and US industrial policy force Chinese companies into less lucrative markets.

Ultimately this could have the effect of diffusing green-economy production and technology, notably in poorer manufacturing countries. That ought to be good for the planet. It can at least be good for investors as it creates opportunities that are not subject to the increasingly capricious US-China conflict.

Subscribe to SIGnal

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.

Subscribe to SIGnal

A View from the Gulf - Part 3 of 3

As noted in the previous post in this series, the UAE has reoriented itself away from the Global North and toward the Global South, in particular Africa. There is a military aspect to this: the emirates have been active in the Yemen conflict, dwelt in the murk of post-Qaddafi Libya, and picked a side in the renewal of Sudan’s civil war. None of these adventures have gone well and enthusiasm for them among UAE officials is distinctly muted. The UAE is “much more geoeconomics than geopolitics,” according to Dr. Narayanappa Janardhan, director of research and analysis at the Anwar Gargash Diplomatic Academy in Abu Dhabi. Economic engagement is viewed as strategic. Janardhan saw the US and China as having wanted to keep the focus on geoeconomics but being unable to sustain it, slipping back instead into geopolitics. The UAE, by contrast, aims at both strategic autonomy and strategic ambiguity, a process without an end: “We are not looking at conflict resolution anymore,” Janardhan said, “but at conflict management.”

Because the Global North has somewhat withdrawn from geoeconomics in favor of security-led geopolitics — and with nearly all the northern economies, including across East Asia, at or near demographic stagnation — the UAE’s turn to the Global South is a strategic one. The exception to it is the US, which the UAE continues to see as useful for security reasons but which it mainly values as a prosperous economy uniquely able to develop new technologies. The US’s position is not altogether solid, however: there is strong resentment in the UAE at the questioning by the Committee on Foreign Investment in the US (CFIUS) of the UAE-controlled tech investor G42’s proposed stake in US-based AI chip developer Cerebras. (The UAE is obsessed with AI, mainly for demographic and post-carbon reasons.) CFIUS’s move was quintessentially geopolitical. The fear is that Cerebras technology would leak to China via the G42 channel. This is just the sort of geopolitical blockage of UAE growth and development that the emirates is struggling to avoid.

The Global South seems simpler. The UAE puts India in a privileged role. Janardhan stressed the importance of the India-Middle East-Europe Economic Corridor (IMEC), which reaches from Piraeus across Israel, Saudi Arabia and the UAE to Mumbai, and I2U2 (launched 2022), which links Israel and India with the US and the UAE. India is not far behind China as a UAE trading partner, and is followed by Africa. India anchors the UAE in shifting the center of economic gravity from the G7 (US, Japan, UK, France, Germany, Italy, and Canada) to the E7 (China, India, Indonesia, Brazil, Russia, Mexico, and Turkey), the latter having already surpassed the former in economic size. 

The India-dominated non-alignment of the 1950s and 1960s centered on not taking sides in economic ideology, political philosophy, or the nuclear strategic balance, with the main goal being peace. The non-alignment being pursued by the UAE and India today is centered on not allowing economic growth to be hampered by … economic ideology, political philosophy, or the nuclear strategic balance. The goal is not so much peace as prosperity. In conversations around the dramatic changes in Syria, one even heard it said that “instability is good for us.” That is perhaps too cynical. What is clear is that the UAE sees itself as a stable node at the midpoint of several networks and corridors of trade that it is determined to strengthen: between the Chinese Belt and Road and Africa, between India and Africa, between India and the EU, linking the Gulf and Iraq with Turkey and the EU and building ties between the UAE, Iran, and Russia. The UAE’s power and prosperity lie precisely in its ability to privilege trade over politics. As point 3 in Sheikh Mohammed bin Rashid Al Maktoum’s 8 principles of Dubai reads, “Dubai does not invest or involve itself in politics, and does not rely on politics to ensure its competitiveness.” But it can also only have so big a domestic market with just 10 million people who already have the region’s highest per capita food consumption rates. India is the missing piece. It signed the first of the UAE’s Comprehensive Economic Partnership Agreements (CEPAs) in 2022. There have been more than 20 since then, at various stages of ratification. All in the context of what is called the retreat from globalization.

It can be difficult to see from the US or Europe, but there is a genuine re-alignment of global trade and investment flows in favor of the Global South. For many decades, development of the Global South has been framed by a discourse of imperialism followed by uneven development and a morally urgent redistribution. But the Global South revival being led by the UAE and India (among others) has almost no moral inflection at all as it is occurring between and among former colonies. The point is growth, without further attempts to settle imperialist accounts. Western investors can definitely benefit from understanding this and finding opportunity in it: thus the soaring attendance at Abu Dhabi Finance Week, and the genuine plausibility of labelling “the capital of capital” what was a quiet and isolated emirate just a generation or two ago.

Subscribe to SIGnal

A View from the Gulf - Part 2 of 3

The previous post in this series sketched the distinctive combination in the United Arab Emirates of a federal state structure, non-democratic rule by an ethnically defined minority (10% of the population), an anxious discourse of national identity, a commitment to global free markets and market-led growth, an official policy of tolerance, and a strong internationalism. You can see all of these symbolized by the three new structures built in Abu Dhabi, the capital, for each of the Abrahamic religions (Islam, Judaism, and Christianity), flanked by the beautiful Louvre Abu Dhabi (the French brand has been leased to 2047), the Guggenheim Abu Dhabi, and the Sheikh Zayed National Museum. The latter two are scheduled to open in 2025. National identity and cosmopolitan tolerance were put in mundane context by the third Abu Dhabi Finance Week (9-11 December), which took place at the Abu Dhabi Global Markets (ADGM) complex and quite credibly promoted Abu Dhabi as “the capital of capital.”

These projects and the strategic thinking underlying them date back a number of years but the Covid crisis and the calcification of US-China rivalry gave them additional urgency. UAE planners were sharply aware by 2020 that the US, China, and India, in their different ways, were reorienting their globalization strategies to emphasize the importance of organizing production around their very large domestic markets and increasing their self-sufficiency in order to reduce their vulnerabilities to each other. Covid made this structural shift even starker, particularly in the Chinese case: large countries who could afford it were able to shut their markets more or less at will.

For a small, trade-dependent country like the UAE, these trends all led in a bad direction. There are many opinions on the moral valences of free-market globalization, but for the emirates its continuation was a question of survival, including cultural survival, and if major markets like China and the US were going to start seeing free trade as optional then the UAE would need to regroup. Covid also brought home a grim truth about dependence on expatriates: as a rule, they come for money, and they will leave for money, too. A significant number of UAE health professionals were poached by recruiters for Western countries desperate enough to raise wages. The UAE had already begun its “golden visa” program in 2019, allowing foreigners to become residents for 10 years without a local sponsor. Covid-related labor competition made it clear that the UAE needed to make itself even more attractive to expatriates. Having imported a laboring class to build the country, the UAE now needed to import an entrepreneurial upper-middle class, with a tech bias, in order to maximize its room for maneuver in a global economy whose major players were retrenching. UAE pro-family policies today are oriented toward helping both emiratis and non-emiratis raise families in the emirates. And pro-tolerance or pro-diversity policies are aimed at maximizing the pool of potential immigrants. Western discourse tends to frame tolerance and diversity in moral terms but in the UAE they have at least as much to do with factors of production.

An additional development in solidifying the UAE as a sort of Free Port in a new era of conditional globalization was US sanctions against Russia. Sanctions by the first Trump administration, in reaction to Russian actions in Ukraine, were relatively mild, but Biden-era sanctions after Russia’s invasion in 2022 were, from a UAE perspective, at a dangerous level. It was not just that sanctions so often hit UAE passport-holders with Russian names. The US’s use of SWIFT as a political tool and its corralling of European financial institutions were anathema to the aspiring “capital of capital.” The US’s increasing citation of proximity to the Russian military-industrial base as a criterion for sanctions pointed in an alarming direction, one already indicated by US containment of Chinese telecommunications, semiconductor, and AI sectors: the US-led West was engaged in a security-driven politicization of global financial, data, and trade flows. The lifeblood of emirati political economy was threatened.

The UAE’s reaction has been manifold. In technological terms, it has decided to go with Team USA (as people say) for the time being, ripping out Chinese systems in favor of Western ones. Emirati officials currently see the US as ahead in critical technological sectors, including artificial intelligence. Since the first Trump administration the US has posed a choice: either you stay with the US tech “stack” or you will be left to the mercies of the Chinese. The Biden administration was even more insistent on this point, and there is as yet no reason to suppose that the second Trump presidency will be different. So if the UAE wants to participate in the next stage of technological revolution, as it emphatically does, it will choose to do so on the US side.

Diplomatically, the UAE has become an enthusiastic participant in, and frequent convener of, most global fora. The UAE’s commitment to the World Economic Forum, beginning in 2002, has blossomed into an embrace of everything from the BRICS+ to the climate-change COP forum, a non-intuitive move for a society dependent on hydrocarbon extraction. This year’s Abu Dhabi Finance Week had twice the attendance of the previous year’s, with both China and the US well represented. 

Financially, the UAE, like many economies, is trying to find ways to reduce exposure to the political use of the US dollar. The Jaywan card, for example, is one among many instances of a “national credit card” that promises two related and widely desired outcomes: protection of independence from dollar-dependent payment clearing mechanisms and securing of citizens’ credit data. Such efforts do indeed introduce frictions of sovereignty into the networks of globalization — frictions that increase costs — but given US dominance of financial and data systems, and the clear US willingness to weaponize that dominance, even as eager a globalizer as the UAE will opt to protect its sovereign power.

However, the most interesting and unexpected UAE reaction to major-economy protectionism and the politicization of financial, data, and tech systems has been its turn away from the Global North, or more precisely the rich-world countries, possibly including China and Russia, that are becoming so wrapped up in their own geopolitical agonies. The UAE will “take sides” in those struggles when it feels it must, as with the choice of Western telecommunications gear and investment in the US tech sector. But it would prefer not to, and certainly does not see the choice as one between democracy and authoritarianism — Biden’s preferred framing.

The geoeconomic shifts of the last two decades have seen the UAE go from celebrating Davos Man to championing the Global South. The UAE is the fourth largest investor in Africa (after China, the US, and Europe) and is India’s third-largest trading partner. The UAE is pioneering an era of globalization that operates at a deliberate distance from the old industrialized countries where globalization had its origins. The third and final post in this series will describe this new world and some of its implications for international investment.

Subscribe to SIGnal

A View from the Gulf - Part 1 of 3

What do artificial intelligence, national identity, family values, and ethno-cultural tolerance have to do with each other? They provide interlocking means toward the goal of having an adequate labor supply for a coherent nation in a globalized world. How this works is perhaps nowhere clearer than in the United Arab Emirates. This three-part series will discuss the UAE based on conversations there during a recent visit. The first part will look more at the emirates in domestic terms; the second will place them in geoeconomic context; the final post will assess the implications of the emirates for the wider re-networking of globalization. The implications for investors are considerable. Understanding the re-networking of globalization is key to investing in it successfully, and for a variety of reasons the nature of this re-networking is revealed with particular clarity in the UAE.

The usual narrative one hears about UAE history stresses that the emirates once thrived on the trade in pearls. When artificial pearls were invented, the emitates’ economy collapsed. When oil and gas were discovered in 1958, the emirates got a precious second chance at developing a modern economy. Sheikh Zayed bin Sultan al Nahyan, the emir of Abu Dhabi, sought to join the Organization of Petroleum Exporting Countries (OPEC) in 1967. Sheikh Zayed, in collaboration with Sheikh Rashid bin Saeed al Maktoum, emir of Dubai, formed a federation of six emirates in 1971, which immediately became a member of OPEC. A seventh emirate, Ras al Khaimah, joined the initial six the following year. The UAE took on its current form, dominated by Abu Dhabi and Dubai with the emirate of Sharjah as the third power in the federation.

The core purpose of OPEC was to resist control by the industrialized, and often formerly imperial, powers that had the technology, expertise, and capital to develop oil and gas resources. Britain had dominated the emirates before withdrawing east of Suez in 1968, and the formative impulse of emirati federation was anti-imperial and developmental. The distinctive dynamism of the emirates is rooted in the fact that Dubai, while powerful, has few natural resources: 94% of emirati oil is in Abu Dhabi, which became the capital of the UAE. As a trading economy, Dubai led in diversifying the UAE’s development away from dependence on oil and gas. The relationship between Abu Dhabi and Dubai is often compared to that between Washington and New York, while the most frequently cited model for the UAE as a whole is Singapore.

The crucial point is that the UAE’s core political and economic driver was to grow through negotiating power with and among major industrialized countries that needed its petroleum resources to fuel their own development. To do so, it needed not only luck and skill but a labor force well beyond the capacity of a country with a population of roughly 300,000 in the 1970s. So it imported what it needed, usually on a contract basis and particularly from India, with which the emirates had long-standing commercial ties. The working conditions of this imported working class were often harrowing.

The country grew. Today the UAE’s population is over 10 million. About 10 percent are emiratis, Another 3 million are of Indian descent, a further million from elsewhere in South Asia. Emiratis grow up on Bollywood films. Mumbai is a two-hour flight away; it takes twice that time to reach Beirut. The emirates are effectively multicultural, with a decided orientation toward South Asia. This makes them different from other Persian Gulf cultures, and is a key to their prosperity, along with a commercial language and institutions taken over from imperial Britain and extended through relations with yet another former British colonial nation built on imported labor, often under very harrowing conditions indeed, the United States.

 As a minority in their own country, the emiratis kept tight control over their own political and economic power, led by a highly effective monarchical aristocracy accustomed to sharing out decision-making and commercial rewards. Intermarriage with non-emiratis was – as emiratis today tell the story – more common into the 1990s that it is now. The nature of emirati identity is a live issue, although not one that is easily aired in public discussion. Membership in emirati families brings privileges such as free land and healthcare. It also brings obligations of fealty to the monarchy, which can and does, for example, forbid travel by emiratis to states at variance with UAE policy. A variety of people can gain UAE residence permits and, increasingly, passports, but actual emirati-ness is recorded in a “family book” and conveys an identity and social power beyond citizenship.

To deal with the resulting tensions, the UAE has, among other measures, empowered emirati women and stressed productivity and discipline among emirati youth, particularly through subsidized education (including at top international institutions), military service, and sport. (Government ministries compete against each other in sports leagues.) Senior emirati ministers and other officials are strikingly young and very often female. The empowerment of women has the usual implications for overall fertility, and a notable aspect of government policy is a growing emphasis on pro-family measures. The three emphases of recent UAE strategic policy—AI, family, and national identity – represent an attempt to ensure and extend emiratis’ future as the core population of a country in which they are highly likely to remain a minority.

So, too, does the government’s emphasis on diversity, in several senses. Alongside a ministry for national identity is a ministry for tolerance. This only appears to be a paradox. To judge from numerous conversations with UAE officials and other emiratis as well as expatriates – an inadequate term for 90 percent of the population – the UAE leadership is keenly aware that the country can continue to thrive only through the tolerance of diverse religions and cultures. Managing a dynamic relationship between nationalism and internationalism might not be to every emirati’s taste but it is essential to survival, whether cultural, military, or economic. But especially, perhaps above all, economic: the UAE has enshrined in its basic strategy documents a commitment to private-sector-led development, and the government is trying every means to get young emiratis into private positions rather than having them follow the easier path of government service.

The next post will look at how the UAE is using this distinctive combination of national identity and market-driven economics to drive its political-economic growth.

Subscribe to SIGnal

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.

Subscribe to signal

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.

Subscribe to signal

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.

Subscribe to SIGnal

Feeling Better and Feeling Worse: Part 1

By Dee Smith

My attempts to analyze what is transpiring in as objective and unbiased way as possible apparently come across to some as a counsel of despair. That is certainly not what I intend.

But I get paid to face and analyze facts, as far as facts can be discerned. Before and after the U.S. elections, I appeared on several webinars, podcasts and in-person talks. These were to various groups with attendees ranging across the political spectrum. I observed that most Republicans clearly believed that “if only Trump is elected things will be much better” (and they now believe they will), and Democrats similarly believed “if only Harris is elected things will be much better.” The desire for relief was palpable.

Unfortunately, it is not that simple. Let me explain why.

The amount of agency any of us has is much less than we believe—even if you are president of the United States. I mean this is a very specific way: the ability to produce the outcomes you intend and expect.

Many of the problems we face are deep and structural, which is bad enough, but the real rub is that the hyper-complex social, political, geopolitical, economic and environmental situation in which the problems exist is unpredictable as a fundamental property of its nature.

First of all, it can be extraordinarily difficult to instigate actual change. Some time ago, I was doing a project directly for the CEO of a Fortune 100 company. In a meeting, he expressed his intense frustration that “getting this company to do anything — to change anything — is like turning the Queen Mary . . . and I’m the CEO!”

Large systems, whether companies or countries, become highly resistant to efforts to nudge them to change. For example, for all his attempts to do so, over a decade and multiple terms in office, Victor Orban has actually changed the trajectory of Hungary as a country very little.

People who take a disruptive approach can initiate change better than those working within the guardrails of a system. Trump is such a disruptor, so he will be able to instigate many changes. But the nature of the world we live in means that neither he nor anyone else can actually predict and control the effects of such change for long.

And sometimes intended changes are just impossible within a certain situation. For example, both Trump and Harris promised to revive the American industrial working class. But this is almost certainly doomed to failure. Within a decade or two, automation, robotics, 3D printing and other technologies will produce nearly all factory goods. Automation — not offshoring — already accounts for more than 80 percent of job losses in the past 2 decades. Promising a job-rich manufacturing renaissance is meaningless and unfulfillable.

Rigorous analysis of how complex systems behave is one of the triumphs of 20th century science. The study of complexity has explained why, when change occurs, it is often abrupt and unpredictable. Complex systems are full of hidden links. The 2008 financial crisis offered many examples. Even small changes can produce enormous effects downstream. Many actions have unintended consequences: unanticipated knock-on effects (2nd-order, 3rd-order, etc.). Complex systems are full of tipping points. If you add grains of sand to a sandpile, it builds up until the pile reaches criticality — and then experiences a small avalanche. Such systems also exhibit cascading phenomena and non-intuitive inverse relationships.

We have created the most complex human civilization ever. The insuperable interconnectedness and complexity of the world have raised such unintended consequences and related effects to an immense level.

The 18th-century European Enlightenment formalized a belief system proposing that the world was generally linear, logical and predictively manipulable — that certain inputs would reliably produce certain outputs. That is of course what modern science and technology are based on. If you isolate phenomena — a smooth ball rolling down a smooth incline, or a closed electrical circuit — that view is generally true. But in the real world, the balls are seldom smooth, nor are the inclines.  

A good example is in the practice of “pro-forma” financial analysis. The rise of spreadsheets like Excel has led people to believe that they represent the real world and can predict real-world outcomes. But they are abstractions and seldom forecast what actually transpires, because there are too many variables and exogenous elements. The use of such spreadsheets and the illusion of comprehensibility and predictability they engendered were deeply involved in causing the 2008 financial crisis.

There is a term that originated in the cyber security world called “security theater.”  It involves putting in place measures that look like they will increase security but actually offer little protection, if any. They are there simply to make people feel better and to offer legal protection to the entities that deploy them.

Much of politics is analogous. As a species, we seem to most want from our leaders promises that make us feel better. That the promises are impossible to keep seems to matter little or not at all. But, as those promises are broken, we become very angry, and, if we are living in a democracy, “kick the bums out” only to vote more in to make and break more promises. Over and over and over.

Where does all that leave us? How do we move forward?

Subscribe to SIGnal

Strategic Insight Group is a licensed Private Security company with the Texas Department of Public Safety pursuant to the Texas Occupations Code 1702, license number A10774.