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What does it take to be an empire?

What It Takes To Be an Empire in a Changing World

Posted on by gennadi.kneper

What does it take to be an empire?

Pinky: Gee, Brain, what do you want to do tonight?

Brain: The same thing we do every night, Pinky—try to take over the world!

1) Wouldn’t it be great if you could start an empire? By that I don’t mean an Elon Musk-style multi-million dollar company with hundreds of thousands of employees, though that would be nice too. But let’s think really big.

How about dominating the world not only with your products and services, but with your ideas, your culture, your way of life?

Just imagine you could do all that because you’ve created a powerful bureaucracy and developed advanced military technology, which guarantee that you remain in control of what’s going on in your realm and can prevent anyone else from interfering with your goals. That’s what real power is about.

Throughout human history, there were several peoples who were smart, aggressive and hard-working enough to build up the potential needed to create and maintain an empire. In each and every case, this empire had its period of growth and a Golden Age. But at some point, it became weaker and ceased to be the determining power in world affairs.

2) In his essay about the changing world order, Ray Dalio calls these dynamics the Big Cycle of successes, excesses, and declines—which is a pretty elegant way to summarize an argument made by the long-forgotten German scholar Oswald Spengler at the beginning of the 20th century.

Sure enough, historical examples of how empires rose and fell can help understand the current situation and determine the direction in which the world economy is moving. This, in turn, might be useful to make the right macro-level investment decisions.

Quite plausibly, Ray Dalio focuses on US-China relations that have become crucial to the transformation the world is currently undergoing. His analysis offers great evidence that rounds off the argument the political scientist Graham Allison has made about the so-called Thucydides’s trap which China and the United States seem to have rushed into—with a multidimensional global conflict unfolding before our eyes and a real war possibly looming on the horizon.

There are, however, several points which could be added to this picture.

3) One such point is MAD. The mutually assured destruction through atomic bombs is a pretty novel phenomenon in world affairs. It has been around for about 70 years, and has drastically diminished, though not eliminated, the risk of a major hot war.

After nuclear weapons became part of the arsenals of the United States and the Soviet Union in the late 1940s, conflicts between great powers have taken on a new quality. Throughout human history, wars have been a common way to determine who gets what. However, the prohibitive cost of a nuclear war forces governments to think twice before planning a direct attack on competitors who have atomic missiles at their disposal.

Currently, there are about ten countries that have nuclear weapons, with Russia and the United States remaining at the top of the list with their MAD potential. And while it’s true that a big hot war can never be ruled out completely, it’s hard to imagine the US sending war ships to attack China, Russia or India in order to enforce its trade policy like the British did during the Opium Wars in the 19th century.

Simplifying things a little bit, you could argue that without nuclear weapons we would likely be in the midst of another World War. But as it is, conflicts between great powers are fought out in other ways. Most of them are not entirely new. What is new is the relative importance of non-military spheres of conflict in comparison to the direct use of armed forces.

4) Over the last years, the US-China competition has become increasingly fierce, encompassing areas such as trade, technology, geopolitical influence, capital flows, culture, and the military buildup.

Apart from the economic dimension, there are at least two more elements of this conflict that deserve a closer examination. For one, the low probability of a direct military engagement means that there will be more indirect warfare. This might occur through cyber attacks that mess up manufacturing facilities and financial markets, wreaking havoc on global economic development.

Chemical and biological warfare is an even less pleasant perspective of what might come next. The COVID-19 pandemic might well be a natural disaster (though we’re unlikely to now for sure anytime soon). At any rate, it illustrates impressively the chaos that could arise if great powers decide to fight a war instead of competing in a less aggressive fashion.

Cultural influence is yet another area you need to bear in mind in this complex global game. The power of Hollywood and Netflix is an unparalleled competitive advantage for the United States. The Chinese—or anybody else for that matter—might be successful in introducing apps like TikTok, but they can’t compete with the appeal and pervasiveness of the US popular culture, and the paramount position of English as the world’s most important language.

This might change in the future, but it will take a long time, and when it finally happens, we might be living in a Matrix-like world ruled by supercomputers, converge towards the Singularity, be overtaken by aliens, or God knows what.

For the time being, American cultural industry will remain a hugely influential factor in world affairs, even though its importance is likely to decrease.

5) The current US-China rivalry helps explain many fundamentals that shape international politics and global economy. The crux is, though, that the current transformation is moving the world in a direction where middle-sized countries play an increasingly important role.

As opposed to the Cold War, when the conflict between the two superpowers determined most of what was going on the world stage, today regional actors can often play an independent role, and occasionally even set their own agenda that outweighs the great powers’ policies.

The game has become extremely complicated. If you want to have an accurate picture of what’s going on, it’s not enough to understand what the United States and China are up to—which is to say that in addition to the general framework determined by Washington and Beijing you need to develop “secondary frameworks” that help understand regional dynamics.

In this context, the existence of international organizations like the United Nations introduces an interesting nuance to global affairs. Although the establishment of the UN in 1945 didn’t create a peaceful world order, it helped build awareness that middle-sized and small countries have legitimate rights.

This doesn’t mean that these countries are safe from foreign intervention, as the United States, Russia, and to a lesser degree China and other regional powers, have shown on several occasions. Power remains power if you can get away with it.

On the other hand, a widely accepted forum where the small and weak can make themselves be heard gives them at least some leverage against the great powers. So, before we declare the United Nation to be useless, it might be a good idea to pause and reconsider.

On top of that, the veto power of the five permanent members of the UN security council (USA, Russia, China, UK, France) acts like a brake for plans that are clearly unacceptable to one of them. Though it’s a very deficient and unfair brake system, it’s still better than none.

6) Like the UN, the global order that arose after the World War II was far from perfect, but it had a clear set of rules, written and unwritten, that made interactions between countries manageable. Such a situation is, however, rather unusual in international politics.

After the demise of the Soviet Union, many bright people thought that the world was about to enter the liberal and capitalistic paradise. In the meantime, it has become evident that power cycles are much more durable than any Enlightenment-inspired scholar or politician would have it.

In history there’s no such thing as permanent winners and losers. And when the next season begins, nobody cares whether you won championships in previous years. The game goes on, and it will do so until some major environmental disaster will force us leave the planet Earth.

7) As nobody knows if and when the next Deluge is going to happen, it might make sense to remember that even though power cycles are inherent to global affairs, the way in which empires rise and fall has changed over time.

After the Napoleonic Wars in the early 19th century, most armed conflicts in Europe were rather short. Then World War I happened, and everybody who thought that splendid little wars were possible had to realize that modern times bring about circumstances that make warfare much more costly and destructive than anything humanity was used to until then.

Once the atomic bomb was invented this became even more obvious, which is why in 1947 George F. Kennan, in his famous Long Telegram from Moscow, advised the US government to prepare for the long run if they wanted to win the tug-of-war against the Soviet Union.

Today, being a marathon runner rather than a sprinter is even more important if you want to gain the upper hand in international competition. To keep your show on the road, armed guards are necessary but not sufficient, especially if the showrunner and the production team stick to an outdated script, in which the good guys are supposed to prevail over the bad ones.

It might work for a while, but unless you learn how to handle multi-layered non-linear narratives, sooner or later the audience will switch to another network, or get lost on social media and in the metaverse. They will be right to do so. After all, that’s the beauty of free competition.

You say you want to have an empire and are really serious about being great and influential? Then step up your game.

Wealth and opportunity gap

The Origins of Wealth and Opportunity Gaps, and a Possible Way Out

Posted on by gennadi.kneper
Wealth and opportunity gap

1) If you grew up in late 1980s and early 1990s like me, you certainly remember ALF—the furry irreverent extraterrestrial featured in the NBC sitcom of the same name. At the beginning of the show, ALF crash-lands in the garage of the suburban middle-class Tanner family, who lives in the San Fernando Valley and gives him shelter for the next four years.

One of the most interesting things about the sitcom, apart from its lighthearted humor and hilarious gags, is the way in which it shows American suburbia. Coming from another planet, ALF soon learns to appreciate the charm of the late eighties consumer society, where almost everything can be ordered on the phone and delivered right away.

Even more important, the series allowed an unusual glimpse of the everyday life of the American middle-class that was increasingly getting squeezed during the Reagan and Bush Senior years.

There was less money and less security, and when ALF accumulated $6000 gambling debt, the Tanners had to struggle quite a bit to pay it off. In the series, loss of social status didn’t come across as a real danger, but it was looming on the horizon. Thirty years later the horizon has been reached.

2) Wealth and opportunity gaps in the present-day world is a real issue. In his book about the changing world order, Ray Dalio, like many other astute observers, argues that large differences in wealth distribution tend to lead to internal political divisions, oftentimes causing major social and political conflicts.

On a very general level, there’s little you can object to that. Unfortunately, Ray Dalio remains pretty vague on this subject. As opposed to the analysis of money and debt cycle and the factors responsible for the success of great powers he refers to the wealth and opportunity gap rather fleetingly (though it’s true that he has written somewhere else about why and how capitalism needs to be reformed).

At any rate, social policy and equal opportunity seem to be important enough to have a closer look at it.

3) When talking about wealth, opportunity and values, Ray Dalio contrasts what happened in the US and the UK during the 1930s with what was going on in Germany and Japan at the same time. However, he largely fails to do the same for the time after 1945.

If you want to understand what is happening now, a close comparative look at the last thirty years of the 20th century might be helpful. This period is widely referred to as the Age of Neoliberalism. The history of the idea itself is extremely insightful, but for our purposes here we’ll focus on how it found its way into politics and what kind of impact it made there.

To cut the long story short: in the 1970s, when many Western countries were in deep economic distress, several free-market scholars suggested that the socially-minded economic policies applied for forty years in the wake of Roosevelt’s New Deal were responsible for the problems governments were increasingly facing. They also offered a solution, which basically consisted in deregulation and tax cuts.

Whether their analysis and the measures proposed were accurate is debatable. The point is that these guys had a clear idea about what to do, and were successful in convincing politicians to listen to them.

But here comes the surprise: in some countries neoliberal politics were extreme, in others they were moderate. Sure enough, the outcomes were not the same.

4) While Ronald Reagan in the US and Margaret Thatcher in the UK interpreted neoliberal prescriptions in a radical manner, politicians in capitalist West Germany made rather careful adjustments that allowed to refloat the economy without compromising social security, union power and domestic manufacturing.

Present-day debates about the legacy of Reagonomics and Thatcherism tend to be lopsided. While Marxist-inspired scholars like David Harvey consider economic egoism fostered by neoliberalism as absolutely pernicious for public interest, free-market radicals from organizations like the Cato Institute and Mercatus Center praise this policy highly for creating economic growth.

If you look at it in a less passionate manner, you’ll realize that it’s difficult to come to a definite conclusion about the value of neoliberal prescriptions. The comparison between the UK and West Germany suggests, however, that many decisions made by Margaret Thatcher were not predicated on their economic effectiveness, but rather ideologically motivated.

5) The same goes for the politics of the Reagan administration. Now, it is true that in the face of the Soviet Union, which seemed still very powerful in the early 1980s, the US had to come up with an effective solution for its economic problems. It is also true that neoliberalism allowed to reach this goal and to shoulder significant increases in military spending, which arguably contributed to the demise of the Soviet Union.

In other words, reinforcing an economic and social climate where moneymaking was easy and laudable might have been justified at that point. You could see it as the price that had to be paid for winning the Cold War.

But once this goal had been accomplished, nobody thought about rebalancing the economy and society. And why should they? After all, communism was gone. The unravelling of the Soviet Union seemed to prove the case for an approach in which profit seeking was considered the single most important factor in human relations, and everything else was thought to be a derivative of it.

6) In the long run, the hidden costs of that approach have proven to be immense. A part of them is six feet two inches (188 cm) tall and is called Donald Trump. The rise of populism is, as the economic historian Barry Eichengreen has argued, a pretty common political response to economic hardship and social turmoil.

It is then no wonder that in an increasingly chaotic world with growing wealth and opportunity gaps, populist leaders have been winning elections and putting their ideas into practice. Their political activity spans the globe, and is unlikely to come to an end any time soon, even though occasional electoral defeats show that the populist surge isn’t invincible.

Ray Dalio is well aware of this particular dynamic. But the way he puts it, you might think that economic policies swing between different extremes in a cyclical and basically uncontrollable manner, like “the width of ties and the lengths of skirts.” It is, however, difficult to argue that there are apparel companies, designers and trendsetters who have a strong influence on what becomes fashionable, even though they don’t control it fully. This is also true for large-scale economic and social policies.

Neoliberalism was not a coincidence or a cyclical phenomenon, but a conscious choice of policymakers, which means that they are at least partially responsible for the rift in wealth distribution, political polarization and the lack of equal opportunity.

The huge debt the US government incurred in the 1980s, its massive tax cuts and loosening control over financial markets are elements of a deliberate policy that put up with paying a high price to achieve its goals.

To be sure, deregulation started before Reagan was elected, and went on long after he was out of office. A part of Ray Dalio’s success as an investor is closely connected to this lax legislation. And while it would be too easy to decry unrestrained speculation with financial assets as the root of all evil, it makes sense to ask to what extent the current wealth and opportunity gaps result from calculated decisions to leave the markets largely unregulated.

7) Add to that the digital revolution, the lack of a rival communist superpower that would make you pay more attention to your poor, and the increasing competition from the developing countries where people are willing to work hard for little money—and you’ve got the perfect storm.

Smart observers have long realized the self-destructive potential of unrestrained markets. The problem is that there’s no quick fix for the wealth, opportunity, value and political gaps of the last years. Neither is there an easy solution for reducing the immense load of public and private liabilities accumulated over decades. Unlike ALF, the US government has no spaceship it can lease to a set decorator of a science-fiction movie in order to repay its debt.

As a shipwrecked entrepreneur, you have of course the option to move to your Mom’s basement, eat rice and beans, and work your way back to sound economic condition. But what would happen to a country that would have to do exactly that?

The dollar - still a global reserve currency

Money, Debt, Cycles, and the Historical Reasons for the Upcoming Dollar Erosion

Posted on by gennadi.kneper

The dollar - still a global reserve currency

1) Remember Gordon Gekko? Right, the outrageous, unrestrained, insatiable corporate-finance shark from Oliver Stone’s 1987 movie Wall Street. This guy, played by Michael Douglas, was manipulative, greedy and tough, enough so as to get up before sunrise and call up his young would-be partner to remind him that “money never sleeps.”

While immoral in his financial behavior, Gekko was one hundred percent right about how money works. It never rests, it always flows, from one place to another. Like the blood in the human body it ensures that the world economic system receives its “oxygen.” Like it or not, money makes exchange easy and offers a handy way to store wealth.

2) In his recent analysis of the changing world order, Ray Dalio has reflected on money, debt, and capital market cycles throughout history. From his point of view, cyclical development is typical of most areas of life. In other words, things that happened in the past will probably occur again in the future. Speaking of economy, this means that we can learn about the crises to come by studying the disasters of the past.

Ray Dalio is of course not the first to notice that there is such a thing as economic cycles. Though he doesn’t mention any economist in particular, it’s very likely that his ideas are based not only on his vast experience as an investor, but also draw on research carried out by scholars such as Irving Fisher, John Maynard Keynes, and Joseph Schumpeter, who studied the dynamics of debt, economic growth, and technological innovation.

What makes Ray Dalio’s outlook so special is the fact that he is not a scholar, but a hedge fund manager who analyzes long-term money and debt cycles in order to come to practical conclusions that could help him with his investments.

3) The examples Ray Dalio uses are related to the development of capitalism in the North Atlantic area beginning in the 17th century. One of his main concerns is the fate of three major reserve currencies, the Dutch guilder, the British pound, and the US dollar.

Looking at what happened to the guilder and the pound, which used to be widely accepted around the world for transactions and savings, and then lost their importance, he comes to the conclusion that the US dollar might be going the same way in the future—with profound implications for global capital markets.

Another of his historical comparisons has to do with the dramatic changes in monetary policy of the Federal Reserve that occurred in March 1933 under Franklin D. Roosevelt and in August 1971 under Richard Nixon. By defaulting on the government’s promise that people could turn in their money for gold, both presidents were able to ease the pressure on the US economy. As a consequence, the dollar lost part of its value, while the stock market soared.

Looking at these examples, Ray Dalio suggests that the recession of 2008 (and possibly that of 2020) has essentially obeyed the same mechanics. But is he right?

4) As you might have figured, the answer is yes and no at the same time. Ray Dalio certainly has a point when he talks about similarities in short-term consequences of the dollar devaluation. If the value of money is decreasing, people tend to look for other assets, be it securities or real estate. It’s also true that the discussed decisions of the US government had some positive effect on economic growth.

What Ray Dalio’s analysis fails to take into account are the differences between the situations he reflects upon. There are quite a lot of them. Here are just a few examples.

– As opposed to 1971 and 2008, the US dollar was not a global reserve currency in 1933.

– Roosevelt had to face the challenge of more than three years of harsh economic depression and aimed to fight deflation. Nixon, on the other hand, wanted to counter inflation, and secure America’s exorbitant privilege of controlling the world’s major reserve currency.

– In 2008 governments throughout the world acted very quickly to prevent the Great Depression scenario. The measures taken to provide cheap money and credit and support the economy seemed to help in the short run. But what about further consequences?

5) This is a point where Ray Dalio’s analysis doesn’t go far enough. If you look at the medium-term repercussions of government policies in 1933, 1971 and 2008, you’ll see that they were not the same.

In 1933, the government-induced dollar devaluation was part of a much bigger package of measures that created a whole new framework for the US economy, several parts of which are still effective. Even more important, six years later World War II started, the economy changed even stronger, and in 1945, after the war ended, the world economic system underwent a radical change.

The so-called Nixon shock in 1971 was a good deal for the president, who was re-elected with a vast majority one year later. But economically speaking, the 1970s are remembered as a time of high unemployment and uncontrolled inflation, partially caused by the 1973 oil crisis. Then Paul Volcker became the Federal Reserve chairman and raised the interest rates to 20 percent to curb inflation. And at some point in the 1980s Reagonomics began.

Finally, in 2008 the Federal Reserve, the European Central Bank, and the Bank of Japan drove interest rates under any imaginable threshold and kept buying government debt until they were up to their ears in it. It seemed to work. For more than a decade the economy was growing, start-ups run by 20-year-old college dropouts were raising cheap money, Donald Trump was about to be re-elected. Then the COVID-19 pandemic came along and all went down the drain.

6) In other words, the medium-term implications of government policies applied in 1933, 1971, and 2008 don’t have much in common. As I mentioned in a previous post, the number of factors that influence the outcome of any given historical situation is very high. And so, there’s little wonder that the results were different.

Ray Dalio’s point is that the long-term analysis of money and debt cycles enables him to anticipate the direction in which the economy will go. He actually claims that this perspective allowed his company to weather the storm in 2008.

If you look at their numbers, he must be right (though it worked much less for them during the pandemic). My point, however, is that knowing the overall direction might not be enough. Neither is focusing on money and debt. In our current economy capital markets are probably the single most important driver. But you also have to look at manufacturing cycles, disruptive technology, the environment, the demographics, the pandemics and, yes, the big politics.

To be sure, I’m not in the least as knowledgeable in financial investments as Ray Dalio. I suppose that even though his analysis of long-term economic patterns isn’t 100 percent accurate, it’s fair enough for a good bet on the stock market or wherever else he decides to put his money into. After all, that’s what a hedge fund manager is supposed to know how to do.

Ray Dalio’s recipe for these turbulent times is diversification. I guess he’s right, though history can always surprise us.

7) Last but not least, there is his prediction about the impending demise of the US dollar as the world’s most important reserve currency. In this case, the question is not whether it will happen, but rather how and when. Some people at the International Monetary Fund suggest that a “stealth erosion of dollar dominance” has already started.

In the 17th century, the Dutch guilder was pushed aside after a series of lost wars. The British won both World Wars in the 20th century, but were too depleted to hold up the pound’s paramount position in the global capital market. What will it take to keep the US dollar where it is after all the upheaval in international politics in 2022?

While you muse on it, you might be interested to have a look at what one of the “Founding Fathers” of the long-term economic analysis Nikolai Kondratiev had to say about cycles.

And don’t forget: Money never sleeps, pal.

All You Should Know about the Changing World Order

Posted on by gennadi.kneper

The Changing World Order

May you live in interesting times

(an allegedly Chinese saying, in fact not Chinese at all)

1) We live in extremely interesting times. The world order around us is changing quickly and profoundly. The COVID-19 pandemic and the recent Ukraine crisis are just two most talked-about elements of larger transformations that are taking place on our planet.

These transformations are both fascinating and full of risk. Understanding them is therefore the first step to riding the wave without drowning in the stormy sea.

2) Recently, the hedge-fund manager Ray Dalio has published a highly insightful take on the changes that are occurring in the world, as a book and as a Youtube video. From his vantage point as the proverbial Yankee up in capitalist Connecticut, he has suggested a framework that can help understand why great powers rise and fall, and what can be done to stop the decline.

While these ideas are not nearly as humorous as Mark Twain’s novel, they can compete with the ingenuity of its approach. There is no doubt, that Ray Dalio has a point. However, there are also parts of his reasoning that are not quite exact.

What do I mean by that?

3) At the beginning of his book, Ray Dalio suggests that you can’t focus on the details to see the big picture. He is of course right, but also wrong on that account – because the devil is in the detail. And while his model is sound on the whole, there are several aspects of it that deserve a closer look.

As an experienced investor, actually one of the best of his kind, Ray Dalio approaches problems from the economic perspective and tries to elaborate general models that will work under all circumstances. There’s nothing particularly wrong about this approach, but just like any angle it has its limitations.

4) Unlike economic models, history is full of exceptions and irregularity. The sheer amount of actors and factors is so big that it makes any accurate prediction extremely difficult. The comparisons Ray Dalio draws between different historical situations that are similar to our own are striking. But what about the differences?

I’m confident that they are at least as important as the features these situations have in common. If we want to get the right picture, we should pay at least some attention to them.

According to Ray Dalio, there are three big cycles (money and debt; internal order; international order) and eighteen key drivers that explain the rise and fall of great powers.

5) In the following weeks I will have a closer look at these cycles and key drivers. I will stress test them against historical evidence and other perspectives in order to see where Ray Dalio is right and where he is wrong.

History doesn’t repeat itself, but it rhymes. Even though Mark Twain actually never said that, it certainly makes good sense. Given that, it might be worth learning how to rhyme elegantly.

Next week we’ll be starting with the money and debt cycle. In the meantime, you might be interested in taking a look at this.

Negotiation, War and Peace

Back to the future? What history tells us about the Russian-Ukrainian conflict and the world of the coming decades

Posted on by gennadi.kneper

Negotiation, War and Peace

1) Since the beginning of the armed conflict between Russia and Ukraine in February 2022, both sides have referred to the enemy’s allegedly fascist nature, striving to frame the opponent’s actions as manifestations of the destructive and ruthless spirit displayed during the Second World War. In many respects, however, the war we are witnessing in Ukraine is more reminiscent of the wars of the long nineteenth century.

Taking a look at some of these wars can help us better understand what is happening now. Like many nineteenth-century disputes, the current conflict is marked by issues related to state independence, national identity, and rivalry among the great powers (and not so much by the extreme ideologies and totalitarian systems that set the context of the Second World War).

2) In the nineteenth century, the willingness to employ military force to achieve strategic and tactical goals was part of the political repertoire of any European and North American government. Its widespread use could be observed both in international and in internal conflicts. Italian unification in the mid-nineteenth century was accomplished through a series of armed uprisings, local revolutions and interstate wars. Apart from the Italians themselves, the French Empire of Napoleon III and the Austrian Empire of the Habsburgs intervened heavily to shape the outcome of the unification process in their favor.

In a similar way, the creation of the German Empire was the result of the complicated diplomatic and military game run by Otto von Bismarck in his role as head of the government of the Kingdom of Prussia. His political credo, known as Realpolitik, was based on the level-headed calculation of state interests and the deliberate use of armed force. Prussian victories against the Habsburgs in 1866 and Napoleon III in 1870 paved the way for the foundation of a German state governed from Berlin. Indirectly, they created highly a conflictive and messy European order that was conducive to the start of the First World War.

3) Further east, the Russian-Turkish rivalry led to numerous wars between the two empires. Between 1853 and 1856 the Ottoman Empire, allied with France, the United Kingdom and the Kingdom of Sardinia, defeated the Russians in the Crimean War. A quarter of a century later, the modernized Russian Empire conducted an extensive and successful military campaign, which forced the Ottoman Empire to recognize Romania, Bulgaria, Serbia and Montenegro as independent states.

In the Russian Empire itself, the Tsarist government had to face two Polish uprisings (1830 and 1863), which partially took place in the territories of present-day Belarus and western Ukraine. Here, complex identity issues clashed with disagreements over regional self-government, which peaked in secessionist demands from the Poles, who wanted to re-establish their own independent state. In both cases, the Russian Empire succeeded in defeating the insurgents, albeit with great difficulty and extensive use of military force.

Russian elites were not the only ones to face secessionist challenges and unresolved identity issues. In the US, socio-economic contradictions between North and South led to a bloody civil war (1861-1865). Meanwhile, the British Empire failed to accommodate the interests of the Irish within its constitutional system. When after several decades of unsuccessful attempts it became clear that home rule would not be achieved peacefully, the Irish started a bloody guerrilla war against the British (1919-1921), which ended in the division of the Emerald Isle and led to violent outbreaks until 1998.

4) At the beginning of the twenty-first century many Europeans have forgotten the extent to which the history of their own continent is marked by armed conflicts. Precisely for this reason, the war between Russia and Ukraine, which contains several elements of the conflicts mentioned above, has such a devastating psychological effect. Today, the existence of vast nuclear arsenals makes another world war an event with a prohibitive cost and disastrous consequences. Smaller-scale armed conflicts are, however, not only possible, but likely. The elites in the US, Russia and China know this. It is high time that it was understood in Europe as well.

The way out of this blind alley, as always, involves long and tedious negotiations with difficult compromises, which will leave all those implicated relatively dissatisfied. But given the possibility of continuous wars, creating an imperfect but functional order that would take into account the concerns of all the countries of the continent, including Russia and Turkey, is undoubtedly a better alternative.

Understanding the Ukrainian crisis: a talk at the UPF Barcelona

Posted on by gennadi.kneper

For all Spanish speakers: Recently, I’ve had the honor to participate in a talk about “The Ukraine catastrophe. Russia and the West,” together with the diplomat Eugeni Bregolat, the journalist Rafael Poch, and professor Tamara Djermanovic. During the event at the Universitat Pompeu Fabra in Barclona we discussed the keys to the conflict and the repercussions it will have on the global order. Click the video link below to learn more!

NFT Blockchain Art

What NFTs Teach Us about Humans, Art and Capitalism

Posted on by gennadi.kneper
NFT Blockchain Art
NFTs: Culture going digital, or is it? (Pic by Karthik GL)

1) Before I start, let me tell you a quick personal story. Some years ago, when I just finished my PhD project and wasn’t sure where to go next, I decided to try myself as a community manager for a medium-sized company. The offer they made wasn’t very well-paying, but I was short of money, and also curious to learn how the media environment I had studied as an undergrad has changed in the meantime. And so I said yes.

It turned out, that I had to catch up quite a bit. Mobile communication and web 2.0 were not the kind of species I knew how to deal with. This meant that I needed to learn quickly, and that was the moment when I came across Gary Vaynerchuk (aka garyvee). I read a couple of his books and watched his Youtube videos to get steeped in the new digital lingo. It worked quite well: from what I can tell, my bosses were satisfied with my performance, and when I left back for academia two years later, I was much more knowledgeable about the disruptive digital world.

2) Why am I telling you this? Reason number one: Gary Vaynerchuk is one of few people in the social media circus who reminds you constantly that a significant part of his success stems from studying history. Reason number two: recently, he has moved heavily into NFTs. And while no-one knows if and how this technology will change our way to live on this planet, it seems to be an interesting case of study to understand how lifestyles, production, and consumption evolve over time.

Just in case you don’t know what NFTs are: the acronym stands for “non-fungible token,” which is basically an (almost) unhackable computer code you can attach to a piece of art, music, film, or any other item that exists in the digital world. By connecting an NFT to a digital product, you create a proof of its authenticity and uniqueness. This is great news for all digital artists out there. Now it doesn’t matter how often people copy the meme or the video game you created. If you own the corresponding NFTs, you’re considered as their author and can sell the rights for your idea to whoever you want.

This is copyright’s Second Coming, but NFTs are actually much more than that. They create a new contractual infrastructure, which can be used for any kind of agreements between people and organizations. Since our today’s lives are already extremely connected to digital experiences, it is very likely that digital technologies like NFTs will be in high demand in the future.

3) In other words, it looks like the rules of the game are about to be rewritten again. In the first quarter of 2021, NFTs accounted for about 10 percent of worldwide art market revenue. If you think that most of the digital items sold are worth nothing, you’re probably right. But this might also be true for 99 percent of the art purchased at Christie’s and Sotheby’s, no matter if conventional or digital. After all, the value of a piece of art lies, more than anything else, in the eye of the beholder – and the community he or she belongs to.

This is by the way nothing new. Back in the 1930s, few years before he lost his life while fleeing from the Nazis, the German philosopher Walter Benjamin wrote an essay about The Work of Art in the Age of Mechanical Reproduction. One of his key ideas was that in modern times art is not what it used to be in the Ancient world or in the Middle Ages. Back then it was all about uniqueness, restricted access, and physical experience, which created a special aura and cult value.

The invention of photography and cinema made technological reproduction of a work of art easy and inexpensive. Cult and aura vanished, and instead of them the exhibition value became the main criterion to establish the significance of a piece of art. The number of people who watch a movie is an indicator of its cultural importance, even though it doesn’t necessarily mean that it’s a high-quality product.

4) In the digital age, the effects of low-cost mass reproduction have become even more pervasive. Copying, remixing, sampling – you name it – are so simple that anyone can do it at almost zero cost. Moreover, you have the opportunity to spread your creations easily among the people, even though large-scale distribution is more difficult to pull off and still requires considerable resources.

For the last decade, we’ve been flooded with other people’s creative output on the internet: funny and sad, subtle and tasteless, but most frequently trivial and irrelevant. Here’s where NFTs come in. By re-establishing the notion of uniqueness they allow us to bring some order into the chaotic world of digital interactions. And if there’s something we’ve learned from history, than it’s the idea that humans need order to get things done.

It’s all about social agreements. Sure, you can copy a JPEG, print it out in high quality, and enjoy looking at it at home. But if there are enough people who think that only the JPEG with an NFT attached is the real thing, then your JPEG doesn’t carry the same meaning, which is to say: you won’t get from your JPEG what you’d get from the NFT-connected JPEG.

Since NFTs can be owned collectively, people who hold a share on an NFT become something like an exclusive club. If it sounds too stuck-up for you, think of urban tribes of rockers, skaters, punks – they are exclusive, too. No matter if upper-class or subcultural, communities are about belonging and shared experiences that are inaccessible for outsiders.

5) In a way, NFTs bring us back to the pre-modern world of artistic experience Walter Benjamin was talking about. The mystical aura might have gone forever, but the restricted access to, and the physical experience of, something unique still matter. At the same time, NFTs reinforce the tendency of considering culture as an economic asset.

In many respects, this is a consequence of us living in a largely capitalistic society. Societies that value co-operation over competition are less prone to think about protecting intellectual property (aka great ideas) and creating artificial scarcity.

The financialization of culture, which is what NFTs could possibly be doing over the next thirty years, is just another piece of human existence in the age of surveillance capitalism. Don’t be misguided: big corporations will have big say in how NFTs will evolve. But you might have an opportunity, too.

It would be a mistake to forget that humans haven’t changed much in the last couple of hundred years. Technologically, we’re in the skies with diamonds, but deep inside we still seem to think in terms of the Stone Age. No matter how abundant our world has become recently for many, it’s hard to believe that it won’t go away some day. And so, NFTs make perfect sense for the time being.

However, as Walter Benjamin remarked, human perception is “determined not only by Nature, but by historical circumstances, as well,” which is to say: it’s up to us to decide where we go from here. Just make your bets, and let them be long-term.