What does it take to be an empire?

What It Takes To Be an Empire in a Changing World

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.

All You Should Know about the Changing World Order

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.

NFT Blockchain Art

What NFTs Teach Us about Humans, Art and Capitalism

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.