Politics, et Cetera
A publication from The Political Forum, LLC
Tuesday, May 3, 2016
They Said It:
The problem of technology is not exactly new. Restless innovation has been central to the American way of life from the beginning; the “rage for the new” is a deep-rooted part of the American character; and the resulting technological achievements have been both indisputable and impressive. At the same time, the disruptions of progress have always caused many to lament the arrival of the “machine in the garden” or the microscope in the womb. On both the left and the right, many have worried that we might become too confident in our power over nature, too narrow in our aspiration for “improvement,” and increasingly blind to the goodness of things not entirely of our own making. Moreover, the fear that our way of life might be destroyed in an instant, from afar, with little warning, is at least as old as the first atomic explosion, and was sustained for many decades amid the “mutually assured destruction” of the Cold War. When it comes to the dilemmas of technology, we are not exactly innocent, even if we are just emerging from a decade of adolescent optimism.
The problem of technology cannot be separated from the character of human life as a whole. Technological problems — from broken machines to bad computer code to medications with side effects — can often be fixed with technological solutions. But the problem of technology — our mixed and complicated technological condition — is here to stay. Living well with this condition often requires developing new and better technologies, and we should all be thankful that America produces and nourishes many brilliant and inventive minds. But the practical gifts of the technologist and the empirical knowledge of modern science provide little help in discerning when to mobilize, when to pause, when to retreat, and when to tolerate particular technological ends or means. This requires, instead, some idea of what the good life and the good society look like, some idea of the distinct virtues and limitations of one’s own society, and some sense of the permanent limitations of human beings in all places and all times. Indeed, it is not the belief in Progress that should bind us most forcefully to the technological project, but the permanence of human imperfection, folly, and evil, which often makes developing new technologies a moral imperative.
Eric Cohen, “The New Politics of Technology,” The New Atlantis, Number 1, Spring 2003.
THE WORLD’S MOST DISRUPTIVE INNOVATION?
When most tech analysts and observers talk about “disruptive” innovation or disruptive technology, what they have in mind is “high” technology, which is to say cutting edge innovations in electronics and biology. Computing, software, biotech, robotics, nanotechnology, communications, are but a few examples of the types of technology that most people – and especially most people in our business – tend to think of as “disruptive.”
This makes perfect sense, of course, since most of these technologies are, indeed, disruptive or, at least, potentially disruptive. They can change the world. They can change our lives. They can change economies and markets, making small companies powerful, large companies near omnipotent, and altering the relationships between them and between them and their customers. The average low-to middle-class person today lives like the royalty of yesterday, and has access to more information than was stored only in the greatest of libraries less than half-a-century ago. And it’s all thanks in large part to the high tech revolution. And it’s only just beginning. As Paul Salomi, CFO of Deloitte recently put it:
Technology is the backbone of the digital economy. The rate of change and the level of disruption driven by modern technology are exponential. Advancements in computer processing power, data storage and chip design; the ubiquity of bandwidth; enterprise mobility; and many other developments that have unfolded in recent years are enabling myriad opportunities that were once impossible, both technologically and economically.
Now, we have reached a tipping point where cognitive computing, big data analytics, cloud computing and the rapidly growing Internet of Things (IoT) are transforming businesses around the globe — including those outside the technology sector. We’re also seeing promising advancements in materials, software, fabrication techniques and machine design that are likely to lead to an expansion in enterprise applications for additive manufacturing (3D printing).
For some people, this high tech revolution has morphed into something of a political revolution in the form of new ideology of sorts that we will call “poli-tech idealism.” Speaking at the 2015 Consumer Electronic Show, Ben Bajarin, partner at Creative Strategies and Tech.pinions co-founder, insisted that “When smartphones get the next two billion people online, it will be like what the Gutenberg Press and the Bible were to the masses in the Middle Ages . . . Imagine what might happen if North Koreans got access to a smartphone and, with it, broad access to information.” More recently, over the weekend, we read a piece by Mikhail Fridman, the chairman of LetterOne, a privately owned international investment business headquartered in Luxembourg. Fridman, like Bajarin and countless others thinks that high tech revolution is the most powerful and uncompromising force in shaping the world today. Fridman put it this way:
We are entering a disruptive era driven by extraordinary levels of human creativity. A new generation of curious, strong-willed and talented individuals is unhindered by convention or the past. This new “Indigo” generation is now shaping tomorrow’s economy and creating national wealth. I use the term Indigo because it has been used to refer to children with special or unusual abilities. This is an era where abnormally talented individuals and entities are now able to realize new levels of human potential and economic achievement. . . .
The main source of national wealth is not the resource rent but the social infrastructure that allows every person to realize his or her intellectual and creative potential. It is for this reason that Exxon, once the world’s largest company, has been overtaken by Apple and Google. This represents a paradigm shift in which creative, non-linear thinking and random ideas are turned into new scalable services in a short space of time.
World-leading firms such as Apple and Google have introduced revolutionary changes in business through innovation. So let’s call them Indigo companies. . . .
The global digital world already exists, and the Internet and cellular networks are reaching the most remote corners of the world.
We know from biology that human intelligence, talent and creativity exist everywhere and are equally distributed among all nations and races. Good education is not available everywhere, but all large developing countries have serious universities. Moreover, people from these countries have a chance to study abroad or take online courses provided by the world’s best universities.
He goes on in this same vein for some time, arguing – correctly – that the rule of law and protection of property rights are among the most important factors that distinguish the developed world from the developing world. In the West, we at least still pay lip service to the concepts, while the developing world doesn’t have even the basics. And this matters, as Fridman says.
Unfortunately, much of the rest of what Fridman says is not quite as insightful. For example, he seems to think that the “indigo” countries and companies will remain so indefinitely, that once the rule of law and property rights have been asserted and implemented, that there is no going back, that they will remain so forever. This is a dangerous miscalculation/misunderstanding of human events, one which most “indigo companies” seem to grasp, even if Fridman doesn’t.
In the administrative state, the best friend a successful and massively powerful indigo company can have is the administrative apparatus. The corporatist narrative is intoxicating, even to indigo companies, and they try their very best to use the power of the state to stifle and inhibit innovation as ruthlessly and as effectively as any third world potentate. The rule of law and property rights were hard won over millennia of struggle. The forces that forged them, however, that propelled the struggle are lost in contemporary Western society. The administrative state is far more likely the transitional position between a free and unfree economy than it is the end state of the former.
More to the point, Fridman seems to believe that the world has been so transformed by disruptive innovation that absolutely none of the old paradigms are relevant. “Over thousands of years,” Fridman writes, “human history has been defined by the struggle for access to natural resources, or to put it simply, for land that contains those resources.” But the indigo economy has changed all that, apparently. “Oil and gas was the last bastion of these bottlenecks and it too has crumbled, thanks to Indigo economies,” Fridman concludes.
Now, to be perfectly honest with you, we have no idea what Fridman means by this. Given the context of his piece and the broader point he seems to be making about how natural resources just don’t matter that much anymore, we’d guess that he thinks that the indigo economies can overcome anything and that natural resource shortages are no big deal. It is possible, however, that what he means here is that part of the indigo economy is the development of technology that helps enable the more efficient and previously unimagined recovery of natural resources. If he means the latter, he doesn’t say so specifically, perhaps a casualty of not being raised an English-speaker or of the editing process. Nevertheless, if he does indeed mean that, then he is absolutely right and should make a FAR bigger point of saying so.
You see, we’ve spent a great deal of time over the last 18 months or so watching the oil bubble pop and examining the geopolitical ramifications. And we have, over that period, come to a conclusion: the single most disruptive innovation in the last, say, quarter century is not the internet; it’s not mobile computing and communication; it’s not virtual private networks or 3D printing. It is, rather, hydraulic fracturing, or “fracking” for short.
We know, of course, that fracking is much older than a quarter century, that the process was actually developed in the late 1940s. At the same time, we also know that it was mostly impractical on a massive scale until the early part of this century, when improvements in drilling and well completion changed all that. And what a change it was.
In some circles of American politics shale fracking is considered a crime against nature. Of course, the denizens of these circles are what we like to call “insane.” Last April (2015) was the first month EVER that electricity generated by natural gas – produced in part by fracking – surpassed electricity generated by coal. Natural gas, of course, is far cleaner burning than coal, which is to say that any progress the United States is making on emissions control is, in large part, a result of fracking. According to the Energy Information Administration (EIA), 2016 will be the year that gas-produced electricity surpasses coal-produced electricity on a year-over-year basis. This is ENORMOUS environmental news, enormous environmental progress. Not that any of that will stop the neo-Luddites masquerading as environmentalists from claiming that fracking is pure evil. Bernie Sanders has, for example, has proposed to ban fracking, which is just one more reason to be thankful that he won’t be taking the presidential oath of office next January.
The fact of the matter is that fracking, while paradoxically environmentally friendly, is also incredibly disruptive and thus incredibly transformative. Just two weeks ago, the EIA reported that the United States is quite nearly a NET ENERGY PRODUCER, which means that the country is very close to producing more energy than it uses. Concomitantly, the United States is also now importing less net energy than it has in a long, long time. And to add to the good news, (or to add insult to injury for the Greens) all of this also coincides with a drop in carbon emissions. The EIA put it this way in an April 18th report:
Energy production reached a record 89 quadrillion British thermal units (Btu), equivalent to 91% of total U.S. energy consumption. Liquid fuels production drove the increase, with an 8% increase for crude oil and a 9% increase for natural gas plant liquids. Natural gas production also increased 5%. These gains more than offset a 10% decline in coal production. . . .
U.S. primary energy net imports declined for the 10th consecutive year. Imports rose 2%, but that increase was outpaced by a 6% increase in exports. Petroleum products accounted for 71% of U.S. primary energy exports. . .
After increasing in 2013 and 2014, U.S. carbon dioxide emissions from energy consumption fell by 2% in 2015. An increase in natural gas used for power generation, largely replacing coal, was the primary reason for this decrease, as natural gas is less carbon-intensive than coal.
What does all of this mean? Well, it means that the energy world has been turned completely upside down. The term “disruptive innovation” comes from a 1995 paper authored by Clayton Christensen and Joseph Bower for the Harvard Business Review. According to the authors, disruption occurs when new technology emerges but is initially rejected by customers. The technology therefore develops in small markets and slowly grows into the mainstream, thereby disrupting and displacing the conventional players. And while the authors applied their theory to businesses, it applies equally in this case to countries. American fracking was initially rejected, first because of cost and then because of environmental concerns. As the process developed, though, it became more cost effective and less environmentally disorderly, leading it, in time, into the energy-producing mainstream. And as it entered the mainstream, it became incredibly disruptive, to say the least.
None of this, we’ll concede, is especially newsworthy. People who pay attention to the energy markets have known for years that the New American Energy Boom would be incredibly disruptive and would change markets and economies dramatically. What very few considered, however, was just what that would mean in terms of geopolitics.
Everyone, we’d guess, is aware of the enormous impact that the communications technology has had and continues to have on real-time political dissent. Certainly the dictators of the world who are desperately trying to manage said dissent are aware of the power of high-tech communications – which is why they often collude with high-tech firms to ensure that communications can be stifled in an “emergency.”
The Fracking Revolution, by contrast, is beyond even the most powerful despot’s reach. There is simply nothing they can do to stop it.
Two weeks ago, the world’s 18 largest oil exporting nations met in Doha, Qatar to try to stop the bleeding caused by low oil prices – which were caused in part by the American fracking revolution. As they gathered, Bloomberg News took a look at the finances of the countries involved and almost audibly gasped at the wealth that has disappeared over the last year-and-a-half from their coffers:
The 18 nations set to gather in Doha on Sunday to discuss a production freeze have spent $315 billion of their foreign-exchange reserves — about a fifth of their total — since the oil slump started in November 2014, according to data compiled by Bloomberg. In the last three months of 2015, reserves fell nearly $54 billion, the largest quarterly drop since the crisis started . . .
“We expect 2016 to be yet another painful year for most of the oil states,” said Abhishek Deshpande, oil analyst at Natixis SA in London . . .
Saudi Arabia accounts for nearly half of the decline in foreign-exchange reserves among oil producers, with $138 billion — or 23 percent of its total — followed by Russia, Algeria, Libya and Nigeria. In the final three months of last year, Saudi Arabia burned through $38.1 billion, the biggest quarterly reduction in data going back to 1962.
Fitch Ratings on Tuesday lowered the credit rating of Saudi Arabia to AA-, following similar steps already taken by Standard & Poor’s as well as Moody’s Investors Service. Fitch said that Riyadh would face large fiscal deficits this year and a “large share of the government’s financing needs will be funded by disposing of foreign financial assets.”
The International Monetary Fund forecast that Saudi Arabia’s current-account shortfall will equal 10.2 percent of its gross domestic product this year, the most since 1998, when oil prices tumbled to $10 a barrel. Likewise, the United Arab Emirates is facing a balance of payments deficit this year for the first time since reliable statistics start in 1980, according to the IMF.
So, just to make sure we’re straight on this: Saudi Arabia is blowing through its reserves like wildfire. Russia too. And Libya. And Venezuela. Strange how we’ll shed no tears. Presumably Iran is blowing through its newly freed assets as well, although Bloomberg admits that it was unable to gather figures from every participant. And of course, Iran is a special case anyway, given its recent emergence from sanctions. Still, every little bit (of damage to the Iranian economy) helps.
And speaking of the meetings two weeks ago in Doha, how, exactly did they go? Not well, apparently. Reuters explains:
Iran argued it could not join the because it needs to regain production levels after the lifting of international sanctions. The sanctions were lifted after Iran and the group of world powers known as the P5+1 agreed on curbs to Tehran’s nuclear programme.
Saudi Arabia, which had signaled it was willing to sign the deal without Iran, surprised participants last week by asking that Iran’s invitation to the Doha talks be cancelled. Iran responded by saying it was happy not to attend.
On Sunday, however, Saudi Arabia came up with a second surprise by demanding that Iran join the freeze. Talks then fell apart after the communique could not be agreed.
“(Saudi oil minister Ali) Al-Naimi will have lost credibility with Russia and will have as well upset other OPEC and Gulf countries,” said Olivier Jakob, analyst from Petromatrix.
Sounds fun. Just for the record, we should note here that Saudi Arabia is the largest global source of funding for radical Salafist Islamic evangelism. Some members the Saudi royal family presumably played a significant role in the funding of and/or tactical preparations for 9/11, as evinced by the infamous still-redacted and still-classified pages of the government’s 9/11 report. Iran, for its part, is the world’s largest and most prolific state-sponsor of terrorism and – Barack Obama’s protestations to the contrary – an avowed enemy of the United States. Libya is a failed state and terrorist sanctuary. Russia is a failed state, global aggressor, and terrorist sanctuary. And Venezuela is a Marxist basket-case that remains anti-American in its rhetoric and foreign policy. The fact that they all had a vested interest in reaching an agreement but were completely, almost comically, incapable of doing so is perfectly fine by us. It is also indicative of a “new world order” with respect to energy production.
As we have noted countless times before in these pages, back during the Reagan administration, when the analysts at the National Security Agency wanted to hit the Soviets where it really hurt, they had the President and his diplomats appeal to Saudi Arabia to crank up oil production, thereby putting downward pressure on prices. The Saudis agreed, and the rest is history.
Today, we wouldn’t need the Saudis help to pull of the same trick. Indeed, we could play the trick on the Saudis. Because of fracking, the United States is now the world’s largest oil producer, surpassing Saudi Arabia. And because of the oil supply glut, there is still considerable capacity that can still be tapped, if the government chooses to “invest” the funds necessary to do so. The United States is a player, a BIG TIME player in energy. And there’s nothing anyone can do about it.
The entire global political calculus has changed. China can no longer threaten the American fiscal condition by threatening to denominate oil purchases in currency other than the dollar. The Americans produce the most oil in the world and they can denominate it however they damn well please. Russia can no longer play its games with oil supply. And if the Europeans learn the American fracking lesson, then Putin et al. will no longer to hold Europe hostage over natural gas. The Saudis are explicitly looking to diversify their economy. The Iranians and Venezuelans are in dire straits and are just hoping to hold on long enough for something bad to happen to the United States. Israel has begun developing its fracking capabilities and, according to some observers, holds shale reserves almost as bountiful as Saudi Arabia’s proven oil reserves. It’s a brave new world, gentle reader, and one that hydraulic fracturing created.
One more note in conclusion: all of this, we’ll remind you, has taken place IN SPITE of the current American administration’s opposition to the expansion of American fossil-fuel supplies and its preference for “renewable” alternatives. What this means is two things. First, with the possible exception of Bernie Sanders, no major presidential candidate left is stupid enough to dare to try to reverse the economic and geopolitical boon provided by fracking. Hillary Clinton may pay lip service to the green movement, but she takes money from oil producers. And while she is hardly the politician her husband was, she is also not an idiot and would therefore never dream of telling Americans that they have to go back to paying $4 a gallon for gas because the scenic beauty of North Dakota must be preserved. Fracking is here to stay, in short.
Second, as we noted above, fracking could also benefit a great deal from a little strategic thinking on the part of the government. We are generally opposed to top-down “energy plans.” We’re pretty sure that the fracking revolution has proceeded as well as it has in large part because neither the Bush nor the Obama administration was able to pass a “comprehensive” energy bill. That said, the government can help by getting out of the way a little bit and by using the tax code to encourage job-creating, energy-price-lowering industries. That’s what government does, after all.
Obviously, we’re not energy policy analysts. And even when one of us played one on TV for a now-defunct firm that shall remain nameless, we didn’t delve too deeply into economic implications of various policy proposals. We were then and remain now “big picture” guys. And the big picture in this case is that the world has changed dramatically. And it has changed because of fracking. We’re not sure if that’s an indigo industry or not, but it is one of the most disruptive technologies ever and an extraordinarily important development in the intersection between markets and politics.
HOMO HOMINI LUPUS, REDUX.
This past Sunday was, of course, May 1, also known as May Day. And as you likely know, in the late 19th century, May Day was designated by various socialists and communists as “International Workers’ Day,” a day to celebrate “labor” and its contribution to society. The Soviet Union, among others, celebrated the day lustily, parading through Red Square and showcasing the exploits and “splendor” of the “workers’ paradise.”
A few years ago, a handful of political observers decided to take May Day back from the communists. Ilya Somin, a law professor at George Washington University and part of “The Volokh Conspiracy” blog at the Washington Post, notes that he and countless others have called for the day to be commemorated as the “Victims of Communism Day.” As he put it this past Sunday, quoting a piece he wrote in 2007, “We appropriately have a Holocaust Memorial Day. It is equally appropriate to commemorate the victims of the twentieth century’s other great totalitarian tyranny. And May Day is the most fitting day to do so . . .”
Given the state of the West’s political Left, we thought it might be appropriate this week to join Somin in this commemoration. On Sunday, Britain’s hard-Left Labour leader Jeremy Corbyn addressed London’s May Day revelers, despite – or perhaps because of? – the fact that many were carrying banners with Josef Stalin’s image and hailing the “progress” of the old Soviet Union. As we have noted over the last couple of weeks, the United States, of all places, is currently flirting with the election of a self-declared socialist who honeymooned in the Soviet Union and spent a great deal of time in the company of the Sandanistas in Nicaragua. The Left is resurgent, somehow. And while no politician anywhere would ever dream of expressing his affection for those who carried banners of Hitler, it has become commonplace for Western politicians to do so for those who admire mass murderers far more prolific than Hitler could ever have dreamed of being.
In this spirit and given the fact that the West apparently could use a reminder of communism’s inevitable end result, we’ve decided to share a few excerpts from a piece we wrote nearly 20 years ago, quoting from a book about the world’s most prolific mass murders, including more than a few communists.
In a November 10, 1997 piece titled “Homo Homini Lupus,” we quoted extensively from a then-recently published book called Death by Government and written by a University of Hawaii political science professor named R.J. Rummel. “According to Rummel,” we wrote, “the 40 million war casualties of the 20th century are small potatoes when compared to the ‘almost 170 million men, women, and children [that] have been shot, beaten, tortured, knifed, burned, starved, frozen, crushed, or worked to death; buried alive, drowned, hung, bombed, or killed in any other of the myriad ways governments have inflicted death on unarmed, helpless citizens and foreigners.’”
Of those 170 million, a good chunk of them – a majority in fact – were killed by communists. Remember, as you read the following, that this list is woefully incomplete and we and Rummel had time and space to cite only the most prolific communist killers. Others, less prolific, still did their fair share of damage, but we do not name them here.
Stalin and Lenin. Together, these two were responsible for the murder of nearly 50 million people, the great majority of them citizens of the Soviet Union. Lenin was responsible for “only” four million or so of these, most of whom were slaughtered in his attempt to seize and consolidate power during and after the Revolution. He pales in comparison to Stalin. To put this in perspective, realize that Lenin is the fifth most prolific mass murderer in the history of the planet, and Stalin was 10 times his better. Rummel says this about the victims:
Some were from the wrong class – bourgeoisie, landowners, aristocrats, kulaks. Some were from the wrong nation or race – Ukrainians, Black Sea Greeks, Kalmyks, Volga Germans. Some were from the wrong political faction – Trotskyites, Mensheviks, Social Revolutionaries. Some were their sons and daughters, wives and husbands, or mothers and fathers . . . Then some were simply in the way of social progress . . . and some were eliminated because of their potential opposition, such as writers, teachers, churchmen; or the military high command . . . In fact, we have witnessed in the Soviet Union a true egalitarian social cleansing and flushing; no group of class escaped. . . .
Mao Tse-Tung: Rummel begins his discussion of the Chinese communists by noting that “cruelty and mass killing are a way of life in China.” Indeed, he says, “no other people in this century except Soviet citizens have suffered so much mass killing in cold blood as have the Chinese.” Mao himself is responsible, Rummel says, for the deaths of 37.8 million, including those he killed during his guerrilla period. Rummel says the following:
Indeed, from October 1949 to 1987, the Chinese Communist Party (CCP) probably killed more than 35.2 million of its own subjects. These were “landlords” and “rich” peasants, “counterrevolutionaries” and “bandits,” “leftists,’ “rightists,” and “capitalist roaders,” ‘bourgeoisie,” scientists, intellectuals, and scholars, Kuomintang “agents” and Western “spies,” “wrong” and “bad” elements, and often loved ones, relatives, and friends. Even babies.
Perhaps a way of better comprehending this is in terms of the rough risk of a citizen’s being killed by the Communist Party of China. Since 1949, conservatively, 45 out of every thousand people have been killed, or almost one out of every 20 men, women and children.
Collectivization of the peasants and the “Great Leap Forward” were among the bloodiest of the pogroms carried out by Mao. These two completely decimated China’s agricultural system and led to the world’s greatest recorded famine, which, according to Rummel, caused another 27 million deaths (not counted in the above total of 37.8 intentionally butchered). . . .,
Pol Pot: Despite the mass exterminations carried out by the governments cited above, nothing can compare to Cambodia under Pol Pot and his Khmer Rouge. The German, Soviet, and Chinese mass murders took place in nations with sufficient enough populations that overall demographic trends were not significantly affected by the deaths. Not so in Cambodia.
In proportion to its population, Cambodia underwent a human catastrophe unparalleled in this century. Out of a 1970 population of probably nearly 7.1 million, Cambodia probably lost almost 4 million people to war, rebellion, manmade famine, genocide, politicide, and mass murder. From democide alone, almost all concentrated in the years 1970 to 1980, successive governments and guerrilla groups murdered almost 3.3 million men, women, and children (including 35,000 foreigners). Most of these, probably close to 2.4 million, were murdered by the communist Khmer Rouge.
Our English vocabulary, as rich as it is, simply has no word for the kind of state that was created by the Khmer Rouge . . . Nor do we political scientists have a concept or theory for it. The closest I can come to describing the conditions and suffering of the Cambodian people under the Khmer Rouge is “hell state.”
As we wrote two weeks ago, “Everywhere socialism has been tried, the result has been the same: mountains of dead bodies, economic collapse, and massive corruption.” Sadly, that’s apparently not enough to keep Westerners of lesser intellect from lionizing communism and its killers. One of the greatest failings of Western civilization is its inability to stigmatize communists like it did the Nazis. There are various reasons for this failure, of course, but those are a story for another day. In the meantime, beware of the New-New-Left. We might argue, ala Santayana, that this is a case of those who do not know history being doomed to repeat it, but we know better. The leftists know the history of the ideology they want desperately to support. They just don’t care.
Footnote: For history buffs, the origin of these and other communist-inspired mass murders can be traced to the French Revolution, during which Georges Danton, the titular leader of the Jacobins at the time, said the following:
These priests, these nobles are not guilty, but they must die, because they are out of place, interfere with the movement of things, and will stand in the way of the future.