Contemporary Collapsology

The end of the world is an ancient theme, prevalent in mythology, religion and arts throughout the ages. In recent years, we have witnessed rising popularity of this theme, albeit a secularized version, in popular media. Furthermore, we do not only tremble at the thought of the Apocalypse anymore: now, it is welcomed and even aspired to. Analyzing and understanding this emerging paradigm of “collapsology’ will reveal some of the deep structural transformations of our socio-cultural fabric and our perception of the current state of economic and political systems.

Our observations

  • In his book Collapse: How Societies Choose to Fail or Succeed, historian Jared Diamond defines “collapse” as “a drastic decrease in human population size and/or political/economic/social complexity, over a considerable area, for an extended time.” (p.3) His book analyzes the collapse of various historical civilizations and identifies five influential factors: climate change, hostile neighbors, trade partners that provide alternative sources of goods (and services), environmental problems, and society’s response to these risks. Of course, the last of these factors is the only endogenous factor, and often revolves around the short-term interests of those in power and those who own the means of production and the long-term needs of society at large.
  • There is growing interest, especially in France, in “collapsology”, which is a movement that favors a collapse of current socio-political structures, because human history is full of collapsing civilizations that in turn became fertile ground for new ones. Mostly driven by climate change, this school urges us to turn our “current collapse” into a positive one, in which we actively build new economic, political and social systems (e.g. small-scale bio-regions, economic models not based on growth) that are attuned to the finitude of the earth’s resources and foster living in harmony with nature.
  • In his book Capitalist Realism: Is There No Alternative?, theorist Mark Fisher sees capitalist realism as the “widespread sense that not only is capitalism the only viable political and economic system, but also that it is now impossible even to imagine a coherent alternative to it.” (p.6) He attributes this idea to two cultural critics of “late capitalism”: Frederic Jameson (who famously said that “it is easier to imagine the end of the world than the end of capitalism”) and Slavoj Žižek (a Marxist philosopher who uses movies and popular media to explore hidden ideologies and capitalist hegemonic dominance in post-modern societies, e.g. The Pervert’s Guide to Ideology).
  • Three years ago, we wrote about the historical recurrence of periods of “crises” and that according to the book The Fourth Turning: An American Prophecy, we are in the midst of a twenty-year crisis period that started with the 2007 financial crisis and morphed into a broader socio-political crisis. Steve Bannon, Trump’s former Chief Strategist of the White House, was heavily influenced by these ideas and endorsed Trump as he saw him as the only person that could leverage this period of crisis to “drain the swamp” in Washington and lay the foundation for a new socio-political system (i.e. a “High”). Even after Bannon was ousted in August 2017, he has continued to support Trump for this reason.
  • A recent study shows that the fundamental political demarcation in the UK is no longer the “left-right” divide but the “centrist-anarchy” divide. Those in the anarchist ideological camp, comprising up to 40% of the population, have low trust in government, business and media and hail from both the left and right. Similarly, another study shows that both the far-left and far-right share a common urge for chaos, “sharing motivations associated with ‘chaotic’ motivations to ‘burn down’ the entire established democratic ‘cosmos’” (p.1). Their shared longing for chaos and anarchy is best illustrated by the hugely popular meme “some men just want to watch the world burn”, an expression from the movie the Dark Knight that refers to the Joker: a personage that wants to spread chaos and anarchy because “the only sensible way to live in this world is without rules”.
  • In the 1960s, ethologist John Calhoun performed experiments with mice to study the effects of population growth on individual behavior. By setting up the mice in a “utopian” environment, with plenty of food, no enemies and housing, he observed that initially the mouse population grew exponentially. However, as the space in the “mouse utopia” became increasingly socially defined, some groups of mice showed new behavior, such as extreme aggression as well as narcissistic isolation. In the end, the mouse population shrank significantly, due to a declining birth rate as a result of lower breeding and a higher death rate caused by increased violence. Calhoun dubbed this “extinction phase” and social breakdown the “behavioral sink”, and used it as a metaphor for the fate of man living in an overpopulated world by referring to the biblical Book of Revelation. Similarly, the Human Voluntary Extinction Movement defines its purpose as follows: “Phasing out the human race by voluntarily ceasing to breed will allow Earth’s biosphere to return to good health. Crowded conditions and resource shortages will improve as we become less dense.”
  • We have written before about the reinvigoration of the horror genre, with horror movies considered indicators of what (literally) keeps society up at night. One extremely popular sub-genre is the zombie genre. Although zombies look fearsome, many zombie series and films are not actually about zombies themselves but about the quest to rebuild society after the collapse of civilization due to zombies.

Connecting the dots

A few weeks ago, we explored three posthumanist paradigms. However, we didn’t discuss the most radical version of post-humanism: a scenario in which humans go extinct and our current societies and civilizations collapse. This “collapse” is an ancient theme, explored in many religions (e.g. the Last Judgment present in all Abrahamic religions), myths (e.g. the flood myth found in many cultures around the world), literature and arts (e.g. the movie 2012 (2009) that was part of the 2012 phenomenon driven by the eschatological end of the Mayan calendar). Fantasizing about the Apocalypse is making a comeback in our contemporary culture, philosophy and media. But why?
One could claim that collapse is an intrinsic “directionality” of reality. In physics, the process of “entropy” implies that any closed and stable system will eventually dissolve into more chaos and disorder. This not only holds in physics but also in social sciences, such as in the process of “creative disruption”, in which new innovations make old technologies superfluous and destroy their socio-technical system, periods of hegemonic shift, in which new challengers undo the geopolitical order of the previous hegemon, or from one generation to the next, as youngsters generally want to do things differently than their parents and grandparents and dream of creating a new society. Currently, we could be witnessing such seismic shifts in various parts of our society and culture, as systems move from an “old” phase to a new one. For example, the next technological revolution could be in the making, driven by improvements in AI, the fact that the end of America’s hegemonic cycle is nearing as China is on the rise, and the approaching new generational cycle, in which Gen Z embodies the Artist archetype (with corresponding characteristics), while new utopian visions of society are emerging that transcend our capitalist system of production and consumption (i.e. post-growth economies and post-materialist consumption).
In this sense, the “collapse” is just a phase in cyclical movements and a continual process of rebirth and decay, growth and collapse that is found all around reality. But collapse as a phase has both a negative and a positive side. On the negative side, the phase of collapse means that the destruction of our current political, economic and social systems. On the positive side, collapse is followed by the “post-Apocalyptic world”, in which man has the opportunity to rebuild his world, culture and civilization. And it is this positive part that has gained much popularity in recent years. So what is it that we long for in the post-Apocalyptic world?
First, there is a deep and fundamental belief that society’s systems are “broken”: social mobility is declining as inequality is mounting, politicians seem unable to harmonize polarized society and partisan politics cannot overcome society’s biggest challenges (e.g. climate change, affordable housing or healthcare for younger generations), many fear losing their “bullshit jobs” or don’t even like their job (e.g. 84% of workers are not fully engaged in their job) while others have to keep working to make ends meet (the Yellow Vests’ slogan is: “The end of the world, the end of the month, same struggle.”). Exactly this feeling that change cannot be accomplished within the system and that therefore the system should change, is what unites far-left and far-right voters. Indeed, this dystopic feeling (i.e. the belief that there is no alternative to the current state) shows that extremist parties in our current system are on the same page with respect to collapsology.

Second, there is more and more longing for personal agency and meaningful political engagement. As we increasingly inhabit abstract and complex systems (e.g. modern bureaucracies, multinational companies, global cities, international social networks), we feel that we no longer belong somewhere but anywhere instead (see David Goodhart’s book The Road to Somewhere). As such, many post-Apocalyptic media content shows us a world in which small communities have real interaction (e.g. The Walking Dead), and in which we have a tangible impact on our political systems. Furthermore, this could be a requirement for turning our nascent ecological collapse into something positive (e.g. city foodscapes).
Lastly, modern technology provides us with more freedom, but can distort our natural rhythms and possibly suppress our biological inclinations. As such, we increasingly feel out of touch with natural and concrete life: we no longer possess the skills to survive outside highly domesticated areas (e.g. cities, smart homes), which is a deeply-rooted psychological need, and are becoming increasingly detached from nature (which also causes mental problems). This problem is exacerbated by ever-increasing population growth that not only puts pressure on our resources but also on social and political spaces. Calhoun’s mice experiments show that increasing social and political density can induce social division and conflict, which we’re experiencing with rising extremism and increased social isolation. Calhoun likened this to the First of the Four Horsemen of the Apocalypse, who is said to embody the Antichrist and to induce the destruction of a corrupted world. Similarly, to a large extent, digital technology and big tech now define our social and cultural spaces and increasingly mediate our relation to the living world and social spaces. This gives us new ways of relating, but also leads to different social behavior, such as hate speech or less ethical online behavior. As such, Scott Galloway has dubbed Alphabet, Amazon, Apple and Facebook the Four Horsemen of the Apocalypse due to their unbounded power in all parts of our everyday lives. In contrast, post-Apocalyptic worlds, in all their brutality and destruction, force us to take matters into our own hands, work the land for food and survival, rebuild new societal structures and communities from the ashes of the previous civilization, and gain an immediate relationship to the world around us (i.e. not mediated by digital technologies). This could help explain the popularity of survival series (e.g. Ultimate Survival, Naked and Afraid).
Many of the “romantic” imperatives and latent wishes of the post-Apocalyptic world are already coming to us in less violent and dangerous forms. For example, in leisure, we want to live closer to nature, e.g. by camping and a #vanlife. In economics, we perceive the rising (or returning) cult of craftsmanship as an attempt to gain more control over our own means of production and denounce the “abstract labor” that is prevalent in post-industrial or late capitalist societies. Politically, new forms of “counterculture”, such as cryptocommunities, bottom-up and local cooperatives, as well as terrorism and rising fundamentalism, are increasingly rebelling against the system and wish to overturn it. Lastly, from a philosophical perspective, transhumanism tries to overcome the current “human condition” by either letting humans go extinct or transcending man’s limited physical and mental capabilities to create new societal structures in line with evolutionary (e.g. Kevin Kelly’s technicium) or sustainability imperatives.

Implications

  • The Apocalypse as a subject is on the rise in films, series, but also in videogames in which the aim is to retreat from society and venture into new worlds. Negatively, this is because apocalyptic games offer “sustained escapism from our own reality”, writes Alfie Bown in his book The PlayStation Dreamworld (p.40). But on the positive side, videogames like The Legend of Zelda: Breath of the Wild, Neo Scavenger, or The Forest depict a world in which gamers can interact in a deep way with the environment and practice survival skills.
  • Collapsology could become a defining feature of the “formative experience” of younger generations, which would render new value patterns and ideas about the Good Life. In the model of The Fourth Turning, “Crisis” (i.e. Collapse) will be followed by a “high” period (i.e. the post-Apocalyptic world), which will value strong institutions and social conformity, with a solid pragmatic problem-solving worldview. Theoretically, Gen Z’ers are then likely to become more socially conservative and less liberal, which is already visible in their more prudish and materialist lifestyles, declining tolerance of minorities and increasing wish for authority to make others behave as they wish.

Could Europe Fix the Internet?

Over the last two decades the internet has gradually balkanized into myriad centralized spaces where either big tech or authoritarian state actors have become powerful gatekeepers. As a consequence, the project of an open global internet is jeopardized. It is against this backdrop thatEurope is currently in the process of developing a data and AI strategy which should restore some of its competitiveness and sovereignty. Here we take a closer look at some of these policies and speculate on future opportunities for Europe that go beyond a defensive digital strategy.

Our observations

  • In May 2015, the European Union announced the Digital Single Market policy, which aims to remove trade barriers among EU members in the domains of digital marketing, e-commerce and telecommunications. The Digital Single Market is part of the Digital Agenda for Europe 2020. The directives on datasharing are within the scope of the Digital Single Market.
  • On the 19th of February, European Commission Vice President Margrethe Vestager presented a new package on data and artificial intelligence with a strong strategic focus on social AI and the re-use of data. Regarding the latter, it aims to establish a European data space in which data can seamlessly be shared among private and public organizations with the purpose of stimulating trade and innovation.
  • On the 17th of April, the European Union adopted the Directive on Copyright in the Digital Single Market. Similar to how the General Data Protection Regulation (GDPR) established individual data ownership rights, this directive aims to establish data ownership for content creators. However, this policy is more controversial, as it also goes against the an elementary aspect idea of reusing content for the purpose of user generated content.
  • The Dutch ministry of Economic affairs and Innopay did a study on the possibility of Dutch SMEs sharingdata. As a conclusion, they offered a framework covering nine important building blocks ranging from standardization, governance to rules for consent.
  • In the open-source community we can see the emergence of protocols (e.g. Ocean Protocol, Blockstack, IOTA) that aim to offer part solutions to a frictionless data exchange layer. Applications that are built on top of this soft infrastructure will be able to seamlessly exchange data as these protocols automatically handle indexing, pricing, payment, compliance, provenance, etc.
  • The Big Data Value Association, an industry-driven international not-for-profit organization that acts as the private counterpart to the EU Commission to implement the Big Data Value PPP program, published a whitepaper in 2019 in which it describes the many potential technical solutions for a European Data Sharing Space.

Connecting the dots

Currently, the internet seems to be headed in the direction of having a few actors decide the rules of our digital realm. On the one hand, we find a handful of big tech companies that have claimed the most important functions of the internet (e.g. access, storage, compute, search, commerce, entertainment) and have entrenched their position through data, network effects and political and financial power. Especially U.S. and Chinese platforms have been able to grow their platforms quickly due to their large internal market. On the other hand,we see governments that are gradually establishing their own stacks through the installment of friendlyinfrastructure, data localization, abandonment of global standards and formulating policies that allow for more topdown authoritarian state interference. In contrast, Europe has been facing fragmented data regulation among its members and has been lagging behind in terms of data availability, data standardization, data infrastructure, data quality, data interoperability, data governance and data literacy. In addition and partly thanks to aforementioned issues surrounding data, Europe has not been able to offer its own share ofnoteworthy digital champions and, as a consequence, is largely at the mercy of technologies and platforms from the U.S. In response, to regain some control over the situation, Europe has been working on data legislation and policies. In 2018, it introduced the regulatory framework GDPR to give its citizens more control over their personal data. In addition to these protective measures for its citizens, the European Commission is now also in the process of proposing an AI and data strategy in which it outlines policy measures and investments to stimulate the European digital economy for the next five years. As presented in its communication on the 19th of February, it aims to 1) introduce a cross-sectoral governance framework for data access and (re)use, 2) invest in Europe’s capabilities and infrastructure for hosting, processing and using data while also improving interoperability, 3) stimulate individuals’ and SMEs’ data skills and literacy and lastly, promote the development of common European data spaces in the domains of manufacturing, mobility, health, finance, energy, agriculture, public administration and the European Green Deal. With its AI strategy, it aims to introduce measures to develop competitive AI (i.e. ecosystem of excellence) while also taking all the necessary precautions to ensure that these systems will be human-centric and to induce trust with their users (i.e. ecosystem of trust). Although these regulatory frameworks are an important first step in outlining Europe’s digital values and interest, it is generally perceived as a game of catch-up instead of changing the global rules of the game. Many of the issues concerning data in European industry refer to a deeper-seated problem with how the internet works globally. As discussed before, because of their client-server architecture, most platforms can treat data as an asset that can be extracted from their users to then be locked away within the platform’s silo, only accessible when terms set out by the platform owner are met. 

As a result, individual data ownership and the potential collective value of data are subordinate to the interest of the platform. Investing in local cloud infrastructure(e.g. Gaia X) will not fundamentally change this dynamic, as it only determines where data is stored but notdirectly how data is governed and exchanged. Going forward, the EU could consider a more ambitious and scalable approach by facilitating the development of a soft infrastructure layer, i.e. a layer based on software protocols in which the access to computational resources can be collectively managed, and in effect could disrupt the siloed model of the internet globally. Here, the EU could find an interesting ally in the open source community, which is currently working on such decentralized internet protocols, which on the one hand aim to place data under the direct control of the rightful stakeholders through data provenance and rights management tools (i.e. data vault) and on the other hand makes these datasets seamlessly accessible to other public and/or private services through global data marketplaces in which data owners can be compensated for the use of their data (i.e. data exchange layer)These protocols will not only benefit the rightful data owners, but could generate substantial network effects and open innovation for the system as a whole, as all stakeholders stand to benefit from greater data accessibility as opposed to only a handful of gatekeepers having access. As a result we could see the rise of digital mega-ecosystems where services can frictionlessly share data and work together to meet the market’s demand. There also seems to be a natural fit with the European governance model as the decentralized nature of this type of soft infrastructure resembles more closely the Rhineland “stakeholder” model. Governance decisions can be voted on by network stakeholders while consensus protocols and blockchains facilitate trust by creating game-theoretical interdependencies in which it is very unlikely for a single actor to game the system. As these ecosystems are also open in nature, these ecosystems do not necessarily have to limit themselves to European members but could also allow other countries that want to withdraw from the more centralized stacks. Furthermore, the decentralized and thereby trusted infrastructure also creates the possibility that many of the EU digital market regulations can be programmed into smart contracts, thereby enabling automatic compliance upfront. This should solve the issue of digital law enforcement, which will become even more pressing as the frequency and complexity of digital interactions increase. The development of such soft infrastructure will not only serve an ideological cause but could benefit from systemic tailwinds and has the potential to reinstate a global internet that is based on interoperability, openness, privacy, sovereignty and open innovation.

Implications

  • Europe could represent the third model of the internet, next to China’s state-driven model and the US’ industry-driven model to the internet. There is the possibility that these three models will become complementary and compensate for each other’s shortcomings.
  • A global data exchange layer will gradually develop, at first in the form of ad hoc data dumps between , then as agreement frameworks within industry sectors which will then be further abstracted and formalized into soft trustless infrastructure as the underlying technology becomes more scalable.
  • As with inequality and climate change Europe could also take the lead in developing a human-centric internet
  • A European stakeholder approach to the internet could strengthen alliances with countries that are also stuck between the digital hegemony of China and the US (e.g. India, SE Asia, Latin-America)

Philosophical posthumanism

We are living in age of “posts”: post-truth, post-capitalism, post-colonialism, post-modernism (indeed: also post-postmodernism). But the problems of our time also force us to rethink our view of man, and we are observing weak signals of “post-humanism”: to think beyond the paradigm of humanism that has been dominant in many Western modern thought. We see three strands of a posthumanist paradigm emerging.

Our observations

  • In her book “Philosophical Posthumanism”, Franscesca Ferrando describes that are living in a time of an integral deconstruction of the fixed categories by post-modernism, the epistemological impact of quantum physics, increased role of technology in the formation of human identity leading to hybrid humans. Philosophical posthumanism is the onto-epistemological and ethical approach that uses these insights to discharge modern dualisms and hierarchical legacies and wants to go beyond humanism and anthropocentrism. As such, it is a philosophy of mediation that suits the geological time of the Anthropocene: it focuses on decentering the human from the center of discourse.
  • Karen Barad in her book Meeting the Universe Halfway recognizes agency to the nonhuman realm, based on a relational ontology and agential realism based on insights from quantum physics. The quantum entanglement means that there is no ontological separation between subject and object, but onlyintra-acting agencies between “entangled agencies”. As such, many phenomena “emerge” as a result between various agents and of various sorts (e.g. the Ebola phenomenon was not a virus itself but an interaction of the actual virus with human and non-human actors, such as human bodies, discourses on Africa, global politics, news channels, feelings of fears, medical technology and so on).
  • We have written before that excessive use of digital technology and the proliferation of companies thatare fighting for our attention also mean that we are becoming increasingly distracted. This “attention crisis” puts pressure on the foundations of our moral theory and ideas of freedom, and forces us torethink our ideas about everyday practicesAs such, our digital living worlds are redefining what we mean by concepts like “autonomy”, “agency” and “freedom”.
  • Yuval Harari states that mankind has long been plagued by three main evils: poverty, famine and sickness. By understanding social structures as data processing systems, and given the rapid advances of AI systems and the abundance of digital data, Harari expects that autonomous smart systems could help mankind to get rid of these three evils. As such, we are moving beyond the traditional boundaries of human kind, and transforming from homo sapiens into a homo deus. This belief in the “sanctifying” powers of digital technology is what we have called “technological divination”.
  • Luciano Floridi in his book The Fourth Revolution: How the Infosphere is Reshaping Human Reality as we increasingly interact with the world and with our technology through ICTs (as well as ICTs interacingamongst themselves invisibly), we are going to interpret the world in ICT-friendly terms: informationally. And on the other hand, by creating digital living worlds, we will see the world as inherently informationally. This thinking and acting about and in the world informationally recreates reality as an “infosphere”: the whole informational environment constituted by all informational entities, their properties, interactions, processes, and mutual relations. For example, we increasingly perceive biology as a technology, perceive everybody as a self-tracker, or see football referees as information systems.
  • Last week, in collaboration with Brainwash and Frascati, we speculated about “the future of man” and discussed three different “post-humanist paradigms”: animism, transhumanism, and nihilism.

Connecting the dots

In their book “Humanisme”, Bert Gasenbeek and Piet Winkelaar describe five humanist starting points and principles (pp.58-76). First is the that the human is central in the worldview and search for meaning, implying that there are no “afterworlds” or transcendent beings outside human experience and that we know reality and that we can gain objective knowledge of reality and the cosmos using our human senses and knowledge. Second is the positive anthropological view of man, seeing man as a worthy and ethical being upon which we can found moral principles. “Good” are then those things that make life “humane”, and “evil” are those things that make life and reality “inhumane”, and we often do so by using our “humanistic” capabilities, such as art, reasoning, and showing compassion. Third is the idea that every human being is equally worthy, irrespective of race, gender, religion, and so on. Although not every human being has the same physical and mental capabilities, we should have equal opportunities to develop ourselves. The fourth principle stresses human autonomy and individuality, meaning that every human being is a unique being and an identity formed by their own history and personality. The last is the idea of freedom: human beings have an inalienable freedom to act and think irrespective of external determinants (e.g. totalitarian regimes), which also makes us responsible moral agents. In correspondence to these five starting points, Gasenbeek and Winkelaar also describe five humanist principles: i) the emphasis on rational and scientific method and eschewing of superstition and irrational belief, ii) respect and tolerance for other human beings and their freedom, iii) the equality of human beings leads to the political form of democracy and equal rights for citizens, iv) solidarity for others, as well as rights and plights, and v) the principle of self-determination to let people chose to live their own life as they like (e.g. whether to end their lives, the right for abortion).

However, it seems that many of these humanistic starting points and principles are being criticized andpressured. First, the ongoing ecological crisis not only requires a radical overhaul of the principles of industrial modernity and economic and societal meta-rules of our socio-technical systems (i.e. a Deep Transition), but could also point to a crisis of our anthropological conception of man. If human beings actively undermine one of our “living conditions”, this might have something to do with our idea that man is at the center of the cosmos and reality. Indeed, this is one of the principles of the emerging paradigm of deep ecology that opts for a radical decentering of the human. Second, it is increasingly doubtful that human nature is being seen as something inherently good, given the problems of rampant socio-economic inequality, poverty and exploitation (of both humans and non-humans). As we own increasingly powerful technologies that create a vulnerable world, more studies are examining an earthly future without the human kind (e.g. omnicide).

Third, we see that the rise of populism, nationalism and xenophobism increasingly criticize the idea that every human beings is the same, both in an abstract, racist sense (e.g. there is a hierarchical order in human beings) and a concrete, cultural sense (e.g. human cultures are not similar and can be hierarchically moral order). Fourth, the autonomy and individuality of human beings is increasingly pressured. This is because surveillance capitalism undermines individual self-determination and decision-right by steering our behavior and predicting our actions by means of digital and automated systems that adapt to our behavior and emotional data. Furthermore, our “attention crisis’ means that we are increasingly distracted, eroding our sense of autonomy and moral responsibility. Lastly, these developments share in common that they opt for a restriction of human freedom in a certain sense, whether by constraining economic freedom (e.g. taxation, prohibition of certain consumption practices such as meat consumption), as well as political freedoms (e.g. the process of “reglobalization”).

But what do we see as a new paradigm to think beyond humanism and to find an anthropological solution to the problems of our age. The first is “animism”: the belief that we are inherently related to nature and technological beings. As such, we should decenter the human from the center of the universe and develop a new ethics of responsibility and care for both biological and non-biological beings. Transhumanism states that there is no “pure human being” but that human beings and technology co-evolve. Digital does this in particular, and future technologies will continue but radically alter our “human condition” (e.g. living in a metaverse) and redefine what a human being is. Nihilism is another “post-humanist” paradigm: it stresses the inherent sense of meaninglessness and purposelessness of reality and human life, but in its active form urges people to embrace this “absurdity” and realize human potential to the fullest. Importantly, this should not decay in hedonism and irresponsibility (its passive form) but in realizing the inherent. But as human beings are not defined by an essence but have the freedom to choose what to do with their existence, this opens the ethical space of real moral acting and responsibility for our own acting.

Although nihilism, animism and transhumanism differ in certain aspects (e.g. how to relate to technology, how to define moral categories like “responsibility” and “agency”), they share three main tenets of what a future philosophical posthuman paradigm will look like:

1) post-human: a plurality of human experience and the human as many instead of one that does not warrant a universalist approach
2) post-anthropocentric: a decentering of the human in relation to the non-human and that the human species has no ontological privilege in the order of species
3) post-dualist: the awareness that dualism has been employed as a rigid way to define identity in terms of symbolic but excluding dichotomies, such as friend/foe, self/other, us/them, civilized/barbarian

Implications

  • One could claim that all sciences use a certain philosophy of man, especially the social sciences. As such, the “post-humanist turn” will have significant effects on the models and theories of e.g. economics and finance (displacing the homo economics), psychology (animal rationale), or humanities (e.g. the ideal of the autonomous and individual genius shaping world-historical developments).
  • The relational ontology and intra-acting agency postulated by posthumanism is related to other emerging paradigms, such as objected-oriented ontology (OOO), new materialism, and speculative realism. Posthumanism and shares with OOO that hey reject the Cartesian mind/body (i.e. humans as res cogitans and nonhuman animals and inanimate beings as res extensa) dualism. Likewise, new materialism does not pose a division between biology and culture: biology is culturally mediated as much as culture is materialistically constructed, making matter is an ongoing process of materialization that bridges the nature/culture divide into a “natureculture” proposal (e.g. cyborg) and a new materialist theory of entangled nature and culture as we can change ourselves from purely the product of genetic heritage to being a product of technology (like a kind of Lamarckian evolution based on heritage). Posthumanism and speculative realism both stress that objects and subjects, relations and relata (i.e. correlationism) are co-constituted in agential realism and as intra-acting agencies.

The U.S. and China fall victim to Thucydides’ Trap

War between the U.S. and China is not inevitable, but it may be more likely than we think. Thucydides’ Trap provides a lens for understanding conflict between the U.S. and China. They have fallen victim to a recurrent dynamic in which the emergence of a rising power instills fear in the ruling power. In the history of 16 of such rivalries, only 4 averted war. What lies ahead?

Our observations

  • In the book Destined for War: Can America and China Escape Thucydides’ Trap? author Graham Allison explores the history of conflict between ruling powers (like the U.S), and rising powers (like China). He argues that the U.S. and China are currently on a collision course for war – unless both parties take difficult and painful actions to avert it. His argument is based on the history of 16 rivalries of which 12 ended up in war.
  • Since the turn of the century, U.S. foreign policy has slowly shifted to a more confrontational approach towards China. The Trans-Pacific Partnership, introduced by president Obama, was already designed to contain China’s growing economic power, just like president Trump’s more aggressive trade war.
  • The decoupling of the U.S. and Chinese economies has also been underway for some time. It has already occurred in terms of the internet and GPS: China has banned U.S. tech companies for years, mandates that certain data be stored on Chinese servers and recently completed its 35-satellite network. Financial decoupling is also underway: U.S. senators introduced legislation last June to force Chinese firms to comply with regulations or withdraw from U.S. financial markets.
  • Through territorial disputes, trade wars and military build-ups, the center of global geopolitical friction has already moved to East Asia.
  • The RAND Corporation publishes the “S.-China Military Scorecard”, which examines U.S. and Chinese military capabilities. The report finds that China already has an “advantage” or “approximate parity” in 6 of the 9 areas of conventional capability: for instance, in achieving air superiority and preventing an opponent from using space-based weapons.
  • We have previously noted that during hegemonic shifts of capitalism, the ruling financial power clashes with the rising economic power.

 

Connecting the dots

The idea of Thucydides’ Trap, based on the ancient Greek soldier Thucydides who, during the Peloponnesian Wars, believed that conflict between ruling Sparta and rising Athens was inevitable, may sound deterministic. However, we should take Graham Allison’s argument seriously: war is not inevitable, but both the U.S. and China have to take extremely difficult measures to prevent war. Currently they are not doing so, which means they are on a collision course for war.
In the history of the 16 rivalries between ruling and rising powers, the same psychological dynamic has unfolded. As the rising power grows more confident, its emergence instills fear in the ruling power. The former believes that it is not treated fairly because the international system, dominated by the latter, does not reflect the new balance of power. As the rising power believes that its rise is harmless and others have nothing to fear, it is increasingly blind to the fear of the ruling power. In this situation, hubris clashes with paranoia. Both powers are increasingly prone to take measures that (sometimes unintentionally) signal malicious intent to the other. Take, for instance, the lead up to the First World War. A British weapons program built new battleships (the Dreadnought) in 1906. This led Germany to widen the Kiel Canal, allowing German battleships to move quickly from the Baltic to the North Sea. A British Admiral (John Fisher) predicted that war with Germany would come when the widening of the canal was finished – the war began one month after the canal had been completed. As ruling Britain and rising Germany collided, the latter took a measure to protect itself, which the former interpreted as an existential threat. As both countries did too little to avert war, their collision became violent.

Four rivalries did not end up in war and they provide some clues for the future of the U.S. and China relationship. First, in the late 15th century, Portugal and Spain averted war because there were plentiful resources to be divided: Pope Alexander VI drew a line to divide the Western Hemisphere into Portuguese and Spanish territories. Second, in the early 20th century, Britain and the U.S. averted war because the ruling power was confronted with a bigger threat: the rise of Germany pushed Britain to accept U.S. hegemony. Third, during the Cold War, war was averted because both countries transformed a tense dynamic with a high risk of escalation into a diplomatic framework with recognized spheres of influence underpinned by mutual assured destruction (MAD) – until the rising power collapsed. Fourth, after German reunification, war between a rising Germany and Britain and France was averted because Germany was embedded in international European institutions.
What is the most likely timeline for the coming years? In the short-term, tensions are likely to remain high as both countries are testing the waters: U.S. assertiveness, decoupling and military investments will accelerate. In the medium-term, it is possible that the relationship reaches a phase of stabilization, similar to the Cold War and the Thirty Years’ Peace between Athens and Sparta, which will always be a “fragile peace” because the underlying power dynamics do not change. However, before conflict will stabilize, the U.S. and China will focus on defining their spheres of influence, which will raise tensions especially across East Asia (e.g. Korea, Taiwan, Japan, and later, Southeast Asia).

Implications

  • The coming years will determine the spheres of influence of the U.S. and China. Currently, the U.S. holds significant influence in Korea and Taiwan. As China grows more powerful, it will try to pull these countries into its sphere of influence.

  • As there will be no continent to be divided (i.e. Portugal versus Spain), there will be no bigger threat to the U.S. than China (Britain versus the U.S.), and there will be no constraining multilateral institution (i.e. Germany versus Britain and France), it is likely that conflict will only be stabilized through diplomatic frameworks similar to the Cold War that divide spheres of influence.

  • In the absence of attempts to stabilize the relationship (e.g. Trump puts more pressure on China after he gets reelected), the likelihood of a violent incident (e.g. in the South China Sea) will grow ever more likely.

The need for complexity thinking

Complexity science is an interdisciplinary field of studies spanning subjects from physics and biology to economics, to the social world. The field aims to analyze complex systems: systems that cannot be reduced to their constitutive components and contain many non-linear and dynamic interactions. Given the increased interconnectedness of the world (e.g. due to digitization and globalization) and the fact that many of the world’s largest challenges can be considered “wicked problems”, complexity theory will increasingly become part of the toolbox of the 21st century researcher.

Our observations

  • Physicist Albert-Laszlo Barabásihas set the research agenda for the next generation of students of complexity sciences through his work on scale-free networks. In his work, he provided a theoretical model for the “preferential attachment mechanism”: a process that describes how hubs (i.e. heavily connected nods) are more likely to find new connections. An example is found in the World Wide Web, where HTML documents that point from one page to another follow a power-law distribution, and it is empirically found that the most linked website is twice as likely as the second most linked website to be linked again.
  • The tradition of systems thinking in sociology dates back to Niklas Luhmann, who described a “system” as a sphere of reduced complexity, separated from its chaotic environment. Social systems are constituted by an internal communicative process of information selection and meaning is created through the process of bringing some order to the virtually infinite and chaotic outside. Importantly, the systems described by Luhmann are “autopoietic”: they constitute themselves through self-referential communication. Modern bureaucracies are an example of such complexity reducing systems: by imposing a set of binding standards on their citizens, they create their own internal rules for communicating information. The act of labeling and categorizing is not merely descriptive but constitutive of citizenship as such.
  • From the 19th century on, increasingly sophisticated statistics methods and models have aimed to discover patterns in human behavior so that they can be regulated. The French statistician Adolphe Quetelet showed that factors such as age, class, and status allow for the prediction of marriage decisions. Modern dating apps essentially draw on these mechanisms by using algorithms.
  • The sociological tradition of systems thinking is continued by Armin Nassehi. In his recent book Patterns: Theory of the Digital Society, he defends the claim that the digital revolution, rather than creating new social, political and economic structures, merely reveals already existing ones. Digital technology is seen as embedded within these existing structures of behavior and its success can only be properly understood by looking at longer established economic, political and scientific forms of societal organization.
  • Two years ago, we already wrote about economic complexity and how new economic metrics and economic theories borrow from complexity studies and other disciplines, creating a new paradigm for thinking about economic development and relations.

Connecting the dots

The notion of economies as complex adaptive system dates back to the Anglo-Austrian philosopher and economist F.A. von Hayek who described how advanced economies can be seen as spontaneous orders in which order emerges without central coordination, from individuals pursuing their self-interests. A key characteristic of the Hayekian approach is viewing (economic) systems as wholes which cannot be understood merely from their individual parts (emergentism). Likewise, these systems follow their own rules in an evolutionary adaptive process that can neither be understood nor predicted on the basis of knowledge about the individual elements. Spontaneous orders are scale-free networks, while organizations are hierarchical networks. Early work on spontaneous orders remained theoretical, while researchers are now increasingly developing systemic framework for the computational analysis of complex economies and social systems.
Similar patterns can be found in different contexts, such as in the field of quantitative linguistics: Zipf’s law describes how the most frequently used word in a language occurs approximately twice as often as the second most frequent word. The same holds for citations of the most prominent author in a scientific field. This can also be applied in social network analysis and explains, for example, why most people have fewer Facebook friends than their average Facebook friend.
Pioneer of systems thinking Scott Page gives an example of how complexity thinking can be applied in organizations theory. His 2017 book The Diversity Bonus: How Great Teams Pay Off in the Knowledge Economy shows how the systems perspective can be helpful in explaining successful performances of teams: One should not only look at the structural set-up and interactions of individual parts in a reductionist and mechanistic manner. Page states that the so-

called diversity bonus of teams is the result of various types of cognitive diversity, that is, differences in how people perceive, encode, analyze and organize the same information and experiences (and how these differences are in turn correlated with identity diversity, i.e. racial or gender differences). Often, we still lack the vocabulary to make sense of the dynamic interactions observed in complex adaptive systems, but this might be essential in addressing challenges of an ever-more complex and uncertain world. Complexity thinking allows for the discovery of previously hidden structures. In many cases, it provides the link between statistics and qualitative inquiry. Patterns found by complexity scientists can be found in systems and networks across contexts. As such, it makes – at least theoretically –  room for a synthesis of the natural and social sciences. Given the immense amounts of data we face today, complexity science promises to provide a useful conceptual framework for a multi-disciplinary way of doing science.
Complexity economics further bears the potential of fully bringing the computer revolution to economics. It might, for example, close the gap between econometrics and behavioral economics, enabling us to explain consumer behavior from both a structure and an agency perspective. Agent-based models allow for simulations which are, for example, applied in urban planning or supply chain management, but are also used to predict the spread of epidemics or to project the future needs of the healthcare system. Evolutionary or complexity perspectives are, however, typically based on assumptions which go against the fundamentals of mainstream economics, whereby rational agents face constrained optimization problems. This divergence of theoretical assumptions makes it difficult to integrate new approaches with older ones and requires a deeper paradigm shift.

Implications

  • Given that the large majority of work in complexity science or systems theory remains theoretical in nature, it does not yet have the potential to compete with neoclassical approaches. Most research still revolves around abstract mathematical models, while reality often turns out to be more nuanced. More computational approaches to modelling society and economy are, however, in the making, and it is recommended to keep track of developments in that field.

  • Economists might increasingly have to borrow concepts from natural sciences as well as sociology and psychology to allow for more dynamic perspectives. We already see a number of economists adopting evolutionary perspectives on, for example, institutional development. Conceptually, this goes back to Austrian economist J. Schumpeter, who stressed the point that “capitalism can only be understood as an evolutionary process of continuous innovation and ‘creative destruction’”. The heterodox field of evolutionary economics and evolutionary game theory has popularized concepts such as bounded rationality, diffusion and path dependency.

  • Complexity economics has as yet failed to reach its full potential because, on the one hand, it tackles fundamental assumptions of neoclassical economics, while on the other hand, practical applications remain relatively rare. Computational models, are, however, in the making and complexity economics might thus soon help to fully bring the computer revolution to economics. As knowledge is becoming an ever-more important factor in economies and the amounts of data produced keep growing, researchers are advised to look out for new conceptual frameworks as well as for ways to translate new insights into practical applications.

Retroscope 2019

The end of the year is a time for contemplation. In this Retroscope, we look back and reflect on the ideas and insights we have published in The Macroscope throughout 2019. We have covered a wide range of events and developments in technology, global politics and society. The Macroscope is marked by our team’s diversity of perspectives, ranging from philosophy, economics, history, sociology, political sciences to engineering. Combining this interdisciplinary approach with scenario thinking, we aim to assess current affairs from a comprehensive and long-term perspective. Our retrospect of 2019 is therefore about how this year’s events tie in with or deviate from larger trends in technological, hegemonic or socio-cultural cycles. Our mission is to unlock society’s potential by decoding the future.

We hope you enjoy our reflection!

FreedomLab Thinktank

Click here for our Retroscope of 2019.

 

Click here for our Retroscope 2019: Hegemonic cycle

Click here for our Retroscope 2019: Technological cycle

Click here for our Retroscope 2019: Socio-cultural cycle

Click here for our Retroscope 2019: Disruption in the making

Central banks rethink their purpose

Over the past year, stablecoins, digital tokens and cryptocurrencies have received a high degree of media interest. As a response, central banks are exploring alternative digital currencies, which receive far less media coverage. However, the debates related to these Central Bank Digital Currencies (CDBC) show that central banks are fundamentally rethinking their role in the financial system.

Our observations

  • The central bank of Sweden is examining the launch of a Central Bank Digital Currency, the so-called e-krona. The Riksbank argues it has the task to facilitate and protect an efficient and safe payment system. In the cashless society Sweden is slowly becoming, this is more difficult as the central bank plays no role in digital payment systems. Therefore, it is investigating whether it should regain this role by developing a Central Bank Digital Currency (CDBC). The regulator is currently procuring technical suppliers to develop proposals for the e-krona.
  • The plan to transfer the “privilege” of money creation from commercial banks to governments is being studied more often. Last year, Switzerland organized a referendum on sovereign money which would give the central bank full control over the creation of money. In January, the Netherlands Scientific Council for Government Policy (WRR) discussed a similar proposal in its report about the Dutch financial system. In England, NGO Positive Money is a strong advocate.  And we have written before that supporters of the Modern Monetary Theory advocate comparable monetary consequences.
  • According to sources, the Chinese central bank is ready to launch a state-backed digital currency called “DC/EP” in eight institutions, who can use it to facilitate their payments. The two biggest Chinese banks and the two biggest tech companies (Alibaba and Tencent) are among the list. The institutions will be responsible for dispersing the digital currency and will thus spread the use of the renminbi, China’s fiat currency. According to the source, the ultimate goal is for the token to also be used outside of China, thus strengthening the position of the renminbi as a world reserve currency.
  • Paypal was the first big payment company to pull out of the Libra Association. However, they remain supportive of the plan and are willing to keep the dialogue open. Last week, Ebay, Mastercard, Visa and Stripe also left the association. Consequently, the coalition is falling apart and PayU is now the only payment company still aboard. This is undeniably a big disappointment for Facebook. Nevertheless, the president of the Libra association and former president of Paypal cautioned against “reading the fate of libra into this update”.

Connecting the dots

In the wake of the cryptocurrency and fintech hype, governments and central banks have developed and examined their public alternatives. The notion of a Central Bank Digital Currency (CBDC) is slowly getting more attention. As the Bank of International Settlements (BIS) remarks, it isn’t a well-defined term, so it is hard to pin down the idea. However, we can distinguish at least three public debates in which the proposal of a CBDC is regularly mentioned. These debates are interrelated and often overlap, but they emphasize different arguments to explain why a CBDC is an appealing idea to them. In all debates, opponents remain skeptical about the anticipated benefits of a CBDC.
The first discussion focuses on financial stability and the reform of the financial system. Advocates of the CBDC want to safeguard citizens and protect the public functions of the financial system. Proposals and ideas under the umbrella of a CBDC vary, but one core idea is to return the externalities of the financial system (e.g. systemic risks, bail-in mechanisms, risk transfers, opaque shadow banking activities, etc.) to places within the system, where the risk can be dealt with accordingly. The implementation of a CBDC is often proposed as a form of “ring-fencing”, separating the riskier (commercial) banking activities from the savings part. In the most extreme form, this could lead to full-reserve or narrow banking, whereby each citizen’s deposit is fully backed by central bank reserves. Without the intermediation of commercial banks, citizens would be able to deposit their funds directly into a central bank savings account. Proponents argue this would diminish the possibility of a bank run and reduce the burden on taxpayers implicitly backing the too-big-to-fail systemic banks. However, opponents claim it is very uncertain whether this would actually make the financial system more stable, and warn it is equally likely to increase financial instability. For example, if everybody decides to flee to the central bank in times of stress, this would create a new form of liquidity hoarding.
The second debate is centered around the struggling monetary policy of the last decade. Many prominent economists and financial writers have spoken in critical terms about the policy of the FED, ECB and other central banks. In the current system, almost all new money is “created” by commercial banks for credit and loan purposes, and central banks try to guide this process with monetary instruments and information signaling. However, critics argue the monetary transmission mechanisms aren’t functioning properly and the current monetary instruments are inefficient due to structural worldwide economic changes. The CBDC model sometimes pops up as an alternative as it, in most proposals, would take away the ability

of commercial banks to create money. Hence, proponents of the CBDC claim new money is currently always a form of debt and therefore commercial money creation is prone to credit booms, wealth asymmetries and misallocation of capital due to an endless “search-for-yield”. With a full-reserve CBDC, governments would regain the important role of money creation. The plan is often referred to as sovereign money, and while its opponents acknowledge the current inefficiencies of monetary policy, they also stress the need to put these into perspective before rushing to an entirely different system. One question would be whether one central authority is actually able to decide on money creation.
The third debate is related to fintech and the rise of alternative digital currencies that interfere with the financial system and pose a threat to the effectiveness of current monetary policy and fiat currencies. In addition to commercial banks and central banks, tech companies form a potential third contender to run the payment system and offer financial services. Stablecoin Libra has received extensive press coverage and is scrutinized by financial regulators. As such, it has been a “wake-up call” for central banks. The debate around fintech aligns with our contemporary view on big tech; tech companies are both loved and loathed, and for fintech this is no different. They are loved for what they do best: friendly user-centric design and frictionless services, but feared or even despised for their potential misuse of concentrated power, lack of financial knowhow and respect for institutions or disruptive nature in general. Both central banks and commercial banks are worried about the consequences if fintech companies start to play a fundamental role in the payment system. However, in the most radical CBDC proposals, the central bank has to run the payment system itself. Commercial banks are particularly worried about this, as running the payment system is costly and demands expertise and know-how. Furthermore, it might slow down innovation and deprive tech-savvy companies of their expertise. Hence, some economists argue that commercial banks partnering up with fintech companies is the most desirable scenario. This way, they can accelerate technological innovation from within the financial system and the central bank doesn’t have to take on “the burden” of running the payment system.
Overall, it is unlikely we will see a radical proposal of the CDBC become reality soon. However, it will be very interesting to see how some national and less radical proposals play out. Moreover, central banks are clearly manifesting themselves as an opposing force to current developments of the financial systems and are fundamentally rethinking their role as regulator.

Implications

  • -An alternative approach to CBDCs would disintermediate commercial banks and tie fintech companies directly to central banks. In the private sphere, stablecoins are usually backed by assets in the same denomination. Their stability depends on the liquidity of the underlying assets, which are deemed to be very liquid (e.g. triple A bonds). However, in terms of economic turmoil, this is always questionable as demand drops simultaneously. Another approach would be to give the issuers of cryptocurrencies direct access to central bank reserves, as these economists from the IMF suggest. In this public-private partnership, we would see something called a synthetic CDBC. This could enhance the popularity of stablecoins as a safe store of value and transfer innovation to the fintech sector.

The Age of Digital Mega-Ecosystems

One of the defining characteristics of digitization is that digital objects can be stacked endlessly, whether they be pieces of code, software programs or entire digital services. Because of this, digital products are always semi-finished and are likely to gain utility and value over time as they are combined with other products and services. This potential is most clearly visible in the emergence of sector-transcending digital ecosystems: complex networks of interoperable digital services that are able to create value by collaboratively solving consumer needs. Here, we will take a closer look at how current digital ecosystems are emerging, the hurdles they encounter along the way and what the next step might be in their evolution.

Our observations

  • McKinsey expects that in 2025, of the total global economy of $190 trillion, $60 trillion will be running through these digital mega-ecosystems, replacing many current traditional industries.
  • In an attempt to reconcile numerous small-scale, and mostly sectoral, initiatives to facilitate data exchange between actors, the Dutch Ministry of Economic Affairs and Climate Policy has published a proposal for a rulebook for the exchange of data between Dutch businesses (predominantly SMEs) and other stakeholders. The Ministry recognizes that sectoral initiatives are powerful in that they clearly serve the needs of current value chains (because of which stakeholders are willing to invest time and money in these initiatives). At the same time, the Ministry wants to make sure that cross-sectoral data exchange is possible as well as it beliefs that, in the long run, this will generate genuine innovation and the most added value.
  • Some investors are already anticipating the next step towards open digital ecosystems. For instance, Outlier Ventures has presented its Convergence Stack, an investment framework which envisions a decentralized stack consisting of a collection of protocols which together enable an open, decentralized, tokenized data economy.

Connecting the dots

As a consequence of digitization, services have been able to gain substantial network effects and zero marginal cost benefits and to commodify their suppliers in the process through platform models (e.g. Uber, Airbnb, Facebook). However, with regard to value creation, these services at first mainly operated in their vertical industries with little to no interoperability among sectors, thus still reflecting old traditional value and supply chains. However, in the past decade, we have seen the proliferation of APIs, software-development kits (SDKs) and lately containerization/microservices creating standards for services to become interoperable, exchange data and open up their functionalities to third parties with the purpose to collaboratively address a customer-centric problem. Consequently, boundary-blurring digital ecosystems have emerged that consists of networks of services that are interdependent on each other’s data and value creation as each delivers partial solutions to the larger jobs-to-be-done.
Following this trend, we can expect the consolidation towards even bigger mega-ecosystems, each focusing on a different job. For example, what started out as a mere ride-hailing service will increasingly be about facilitating users going from A to B, whether by car, e-scooter, bike or a combination of these (i.e. mobility-as-a-service). This could either happen by way of an M&A strategy (e.g. Uber acquiring other modes of mobility services) or as a consequence of these different mobility services opening up their APIs to a mobility aggregator (see our note on “living maps”), so that a multimodal trip could be ordered and paid for. In a similar fashion, other B2B services could enter the value chain, ranging from insurance to in-car entertainment, fused together under the hood and possibly presenting themselves in a unified smooth user experience.  We’ve already speculated how, at its most extreme, this trend could result in Living-as-a-Service solutions whereby different services frictionlessly daisy-chain around the daily needs of the user. McKinsey’s article “Sector without Borders” speculates on the emergence of 12 large digital ecosystems collectively responsible for one third of total global revenue in 2025.

Even though we can already see the first steps towards such a digital service landscape, the current ecosystem game is not without problems. Most players are still mostly geared towards competition instead of collaboration, in search of a winner takes all opportunity. More specifically, each vertical wants to own the orchestrating platform within the ecosystem, claiming the hub position for the purpose of rent-seeking, data aggregation and/or giving proprietary services a competitive advantage. The clearest example is the WeChat ecosystem; the super-app has been able to successfully integrate a plethora of services, enabling smooth handovers between apps in terms of data and payments. However, as WeChat acts as gatekeeper and rent-seeker, the innovative power of the ecosystem will only be as strong as WeChat’s interests allow. Moreover, the problems surrounding privacy and data ownership will exacerbate as these mega-ecosystems take shape.
In search of potential solutions, we have already explored how monopolistic silos could be broken down with the emergence of the decentralized stack, decentralized funding, open-source software and new forms of data pricing. With regard to future mega-ecosystems, these initiatives aim to diminish the role of the central orchestrator by decentralizing many of their key functions such as the exchange of data and algorithms, pricing, payments and governance. Consequently, the natural urge of ecosystem stakeholders to compete at infrastructural levels is thwarted and redirected to the application level, where one must compete based on the quality of their service offering, instead of being privileged with a gatekeeper position. Furthermore, the use of shared protocols and smart contracts, which empower this decentralized infrastructure, also provides the opportunity for stakeholders to embed rules by which services in the network should abide. As these open ecosystems allow for the possibility for all stakeholders to vote on these rules, chances will be higher that rules will be implemented that serve the collective such as GDPR-by-design, circular economy business rules or carbon taxes. Consequently, we might truly see the emergence of digital ecosystems adopting a Rhineland model.

Implications

  • At first open ecosystems will be complementary to closed ecosystems as they will offer integrated services which closed ecosystems cannot provide and vice versa. However, as scalability of open ecosystems improves and popularity builds, we could expect a gradual migration of services from closed to open ecosystems.

  • In an open, decentralized ecosystem model, the lower layers of the stack will be commoditized and most value capture will take place at the edges of the network. In contrast, in a closed model, the central orchestrators will greatly profit through a rent-seeking model.

  • Countries or continents that are behind on digital innovation have the benefit of not being too dependent on legacy infrastructure and might easily leapfrog to more open ecosystems. For instance, there are already more than 100 pan-African blockchain projects that have an open ecosystems approach.

The end of the fourth Hegemonic Cycle

Since the birth of capitalism in the Italian city states of the 15th century, there have been four cycles of hegemony: Genoese, Dutch, British and American. The history of these Hegemonic Cycles holds several interesting patterns that allow us to gain a deeper understanding of our current geopolitical moment.

Our observations

  • In the book The Long Twentieth Century, Giovanni Arrighi outlines the history of capitalism into successive periods of global hegemony (the Republic of Genoa, the United Provinces, the United Kingdom, and the United States). By showing recurrent patterns in the history of hegemony, the book provides a lens to look at our current geopolitical moment.
  • The US. dollar is still the anchor of the international monetary system as it accounts for about 60% of foreign exchange reserves, foreign currency liabilities and bank deposits. The economist Barry Eichengreen has shown that historically, the dominance of a currency comes to an end within a multipolar global system.
  • Since the 1970s, real wages for U.S. workers have barely budged.
  • The Chinese economy, the world’s second largest, could overtake the U.S. economy in a decade (estimates vary). China’s economic growth rate stood at 6% in 2018, accounting for around 30% of global GDP growth.
  • The Telegraph reports that “the era of austerity is over” as British politicians are converging on fiscal expansionism. Illustrative of the growing tolerance for debt, earlier this year, ex-IMF chief economist Olivier Blanchard concluded that “public debt may have no fiscal cost” by arguing that its benefits exceed the costs.
  • Currency devaluation has become a focal point for global trade tensions. The IMF recently warned that the surge in monetary easing from both advanced and emerging economies has created fears of a currency war.

 

Connecting the dots

In The Long Twentieth Century, Giovanni Arrighi shows that since the birth of capitalism in the Italian city-states of the 15th century, capitalism has unfolded over a 700-year period by producing hegemonic powers that secure control over the global economy (Genoa, Dutch Republic, UK, U.S.). The recurrence of several patterns within these Hegemonic Cycles allows us to gain a deeper understanding of our current geopolitical moment, in which the hegemony of the U.S. is coming to an end.
Each Hegemonic Cycle begins with a period of “material expansion”. As competition over capital intensifies, historically, this eventually leads to the concentration of capital accumulation in a leading state. Genoa, Amsterdam, London and New York became “hegemonic” by dominating global capital flows. As the hegemon accumulates more and more capital, it will keep reinvesting its surplus capital in trade and production of material goods, triggering the “material expansion” of the global economy. For U.S. hegemony, the period of material expansion lasted from the 1950s to the early 1970s and has been called the Golden Age of Capitalism, in which global trade and production grew at unprecedented rates.
What follows is “financial expansion” and it is triggered by what Arrighi calls a “signal crisis”. It is the moment in which, for the hegemon, it is no longer profitable to reinvest all of its surplus capital in material trade and production, as competition in the global trading system pushes down profits. Instead, financial speculation becomes more profitable. Put simply, the hegemon switches from trade in commodities to trade in money. The switch to finance was made in the 16th century by the Genoese, in the 18th century by the Dutch, in the late 19th century by the British, and in the 1970s by the U.S. By 1979, foreign exchange trading amounted to more than 11 times the value of global trade, and five years later, to almost 20 times the value of global trade.
The switch to finance also triggers a “belle époque”. It is what Arrighi calls a “wonderful moment” of renewed wealth and power for the hegemon as the society’s elite benefits from financial expansion. In previous cycles, these were the Italian Renaissance, the Dutch ‘pruikentijd’ (periwig period) and the

Edwardian era. In the U.S., the Reagan era is the belle époque that followed financial expansion (“it’s morning again in America”). All of these periods have been called “Gilded Ages” as the rich were not ashamed to live conspicuously. However, the belle époque also symbolizes the deepening of the “signal crisis” of capitalism. For one thing, the belle époque lays the foundation for populism by leaving behind the middle class that benefited from material expansion (e.g. production, trade). Indeed, since the financial expansion of the 1970s, real wages for American workers have stagnated and populism responds to this dissatisfaction.
The end of hegemony is marked by the “terminal crisis” as a rival state launches another period of material expansion. However, before this happens, there is a relatively long period of “dualism of power” between the center of finance and the rival center(s). Historically, these periods have escalated into a final climax of 30-year conflicts (the Thirty Years’ War, the Napoleonic Wars, and the World Wars). It is important to note that the rival center (e.g. France, Germany) is not necessarily the next hegemon and the 30-year conflicts are actually wide-ranging conflicts between many different states.
At what point in the Hegemonic Cycle have we arrived? Several scenarios are possible. It is often assumed that China is replacing the U.S. Interestingly, previous hegemons have always financed rise of the next hegemon (the Genoese merchant elite financed the Dutch Republic, the Dutch financed the British East India Company, and the British fell heavily into debt to the U.S.). Similarly, the U.S. financed the rise of China through debt, FDI and technology transfers. Another possibility is that, with growing tolerance for debt, protectionist measures and currency war rhetoric, we have entered something akin to the 30-year conflict. However, it is also possible that the history of Hegemonic Cycles has come to an end, either because the U.S. has grown too powerful, capable of integrating rival centers into its network of global capitalism, or because a rival system is emerging in East Asia. All in all, thinking in terms of Hegemonic Cycles shows that if we look at our current geopolitical moment from a longstanding history, we can see that hegemonic shifts occur much differently than is often assumed.

Implications

  • By connecting other (historical or geopolitical) patterns to the Hegemonic Cycle, we can speculate about the next cycle. For instance, each Hegemonic Cycle was started by a capitalist state with a larger scale (e.g. population, geography) than the previous one; each Hegemonic Cycle was significantly shorter than the previous one; each hegemon was a maritime power capable of controlling the world’s most important maritime trading routes. All of this could point to China or India as the next hegemon.
  • It is likely that the next phase of material expansion requires a fundamental departure from the socially and ecologically unsustainable path of the global economy, in which the costs of man and nature have been largely “externalized”. Indeed, the state that leads the Second Deep Transition could become the next hegemon.
  • Although the idea of a 30-year conflict paints a dark picture, innovation accelerates during these periods, as rising government expenses and growing tolerance for debt create the conditions for industrial expansion. During the Napoleonic Wars, unprecedented expenses by the British led to innovation in iron railways and iron ships, and during the World Wars, the American car industry grew rapidly.

The future of globalization

Since the 1990s, the world and global economy have become much more interconnected, and globalization has seemed a force that could not be stopped. However, the current wave of populism as well as the return of protectionist policies (e.g. Trump’s America First) fuel fears that globalization could be reversed, leaving the world worse off in economic as well as socio-political terms. The question therefore emerges whether globalization has peaked, will reverse or will actually continue its upward trajectory. Looking at the history of globalization may provide some glimpses of its future.

Our observations

  • Between 1970 and 2008, global trade as a share of GDP increased from 27% to 61%. However, in the past decade and the aftermath of the global financial crisis, global trade as a share of GDP has stabilized and actually decreased to around 58%.
  • The world – or at least the Western hemisphere – has enjoyed a period of relative stability and peace since WWII, with no major violent conflicts between major states (considering the Cold War a non-violent conflict). Modelled after the Pax Romana (27BC-180AD), Pax Mongolica (12th and 13th century) and Pax Britannica (1815-1914), this period can be called the “Pax Americana”.
  • After the communist Soviet Union, the U.S.’s main ideological rival, collapsed in 1991, the idea emerged that liberal democracy with free-market capitalism is the ultimate outcome of history. This belief was articulated by Francis Fukuyama in his book The End of History and the Last Man (1992).
  • Using data from the World Bank, we find that average deviations from trend growth almost halved in the global economy between the 1980s and 2016, although there was a significant uptick after the financial crisis in 2008. This phenomenon was called “the Great Moderation” and was driven by structural and institutional transformations of the global trading system under U.S. hegemony, such as the Pax Americana, Bretton Woods institutions, and the liberalization and integration of economies in the global economy (e.g. China in 1978, India in 1991). As a result, risk premia declined, so that firms had to hold less capital to meet liquidity and solvency requirements, and business cycles across the world became much less volatile. Furthermore, innovations in ICT (e.g. RFID tagging technology, internet connection) made outsourcing a real possibility, such that production chains scattered across the world, leading to a boost in global trade.
  • During the second half of the 20th Century, American consumer culture spread across the world and American blue-chip companies (i.e. the Nifty Fifty) became sources of U.S. soft power (e.g. Coca Cola, McDonalds, IBM, Walt Disney). As U.S. economic power translated into real, “hard” power, the historically non-interventionist U.S.’s foreign policy used its economic, cultural and military dominance to direct global affairs and political developments. It did so by promoting a democratic and liberal world order and stimulating So besides seeing increased international trade (i.e. internationalization), the world also became much more integrated in cultural and political terms. Under the U.S. geopolitical structure, the world witnessed another globalization boom as digital technology and the (neo)liberal world order turned it into a “global village”. Since the 1990s, the degree of social and political integration has almost doubled and continues to grow, although the degree of economic globalization has stabilized and even decreased since 2007.
  • We have written before that the next global economic downturn might be different from any previous one in history, given the destabilizing factor of financial cycles in macroeconomics and the rise and decoupling of the economies of emerging markets from developed economies. As such, the upcoming global crisis might require more international coordination and collaboration.

 

Connecting the dots

In modern times, we have seen three waves of globalization and de-globalization. This process began in the 19th Century, with the Industrial Revolution, steamships and railways, rapid population growth and European imperialism, which was ended by the global flow of isolationism in the 1930s after the Great Depression. The second wave lasted from after WWII until the 1970s, driven by the integration of European countries and emergence of the Bretton Woods system. It was ended by the “Nixon shock”, which de facto ended the Bretton Woods system. However, global trade didn’t fall significantly during that period, in contrast to the 1930s, so we could say that there was only a period of “globalization stasis” in the 1970s and 1980s. The last phase came after the collapse of the Berlin Wall and implosion of the Soviet Union and was driven by further innovations in ICT that reduced transaction costs. Furthermore, the neoliberal “Washington Consensus”, which advocated openness to both trade and capital flows meant that Asia and other emerging markets continued to open up to the global economy. As such, there was a clear upward trajectory towards more globalization and economic and political integration.
However, the recent trade war by an increasingly isolationist U.S., the rise of anti-globalist populism (both in developed and developing countries), as well as a broader backlash against multilateralism and economic and political integration fuel fears that this process of globalization will stall or even reverse. There are good reasons for thinking this. The first is that major steps to integrate countries and economies into the global economy and political system have already been taken. Similarly, production chains are already very complex, meaning that there are lower marginal benefits to spreading them across the globe, while breaking them up could increase transaction costs. Furthermore, new technologies (e.g. 3D-printing, AI, robotics) could lead to reshoring production back to home countries, which could reverse the process of “outsourcing” production to other countries. Lastly, capital flows are unlikely to become more globalized, given the regulation implemented after the financial crisis to increase stability in the global financial system. As such, we could argue that globalization has reached a “natural limit”.
Can we identify any new drivers of globalization? One could argue that services could become one, as trade in services is much lower than trade in goods (roughly a quarter of global trade in merchandise goods), meaning more scope for increase.

Furthermore, we have written before that digitalization could boost trade in services, as most service sectors have remained relatively resistant to digital disruption. However, trade in services is more difficult because most services are local by nature and thus unsuited to being traded (e.g. a haircut can only be consumed at the local barber). Furthermore, getting countries to agree on common standards is much harder to achieve than it is for goods (e.g. establishing similar legal or healthcare standards is a much more sensitive issue for countries) as exemplified by the stalling General Agreement on Tariffs and Trade (GATT) rounds that increasingly focus on reducing trade barriers for services.
Lastly, the global trade war between the U.S. and China could have longer-lasting ramifications for the global economy. Not only could it mean a decoupling of the two largest economies in the world, representing over one-third of global GDP, but also a broader relocation of production chains back to countries. Furthermore, this is being enabled by the aforementioned technological innovations that make reshoring economically feasible. As such, the world could become divided among regional blocks with new economic centers of gravity. For example, an Asian block led by China versus a Western block led by the U.S.
On the positive side, the history of globalization shows that previous phases of deglobalization were mostly driven by policy decisions (e.g. the Smoot-Hawley act in 1930 and Nixon’s decision to suspend the U.S. dollar’s fixed convertibility to gold in 1971). As such, there is no “endogenous” driver that could lead to deglobalization. Furthermore, technological innovations could also lead to new comparative advantages in the global economy, especially for those regions that have hitherto been underrepresented in the global trading system because of dependency on global export markets. But with digitization, many more countries can “leapfrog” into new ways of production and value chains, meaning that they can skip particular stages of their economic development. Furthermore, decentralized technology could mean that national states will become less important actors of economic activity, and that multinationals as well as decentralized production models will increasingly boost future economic productivity and exchange. All in all, although there are limits to the expansion of the global economy, there are reasons to think that its end is not inevitable.

Implications

  • Similar to the fear that the global trading system will increasingly crumble into smaller regions of intensive economic integration, there is the fear that the internet will dissolve into various smaller internets, i.e. the splinternet, or that future technologies will be of a less universal nature because various regions will develop their own standards and rules for development and implementation (e.g. for 5G or communication for IoT devices). This will lead to a less efficient allocation of capital, as well as reduced economies of scale.
  • We have written before that as China moves up the value chain, its geostrategic interests change along. After China became the factory of the world, it began rolling out a global infrastructure in the form of the Belt and Road Initiative, which increases China’s global footprint and thus its need to defend its overseas assets. As such, these challenges China’s One Belt One Road (OBOR) will face are inescapable and handling them is vital to a future Pax Sinica. Furthermore, as China champions globalization, prioritizes growth for developing countries and embraces technological innovation, it offers an alternative vision of progress. As such, the country could help sustain the liberal world order along with other, smaller liberal countries, especially as the U.S. retreats into isolationism and protectionism.