2006: The Year of the Balance Beam

As tempting as it may be to usher in the new year with a round of punditry and prophecy, I'll try to avoid speculating about what will happen in 2006, and instead just outline some possible events. There are a great deal of spectacular and monumental events that could happen in 2006, but in my opinion none of them are very probable. The thing is, dramatically improbable events happen all the time, simply because there are so many potential events that the occurrence of at least one is virtually assured, despite the improbability of each event individually. This is the troubling part about 2006: the sheer number of improbable but potentially catastrophic events that have raised their heads above water seems to me to suggest the great probability that at least one of them comes to pass. This situation is aggravated by the different gambits being put in play by many of the world powers, which with varying degrees of desperation and mutual incompatibility seem set to only exacerbate the situation. For that reason, I'm predicting that 2006 will be the year of the balance beam: imagine a few dozen bespectacled, middle-aged men sporting the full spectrum of gray attire trying to pass in opposite directions without pulling one another into the abyss. I forgot to mention that they're all connected with bungee cords. It could happen...

1. Bird Flu: Most likely won't happen this year, but it's certainly not impossible. But when it does come--and that seems almost certain at some point in the next 10-15 years--it will send shockwaves through every corner of the global system. A gradual onset over the course of several years would probably be best, but the sad reality of the current global health system is that we are most capable of preventing exactly the kind of gradual onset that could prevent an eventual, catastrophic outbreak.

2. Terrorism: Most likely there won't be an attack this year on the scale of 9/11, or even on the scale of Madrid or London. Most likely (notice the theme...). Al-Qa'ida, as a conceptual entity, is regrouping in Saudi Arabia, and will not likely crack that nut in the immediate future. The odds of a large-scale attack on the domestic United States are equally small--despite the evidence that several groups would like to proclaim their continued viability by such an attack, a smaller scale attack in Milan or Copenhagen is the most likely.

3. Iraq: Expect a settling period. The Iraqis have just concluded what was, by most measures, a "successful" election. But over the course of the new year the realization will gradually dawn that there is no correlation between a successful election and those elected politicians actually solving the country's problems. And they have many problems--most of which remain just as intractable as always. The insurgency has already shifted tactics following the elections to highlight just this problem--by shifting their focus back to the electrical system (and other infrastructure targets) they will undermine the ability of the democratic government to get anything done--aside from begin the creation of a de-facto system of channeling the majority of oil revenues to the Kurdish and Shi'a regions. Over the course of the year this will reverse the positive sentiment following the election and favor fragmentation. As this will likely proceed with few spectacular inflection points, however, it will be perceived as progress in the US--which will facilitate the decrease in US troop levels in Iraq. The "Iraqi-ization" of the counterinsurgency is a similar case of setting themselves up for failure--but it will be effective in furthering US policy interests. Talil Air Base will remain a safe point of departure for US planes, and the ability of the British to withdraw some troops from the South and the Norwegians to increase their oil partnerships in the North will prevent those countries from sliding ever closer to the Euro (which is an inevitable result of the peaking of North Sea oil production--the petrodollar standard only benefits oil producers that have significant US debt reserve holdings).

4. Iran: With the US military drawing down to perhaps less than 50,000 troops (more likely 80,000) by the end of 2006, along with the drawdown of some forces from Europe and South Korea, the US military will surprise many pundits with a reconstituted expeditionary capability. Equally important will be the forces that are not withdrawn from Iraq but are freed up for internal re-deployment (preventing the notification that is a de-facto result of re-deployment overseas from the US). All of which leads directly to a discussion of Iran and Syria. An almost unending stream of commentators have theorized that the US will attack Iran in March of 2006. Not at all likely--that's too early--but by the end of the year it will be certainly within the realm of possibility. Which demands a brief analysis of what kind of an attack that might be. A ground invasion is simply impractical--the terrain, size and population of Iran are vastly different from that of Iraq. Of course, the hubris of the current US administration is such that it can't entirely be ruled out--it just isn't very likely. More likely would be some kind of airstrikes aimed at Iran's nuclear facilities--by either the US or Israel. While there seems to be the kind of political will necessary to carry out such an attack in Israel, it isn't very likely to succeed. The Iranians just bought enough top-of-the-line Russian SA-15 surface-to-air missile systems to provide excellent point defense of their nuclear facilities--even some defense against cruise missiles and GPS-guided bombs. They'll take delivery beginning this Spring. Despite the rusty nature of Iran's Shah-era air force (Vietnam-era US fighters like the F-4 and older Soviet models), they also have been long rumored to have the Russian-built SA-10 system, which makes US Air Force planners wince. More significantly, however, is the political fall-out of a potential attack. It's my opinion that Israeli long-term interests would not be served by an airstrike, even if it successfully derailed the Iranian nuclear program for several years, as it would build resolve to finally get a bomb AND use it. US "interests" (by which I mean the current administration's), however, might be better served by such airstrikes, as it could create an environment of instability regarding Iran that would pressure early-adopters to shy away from Iran's euro-denominated oil bourse that opens this March. Which, of course, leads us to a discussion of oil...

5. Oil: What will oil do in 2006? It could hit $100/barrel, but that isn't very likely. More likely it will oscillate about $60/barrel, gradually working its way up to a stable $70 by year's end. It's necessary here to offer a disclaimer: an honest psychological self-evaluation suggests that I may be overly bullish on the price of oil as I have a substantial personal investment in (long-term) oil prices. That said, it will probably take more than one year before the reality of the depletion:discovery ratio really dawns on the broader financial powers, so prices will probably remain relatively flat this year. Unless, of course, Summer '06 exceeds Summer '05 in the Gulf-Coast hurricane category. How high a price can the current economy sustain before significant demand destruction kicks in? Well, prices in the late 70's and early 80's maintained a $70+/barrel level (in 2004 dollars) for quite a while without significantly decreasing demand (which eventually did happen, but more due to a recession that can't be solely linked to oil prices--it's a sticky point, I'll admit). In addition, by all measures we produce more GDP per barrel of oil burned today than we did back then (though not at double the level as some suggest--that is largely owing to the monetization of services in the modern economy). I think that prices of at least $100/barrel can be sustained with no appreciable impact on demand, but depletion rates over 5-6% could push prices far above that even with demand destruction. But there are really three factors that are pushing the price of oil upwards, only one of which is the "Peak Oil" phenomenon. The second is inflation. Oil prices will increase based on fundamentals, and they will also track inflation because it is not some fiat-commodity, but a commodity that has real value. So a 10% increase on fundamentals and 10% inflation will be additive. The third driver of oil price increase is the strength of the dollar. If the dollar drops 10% relative to the euro, then the price of dollar-denominated oil contracts will go up 10% because arbitrage between the US and Europe will keep the real price of oil roughly equal between the two. And if the Iranian oil bourse is a success, on thing that it will certainly do is depress the value of the dollar. It's also worth making a brief statement on oil exploration. Most commentators are suggesting that oil companies have increased the future price of oil assumption (the indicator that tells them which exploration ventures are acceptable from a financial risk perspective) from roughly $20/barrel to roughly $30/barrel. This is, conveniently, in line with the official line spouted by the oil majors and the Saudis. Privately, they mostly suggest that they aren't really convinced that oil will return to $30/barrel, but that it's a safe, low-risk assumption for their ventures. This price assumption is very important, because many market-economists who tout the salvation potential of oil-shale, tar-sands, gas-to-liquids and other higher costs oil options say that there is plenty of oil (hence no "peak oil"), but that we just need a slightly higher price assumption to see these supplies rapidly come on line--say $40 to $60/barrel. Well, these oil companies all employ numerous finance-MBAs, and any finance-geek worth their salt could tell you that with the December 2011 crude oil future currently trading at over $57/barrel, exploration ventures can utilize put-options to hedge against any price drop below current levels. Even with the cost of financing the options over time (which is significantly offset by inflations impact on oil prices), oil companies would have to be financially illiterate to not be using de-facto price assumptions in the $45 to $50/barrel range. My calculations suggest that the correct future price assumption from a financial risk standpoint is roughly $10/barrel below the price of the December futures contract 5 years out--in this case, CLZ11 (which closed today at $57.48, suggesting a price assumption of $45/barrel).

Well, I'll draw the line there on my 2006 overview. While I don't think that it will be a year that goes down in history any more than 2005, I certainly don't think that it will be boring.

A Peak Behind the Curtain

Exactly one month ago, the US Federal Reserve issued a simple press release that they will cease reporting M3 as of March 23, 2006. Three whole sentences (read it...). It received zero coverage by the mainstream media. A Fed spokesman said that ''M3 does not appear to convey any additional information about economic activity that is not already embodied in M2."

If M2 and M3 make you think of British motorways or BMWs, read this primer on money supply. I think that this is CRITICAL, because it is the structural backbone to modern geopolitics.

In short, M0 is the value of all US currency that exists in actual bank notes and coins. M1 is M0+checking accounts. M2 is M1+money market accounts and CD's under $100k. M3 is M2+all larger holdings in the dollar (Eurodollar reserves, larger instruments and most non-European nations' reserve holdings). The key point here is that which will be lost when the Fed stops reporting M3, but continues to report M2 and M1: we will lose transparency on the value of reserve holdings in dollars by other nations and major financial institutions.

And, of course, the timing of the discontinuation of M3 data just happens to coincide with the opening of Iran's euro-denominated oil bourse. Funny how that hasn't exactly been reported at all by ABC, CBS, NBC, CNN, Fox or the other "Main Stream Media" sources.

So what will happen when Iran opens its bourse? They won't just sell Iranian oil (although that alone is a sizeable chunk of world production, roughly 4 million barrels per day, or about 5% of global production). Instead, they will create an entirely alternate derivative market to the exclusively dollar-denominated sale of oil derivatives at the International Petroleum Exchange (London) and the New York Mercantile Exchange. The way this works is that NYMEX crude futures are for "West Texas Intermediate" crude, theoretically "deliverable to Cushing, Oklahoma." It will come as no surprise that all the oil is not actually delivered to Cushing, and that oil consumers from around the world still use these NYMEX futures to purchase and hedge on oil. By way of arbitrage, people who need crude oil don't have to actually ship it through Cushing--it doesn't even have to be West Texas Intermediate crude, for example, Nigerian "Bonny Light" or Algerian "Saharan" crudes can all be bought and sold using derivative and arbitrage mechanisms on the NYMEX. So an Brazilian refinery can purchase crude via NYMEX and may actually take delivery from a tanker direct from Nigeria. This is critical because it is exactly the same mechanism by which the new Iranian oil bourse will be a direct competitor to both the IPE and NYMEX. You can count on Venezuela's PDVSA using the Iranian bourse, for example. And naturally, it would only make sense for Euro-zone customers to purchase via Iran using their own currency. This may take some time to build momentum, but it will be a truly monumental shift in the global geopolitics.

The result of this is that countries will no longer need to use the US Dollar as their reserve currency. As reserve currency levels drop, the fundamental impact will be a drop in demand for the US dollar. This will result in a decrease in the value of the dollar, but much more importantly it will mean that there is also a decrease in people wanting to purchase US government debt--the debt that we use to carry huge and consistent budget deficits. Of course, it will still be possible to get other nations to purchase our debt instruments and finance our deficit, but the market will shift the price equilibrium for this debt upward--that is, the interest rate that we are paying on the national debt will increase significantly.

Suddenly the mysterious Fed is much less mysterious: the M3 statistic that they will stop reporting this Spring is exactly the one that would be used to identify just such a shift in the use of the US Dollar as a reserve currency. Was that the motivation for the Fed's move? It's the only one that I am aware of, but it's no more than conjecture.

Just how fast and how strong this shift from the petrodollar to the petroeuro will snowball is difficult to predict. There are plenty of people who think that it will be alternatively minor, catastrophic, or lead to the US nuking Iran in a few months. My goal here (for once) isn't to speculate, but just to shed some light on this murky topic.

Syriana

A round of applause for George Clooney's new movie, Syriana. It's gritty. It's complex--just like the actual issue that it deals with, so thankfully for once it wasn't excessively dumbed down to meet the Hollywood standard concept of what an audience can understand. It is just about as real as what is actually happening. It isn't a slick example of post-production effects or CGI. In fact, the cinematography has an almost doccumentary feel. Of course, if you're looking for the kind of happy ending that Hollywood provided in such recent movies as "The Constant Gardener" and "Lords of War," then you're out of luck. But surely that was to be expected.

I was amused to see how accurately the CIA Predator-UCAV experience was represented. I was peripherally involved in such fun and games in 2001 when it was just called "Project 417." Even today people involved with the Air Force's Predator fleet usually just say "the 'other' customer," so it is a testament to how well researched this film is, down to the smallest details.

While the plot skirted the issue of Peak Oil, I can't fault them for their focus: this wasn't intended to be a warning about Peak Oil--it is a warning about energy geopolitics. The major element that should have been covered, however, was the petro-dollar issue. That's the invisible elephant in the room here. Oh well, maybe next Summer we'll finally get a blockbuster about fiat money and the petro-dollar system. I won't be holding my breath...

Waiting for Godot (Peak Oil)??

Time again to raise the issue of Peak Oil: an honest psychological self-evaluation shows that I most certainly take pleasure in a certain degree of pessimism. That said, when confronted with the s.p.e.ct.r.e of Peak Oil, I'm MUCH more afraid of one of the possible solutions to peak oil: fusion. There is a very real (though my grossly underinformed guess is that it is very small) chance that once of the variety of fusion energy programs actually bears fruit. The European/Japanese bid currently underway in the south of France may even bear fruit while it's still possible to implement a global fusion-powered hydrogen economy. While this kind of Star-Trek utopia is attractive to many, I'm concerned about how centralized and "ownable" fusion technology will be. Is there any reason to believe that the fusion-energy-world system will be any less hierarchal, intensifying and uneven than the current Petro-energy-world system? Is it a coincidence that a recent article in Joint Forces Quarterly (by John M. Amidon, LtCol, USAF) was titled "America's Strategic Imperative: A "Manhattan Project" for Energy"??? A country that controls Fusion power in a post-peak-petroleum world will wield far more power than the US did with it's exclusive atomic armory after WWII.

So I will admit that I am more than a little eager to see the peak of oil come and go. Because when it does, if nothing else, it will prevent the development of a fusion, a modern "Pharo Maker" as i've written about before in "Energy, Society & Hierarchy."

Coincidentally, take a look at the cover graphic on Amidon's JFQ article. Despite what the caption syas, the cover graphic is one of the offshore Gas & Oil terminals in the al-Faw complex. It was one of the least-publicized operations of the Iraq War, but the very first land operation was a seizure of two of these platforms, as well as three other key oil infrastructure installations in al-Faw by a Seal Team 3 and the Royal Marines' 40th Commando Brigade. My role in it was relatively small: I planned the electronic warfare component, consisting of jamming support from EC-130H Compass Call and E/A-6B Prowlers to ensure that the SEAL assault on the offshore platforms would not tip off the Iraqi land forces in Al Faw of the coming invasion, even though they hit the platforms about 2o minutes before the Royal Marines hit the beach. What did strike me as interesting about the operation was how aggressively it was marketed as an effort to prevent an environmental disaster, because by capturing the oil infrastructure before the Iraqis could sabotage it would, of course, avert a major oil spill in the Gulf. So, naturally, given the Bush administration's strong environmental credentials, it was worth the lives of the dozens of US/UK forces killed in the "unexpectedly fierce" resistance in Um Qasr (because we used up our one time shot at a surprise operation in al-Faw) in order to prevent an oil spill. Sure thing boss, whatever you say...

And on a topic that is much more related than it may at first seem, take a look at this article by Jorge Hirsch:

Nuking Iran Without the Dachshund

Thoughts on Comments

Blogs can be powerful, largely because of the ability for outside readers to comment on the articles posted therein. Here's my argument for a Code of Comments:

Any one who wants to can comment on my blog. You're welcome to be "anonymous" if you like. It seems that blogger.com will give you some minor issues if you aren't registered, but you don't have to register or leave a name or anything of the sort. I think that all blogs should work that way.

If you do choose to use the name "anonymous," expect that I and many others really will immediately question what you are hiding, what agenda do you not want revealed, etc. Go ahead and be anoymous, but it's a strike against you.

Sign your post with your real name. My URL is my real name. If you can't sign with your real name, what are you hiding? Don't sign with "M. Simon" or something equally ambiguous. Let us know who you are, so we can research you, your past writings and comments, your motivations, etc. In some ways it's like the "rigorous vetting process" that a political candidate goes through. If you can't associate your ideas with who you are, I'm not putting much trust in their authenticity...

If you have a web site or blog, link to it. Save us the time, show us right where we can find the repository of your writings and opinions...

If we all did this, it would certainly help with the efficiency of the blogosphere as an information processing network.

Just a few thoughts. Comment on...

A Critical Look at Open Source Innovation

Open Source is great—there is no doubt that when a source-code (say, LINUX) is opened up to a global network of interested parties, then those parties make quick work of fixing bugs and making minor improvements. Same thing with FireFox, OpenOffice, etc. But is the open-source model capable of spawning the very innovation that led to the operating system, the “office” application or the web browser? How many of the open source products currently available are a first-generation innovation? Aren’t they all just a free and less bug-ridden version of something that was first developed under the umbrella of intellectual property rights? If we didn’t have intellectual property laws, would we still have the kind of fundamental innovation that defines our world—and, for utopianists, give us the hope of a Star-Trek future where technology has solved all of our problems?

Regardless of whether you listen to proponents of free markets, intellectual property rights, the capitalist system, you will hear essentially one explanation for our success: ownership. In fact, listen to the right politicians and you may even hear that we can solve our problems by “increasing ownership.” But what does this mean? The basic argument is this: there is a causal relationship between the level of ownership of an innovation with the level of innovation. You will hear the argument that if people don’t own the results of their innovation, and aren’t free to profit from their work, that there will be a sharp decrease in the rate of innovation. If musicians don’t own their songs and can’t effectively control their sale, then you won’t get as much good music. If software developers or movie makers can’t reap the rewards of their innovation, then you won’t get the same level of innovation in new applications or movies. Such advocates cite the critical link between the abstract ownership of such “intellectual property” and the prosperity and welfare of our society. Even the most hardened Open Source advocate has to admit that there is some superficial logic there…

After all, what has open-source really achieved? Can its innovations be compared in any way to those of the capitalist, ownership economy? Capitalism (or some hybrid of capitalism and the military-industrial complex) brought us virtually every significant application or operating system in existence today. Open Source made them less bug-ridden, sometimes more compatible or user friendly…not exactly innovations on par with the original. Capitalism brought us Brittney Spears and “Diddy”…OK, so brush aside the sarcasm and try to name a musician who has contributed more to our modern culture through Open Source methods—recognizing that if you can’t that’s a pretty bad sign. Same with cinema—sure, www.homestarrunner.com is semi-open source in that it’s at least distributed for free, but even that contains an assertion of ownership. It’s not looking like Open Source is going to win the innovation debate…

In my last post I presented a slightly sarcastic critique of the fallacy that correlation doesn’t equal causation. There is a strong correlation between ownership-based societies and innovation—one argument is that the Cold War ended because, absent innovation, the Soviet Union just couldn’t keep up. You can certainly correlate that lack of innovation with a lack of ownership. The traditional opposition to ownership-based systems has come in the form of some hierarchal model of centralized planning like Communism. Perhaps this is the weak link in the otherwise solid argument that ownership is necessary for innovation: capitalist systems exhibit more than just ownership—they also are far less hierarchal than the traditional comparison of the old USSR. While the US economy is still based on hierarchy, it is many smaller, competing hierarchies at play, compared to the single and unified hierarchy of a centrally-planned economy. So let’s embrace our fallacy for a moment: there is definitely a correlation between less hierarchy and more innovation—is this also a cause?

The polar opposite of the structure of hierarchy is rhizome, a network of independent and interconnected nodes. As a system with far less hierarchy than our current system, is there also a great potential for open-source innovation in rhizome? Ultimately, can a rhizome structure create the same system of rewards that likely leads to innovation in our capitalist, ownership-based society? The short answer: no. However, rhizome has demonstrated its ability to spark innovation as rapid or more rapid than ownership-based capitalism—the difference, however, is a fundamental one: rhizome innovation is not achieved by one or many individuals, but is rather an emergent phenomenon of their collective interaction. This is a fundamental difference, for not only is rhizome innovation not dependent on an ownership-system, it is also fundamentally impossible to be owned.

Understanding emergent innovation requires at least a superficial understanding of innovation—and I say “superficial” not to suggest that the reader is incapable of a greater understanding, but because at this point science does not fully understand how emergence works. What is understood is that for some reason the interaction between independent nodes creates something that is greater than the sum of its parts: emergence. Take the human brain, for example: billions of independent but interconnected neurons communicating back in forth somehow produce the emergent qualities of intelligence, consciousness, and imagination. Even though computer “brains” have been assembled with far more transistors than the human brain has neurons, they appear to be fundamentally incapable of replicating these most basic capabilities of the human brain. This is probably because they are organized in a hierarchal manner, not in the independent but interconnected manner of the human brain. It is for this reason that hierarchy cannot utilize emergent innovation, whereas rhizome structures can.

The current situation in Iraq is an example of emergent innovation in direct competition with hierarchal, ownership-based innovation. The ownership and reward environment in Iraq by the US forces and Iraqi government is qualitatively similar to that in the US economy: there are individual actors assigned to “innovate” solutions to the military and political problems there (such as a close friend who works for the Air Force Test and Evaluation Center, who is trying to solve the problem of improvised explosive devices), and there is an ample award system—both for military members and for capitalist defense contractors—should any of these individuals or groups of individuals innovate a useful solution. On the other side of the equation there is a largely rhizome-structured resistance that lacks the ownership or reward system for their innovation. Non-the-less, this semi-rhizome resistance has benefited from the phenomenon of emergent innovation to keep pace with, and by some estimates out-innovate the hierarchal occupying forces and transitional government. The struggle in Iraq is worth studying perhaps more for this battle of hierarchal vs. rhizome innovation than for the more immediate geopolitical impacts.

Returning to the more general theme of “Open Source Innovation,” where do we stand? It is my opinion that Open Source innovation is a broad failure when compared to capitalist, ownership-based innovation. This is largely because Open Source innovation has framed the conflict according to the rules and assumptions developed by the capitalist, ownership-based innovators. If, however, the Open Source movement recognizes that its strength lies with its potentially rhizome structure, and if it leverages that strength to compete on a diagonal rather than in a head to head battle, then the emergent innovation of rhizome will prove to be more capable than the ownership-based innovation of capitalism. And perhaps most importantly, if it is successful the innovations of rhizome will be fundamentally un-ownable: they will provide an egalitarian benefit for all that will help to affect a gradual societal transition towards rhizome structure as a whole.

So much for Global Warming...

Looks like global warming is no longer really a problem, thanks to the intrepid work of the Pirates of Somalia! Take a look at these environmental crusaders...

What? How are they solving the problem of global warming? Bear with me. Basically, since the Kansas Board of Education has approved the teaching of theories other than evolution, the theories of the Church of the Flying Spaghetti Monster is finally legitimate. And the Church of FSM has come up with some remarkable science about global warming, viz. that it is caused by a decline in Piracy:



Or maybe, just maybe, this is a parable that correlation does not equal causation. Hmmm, no, that doesn't sound like something the public is ready to accept.

Battle Cry: November '05??

Say “May ‘68” today on your average street corner and people within earshot will probably think that you’re talking about somebody’s birthday. Outside of French intellectuals and those who haven’t yet forgotten their class in modern European history, the phrase doesn’t carry much meaning anymore. But it did at one time. Will “November ‘05” carry a similarly powerful message in the near future?

What happened in May of 1968? ( http://en.wikipedia.org/wiki/May_68 ). In short, there was a sudden outbreak of student protests in Paris, loosely organized around communist ideals, anti-Vietnam War sentiment, anarchism and frustration. After massive marches in Paris the uprising was joined by 10 million workers on strike, and street battles with the police ensued. The crisis was literally a full-blown insurrection. But it ended as quickly as it began, and the conservatives under de Gaulle increased their strength in the next election.

What is happening now? John Robb at Global Guerrillas has some interesting comments: http://globalguerrillas.typepad.com/globalguerrillas/2005/11/journal_open_so.html. France was one of the first to transition to the State-Nation, and then on to the Nation-State. The current wave of riots and arson engulfing France is perhaps best viewed as the death throws of the French Nation-State (see The New Map). France is arguably the most xenophobic and racist of all the “western” nations—just as it was far more anti-Semitic than Germany prior to the rise of Hitler. Yet multiculturalism and globalization have led to the presence of a huge—yet poorly integrated—underclass of minorities in numerous French slums. This underclass—especially the quickly growing masses of North African and Islamic youth—feel justly alienated from a French culture into which they will never fully integrate. But what is at least as interesting as the cause for the uprising is the manner in which this uprising is emerging. How is it similar to the events of May of 1968?

Are the events of November, 2005 and May, 1968 parallels of each other? May’68 had well articulated organizing principles, but there were several of them, and they were often in conflict with each other. Nov’05, on the other hand, seems to have no consciously articulated organizing principle, but rather seems to be an emergent phenomenon derived from a broad sentiment. Will it go anywhere? Is a conscious articulation of the rationale behind the uprising needed to facilitate its continued growth and impact, or is rhizome more powerful without direction, or with only emergence providing guidance? Will there be any lasting change? Can the Nation-State of France (or any other Nation-State for that matter) be transformed by anything other than complete destruction? Can this uprising be quelled by a compromise that actually addresses the problem, or will it fizzle like the events of ’68? We’ll have to wait and see…

Pipeline Mercantilism

It's a slippery subject: How does a freely-exchange-traded commodity become subject to mercantilistic influences? Well, here's one example:

Russian and China Agree to Pipeline Project

How is this mercantilsm in action? Well, oil only goes where the infrastructure exists to ship it. Market forces will fund capital projects to build infrastructure to ship it where there is demand--but the key is that this pipeline project is not operating under the auspices of market forces, but is instead being subsidized by the two respective governments. So these government subsidies are intentionally directing market forces--this is subsidy mercantilism. It certainly isn't new, but we are definitely seeing more of it with regards to energy. So far almost all mercantilistic efforts have focused on negative barriers--making it cheaper for oil to flow the direction that a government wants it to, for example. The more dangerous phase in energy mercantilism will come with the increase in positive barriers--legal or financial barriers that make it more expensive for oil to flow any direction OTHER THAN the route desired by a given government. The critical difference here is that any nation willing to spend money can lower barriers through subsidy. Only nations with either 1) oil on ther own territory (or that must pass through their territory), or 2) sufficient military force to exert control over oil that does not directly flow through their territory. So the transition from creating negative barriers to creating positive barriers to oil flow is the "tipping point" between peaceful energy mercantilism and non-peaceful energy mercantilism.

At some point it is more expensive to create negative barriers than it is to erect positive barriers. At that point the global game of energy mercantilism will turn violent.

Inefficiency of Social Isolation

It's been called "Bowling Alone." Jerry Mander lamented it in "Four Arguments for the Elimination of Television." It's the social isolation that seems to be a side-effect of the highly stratified and specialized modern economy. But the point of this post is to demonstrate that this social isolation is a hidden inefficiency of the modern economy.

What do I mean by social isolation? We (in the "West," and especially in America) tend to drive by ourselves to work. We drive home by ourselves. We cook dinner for ourselves and our immediate family, and then often settle down for a night of watching television--ignoring even the interaction with those few family members actually in the room for us. When compared to the degree of communalism and social interaction in pre-historic tribes, we are highly socially isolated. In fact, the correlation between level of economic advancement and level of social isolation is so great as to strongly suggest causation.

What is the cost of this isolation? As a case study, let's take a look at a staple of our cultural identity: how we eat. In America, and in much (though certainly not all) of "the West," the ritual of dinner look something like this: get home from work, pull out some frozen or canned foods, and cook a quick dinner for a very small number, maybe one person, maybe an entire nuclear family of 4 or 5. It's a lot of work for a relatively small return, so we often give in to temptation and just order takeout, or drive to a nearby restaurant. Many of us eat out several times a week--if not every meal.

Have you ever cooked a meal for 12 people? Most of us have, usually for a special holiday meal--something that is much more complex than our standard fare. But how much more difficult is it to cook pasta for 12 than it is for 2? In my opinion, there is very little extra effort involved--that makes it a little less than 6 times as efficient to cook for 12 than for 2. If you double you effort and cook a meal from scratch--something that is potentially far cheaper and far healthier--you're still 3 times as efficient. But our social isolation doesn't give us the option of taking advantage of these efficiencies.

Both India and Italy are excellent examples of cultures where less social isolation facilitates cooking for larger groups, resulting in dining rituals that are in virtually every way superior: healthier, tastier, etc.

Cooking from scratch--something that is far more practical when cooking for larger groups--also facilitates greater incorporation of local or homegrown ingredients. Basically, it is far easier to foster a localized economy, and localized self-sufficiency, when cooking for larger groups. And the food economy is the cornerstone of localization and self-sufficiency. It may seem like an impractical suggestion: get 3 neighbors together and rotate cooking dinner. But imaging the gains in efficiency: for less effort you could eat better and healthier. And who knows, you might even find that, aside from being economically inefficient, social isolation isn't nearly as enjoyable as community.

Our dinner rituals are just one example of the hidden efficiency of localization, of "tribal" community. The same concepts work with health care, child care, etc.

Maps of Time

I've just finished David Chritian's "Maps of Time: An Introduction to Big History." Fascinating book, it takes a very macro-view of everthing from the unfolding of the universe to the unfolding of modern human civilization. Perhaps the strength of the book lies in this removed perspective, for Christian is able to calmly discuss the similarities between the energy storage value of animals in pastoralism and humans in slavery in the same sentence. He provides an interesting framework for understanding networks of complexity--that of "centers of gravity" and "hubs." A center of gravity, in Christian's terms, is where the bulk of trade and population lie, but the more important hub is the concentrated location of many significant or long-distance connections. For example, even into the 19th century, India and China were still the "centers of gravity" of the world, but the significance, reach and concentration of linkages in a few Western European locales (London, Netherlands, etc.) made them the much more significant hubs. Here's a brief examle of Christain's analysis:

"At a local scale, and in the short run, complex entities seem to reverse the workings of the second law of thermodynamics by increasing order. But viewed within the larger environment from which they draw free energy, they clearly actually increase entropy by speeding up the transformation of free energy into unuseable forms of heat. Thus complexity is, in a sense, a cunning way for the second law of thermodynamics to work more efficiently towards its bleak goal of a universe without order." (509)

This take on the thermodynamics of civilizaiton seems to have some significance for collapse theory, specifically for the implications of collapse of a global-system. In our peer-polity world, the need to draw free energy from outside sources--whether third world labor or petroleum reserves--demands that the system eventually collapse when it reaches the limits of our "closed system" of Earth. Of course, we don't live in a closed system: we have a continual free-energy input in the form of solar energy. From the perspective of thermodynamics (and within a "human-historical" time-frame) any civilization that requires more free energy than the sun provides will eventually succumb to entropy: collapse.

Modeling Iraq: Mutually-Exclusive Overlap

This week the Iraqi government announced that the constitution passed in the recent referendum. If three or more provinces had more than 2/3 “no” votes then the constitution would fail, but only two provinces—predominantly Sunni—met that mark. Salah-ad Din voted 82% “no” and al-Anbar voted 97% “no.” The most likely third province, Ninewa (Nineveh), failed to meet the 2/3 no requirement, with only 55% of the population voting “no.” In large part, this is due to gerrymandering which included a large Kurdish population within the predominantly Sunni province. In fairness, this gerrymandering was done by Saddam Hussein in an effort to marginalize the Kurds, not by the current Iraqi government or the US administration. Regardless, pressing forward with a constitutional vote using the provincial boundaries engineered by Saddam is a tacit endorsement of their underlying processes—even if it supports an opposite result of marginalizing the Sunni, not guaranteeing their overrepresentation.

While it’s an interesting story, the maneuvering surrounding the referendum also illustrates a fundamental problem in geopolitics: overlapping and mutually-exclusive networks of power. Conceptually, this is a common theme around the world, but it is perhaps most clearly illustrated by the present situation in Iraq. Power structure—like the Ottoman Empire, British Colonial Iraq, or the regime of Saddam Hussein—make a lasting imprint on the geopolitical landscape over time. Then things change, and a new landscape partially overwrites the old. When the British took control of Iraq after the fall of the Ottoman Empire at the end of World War I, they intentionally placed the Sunni minority in power because they could be more easily controlled than the majority Shi’a (see "Exploitation Model" post). If they Sunnis refused to cooperate the British could just leave them at the mercy of the Shi’a—effectively the British leveraged a sizeable local population with local knowledge to do their bidding at zero cost. Over time, deep channels of Sunni power were worn into the landscape—the Sunnis were not willing to return the power and privilege they had become accustom to, and their control of the mechanics of hierarchy within Iraq increased the proportional power of their relatively small population. The result was that after the British left, the Sunni grip on power was sufficiently calcified that the Shi’a majority was not able to take it back. Now the US is using their military power to impose an entirely new geopolitical landscape—one that is ostensibly representative by population, a fundamentally opposite method of power distribution to the one set up by the British in the 1920s. The former system is in no way gone—it’s long presence has etched its pathways of power firmly into the cultural and geopolitical landscape. Therefore the two systems—mutually exclusive because it is not possible to have both Shi’a majority government and Sunni minority rule—are both present, overlapping. The fundamental cause of the Sunni insurgency is this area of overlap. Failure to address this cause of the conflict—as the US is currently failing by addressing only the symptom: insurgent violence—virtually guarantees failure.

There are, of course, other areas of mutually exclusive overlap in Iraq: Saddam’s “Arabization” of oil-rich former Kurdish regions, the border overlap of historically Persian and Arab territories, the overlapping loyalties to ethnicity and religion (Arab Sunni and Shi’a Muslims vs. Kurdish Sunnis and Arab Sunnis), etc. The significant point here is that this concept of mutually exclusive but overlapping networks of power is widespread, perhaps even a fundamental result AND cause of history. It appears that this entire concept is broadly ignored by those who seek to affect history. Is it an intractable force, one that is fundamentally impossible to resolve, or can awareness of it facilitate the resolution by addressing either the “mutually exclusive” nature of demands, or their areas of overlap? US efforts to educate the Japanese in the “ways of democracy” after World War II were an attempt to address the perceived mutual exclusivity of the tendencies of Japanese culture with the US demand that Japan never again imperil their influence. Many resettlement programs—such as some proposed in the former Yugoslavia—are intended not to eliminate the mutual-exclusivity of the fundamental demands of diverse ethnic groups, but to resolve their areas of overlap. Critically, neither of these programs derived a proposed solution after consciously framing the problem in terms of mutually exclusive and overlapping demands. By framing the “Iraq Problem” in such terms, can we arrive at a realistic solution, or does it support the intractable nature of such problems? Specifically: while we CAN effectively work to stop creating instances of mutually-exclusive overlap, but can we do anything to resolve the problems that history has created for us? George Friedman (of Stratfor.com) suggests that the only solution to the Israeli-Palestinian conflict (a similar case of mutually exclusive overlap) is to ignore it until time softens the sharp contours of the overlapping geopolitical landscape. Essentially, Friedman suggests that the same process that leads to the calcification of networks of power over time also erodes them—witness the gradual softening of the conflicts between the Scots and the English. It only took 300 years—perhaps not a realistic suggestion for a solution to the conflict in Iraq.

Since the course of history through time creates conflict through mutually-exclusive overlap, the first step must be to stop building new sources of conflict—a lesson that would serve the current administration well in its “Global War on Terrorism.” At a minimum, proceeding with a conscious awareness of this model will facilitate a decision making process that accounts for this source of conflict.

Is it possible to proactively soften already established cases of mutually-exclusive overlap—to greatly accelerate the healing powers of time? That is a much more difficult question—and one which I do not have an answer to. The problem seems deeply rooted in the dynamics of hierarchal civilization and its effect on human psychology, economic necessity, patterns of growth, etc. Perhaps the solution lies in a reassessment of this fundamental pattern of hierarchy? That is certainly the panacea that I gravitate towards on most issues, but in reality it is quite the Catch-22: Our best hope for a gradual and peaceful transition to a superior form of human organization—one without conflict due to mutually-exclusive overlap—will demand the cooperation of the very groups that are barred from effective cooperation due to the problem of mutually-exclusive overlap.

In a few weeks, Jason Godesky will make an argument that collapse is an economizing process. Perhaps it is also means of systemic conflict resolution—the only one capable of effectively dealing with the problem of mutually-exclusive overlap?

The New Energy Mercantilism

In the past century of growing energy supplies, the non-zero-sum economics of globalization and free trade has spread to the farthest reaches of the earth. But the next century will be defined by finite and decreasing supplies of oil and gas--a reality that will transform our non-zero-sum world into a zero-sum game: The New Mercantilism.

Mercantilism is the economic strategy of zero-sum environments: in a zero-sum world, if you have something then I don't have it, so I need to try to take and wall off as large a share of the pie as possible. This strategy dominated European trade from the solidification of the territorial state after the Treaty of Utrecht, and was a motivating factor to the inward-focus of many historical East Asian powers. It reached its pinnacle during the European grab for African colonies between 1850 and 1939, and the vagaries of geography, timing and leadership that resulted in Germany and Italy being late to joining the race led to a century of conflict between those who have and those who want.

After a brief interlude of non-zero-sum potential, driven by seemingly endless energy reserves and the ideology of global free trade, we are quickly returning to a mercantilist world where finite energy supplies are fueling a new resource grab. All complex societies require energy surpluses to meet their structural need for growth; in the past this surplus was met with colonies, with their surplus of land and people, but today's economies depend on the high energy surplus of petroleum products to maintain growth. As a result of the slowdown and reversal of growing petroleum supplies, there is no longer plenty for everyone...the uneven geography of petroleum distribution will be the defining factor in the new century's "Race for Africa."

Some will say that a free, exchange-traded commodity like oil and gas is fundamentally incompatible with mercantilism. States can't control the supply of oil because it will always flow to the highest bidder. Well, that's a great theory as long as state's don't WANT to control the supply of oil and gas. But power--"laws" and the military force to back it up--rests with states, not exchanges. At the point in the Peak Oil supply decline where there is no longer enough oil for all states to maintain their current standards of economic wealth, let alone to keep growing that standard, then states will be forced to take a mercantilist approach to oil in order to remain viable institutions. The very legitimacy of a Nation-State rests with its ability to provide economic welfare and security to its citizens--welfare and security that are acutely dependent on oil.

But we don't have to wait to watch states implement a mercantilist oil strategy:

- BP, with US/EU aid has developed the Baku-Tbilisi-Ceyhan pipeline to direct Central Asian Oil flows to the West, while China has simultaneously formed the Shanghai Cooperation Council to makes sure that that very same oil flows East. The US forces currently present in Georgia (the Tbilisi link in the pipeline) aren't there on accident. They're "training" the Georgian military to fight terrorists, but are also serving the much more important factor of preventing Russia from leveraging its ties with North & South Ossettia to control Georgia.

- The EU has implicitly and explicitly stated that the value of Turkey in the EU is that it provides geographic access to the oil-rich 'Stans. Turkey is to the oil grab what Egypt and the Suez were to the British empire in India.

- China has unveiled its strategy of growing influence in countries where oil can be exported to them via dry-ground pipelines, in an unspoken recognition of the fact that US blue-water naval superiority will prevent them from effectively contesting ocean-transported oil supplies. Specifically, their interest in purchasing UNOCAL was for its significant reserves in SE Asia--with potential land-pipeline connectivity to China.

- Canada and Denmark recently got in a minor military scuffle over some frozen rocks in the newly-ice-free arctic as a result of their potential oil reserves.

- The US wars in Kuwait and Iraq--Res Ipsa Loquitur.

- China's increasing involvement in the affairs of select oil-rich countries: Venezuela/Panama (working to build heavy-crude refineries and coordinate for their shipment to China via the canal). Also in Sudan, Kenya, etc.

- Recent escalation of Japanese/Chinese conflict over economic exclusion zones around some remote, contested islands...yes, with offshore oil reserves.

The list goes on. My analysis says that by far the most likely explanation for these actions--taken as a whole--is initial jockeying for position in a future oil mercantilism. In my mind the most interesting question is not "are they planning for an oil mercantilism," but "how will countries begin to exert exclusionary claims to oil supplies?" What will be the first steps to exclude oil from an exchange traded system to a mercantilist system? What are the indicators to watch for? Perhaps the forerunner in this is Venezuela's Hugo Chavez, who is using his control over oil reserves to provide them at cut rates to choice nations in order to cultivate influence. State-owned oil, especially state-owned companies that are exploring internationally, will certainly play an important role--and China is THE leader in that regard, with South Korea just behind. I am watching for the following:

- Increases in state ownership or influence in international oil companies.
- Exclusionary oil transport projects--like the BTC pipeline
- Efforts to divide into regional blocs--such as the Shanghai Cooperation Council--and especially if these blocs apparently go out of their way to include oil-regions.
- Legislation that facilitates circumventing free-markets and exchange-trading of commodities, especially for "emergency response" or "economic recovery."
- Intervention (covert or overt, armed or otherwise) in states (like Iran and Venezuela) where the current regime is seen as a threat to oil supplies--or even to create a regime that will provide preferential status in oil supply.
- Changes in tariffs or import/export regulations of energy commodities, or citizenship ("licensure") requirements to purchase commodities contracts, not just to trade them on an exchange floor.

This is your indications & warnings matrix for the New Mercantilism. When this boulder finally hits the water, the ripples will cause heavy erosion on all shores...

Side notes: What country, like Italy and Germany in the "Race for Africa" are notably behind in positioning themselves for the "grab for oil?" India stands out in my mind...

Surface Tension

I just finished reading Thomas L. Friedman's latest book, The World is Flat: A Brief History of the 21st Century. Insightful analysis, but I offer a few alternative conclusions:

Friedman provides an insightful analysis of the driving forces and implications of the racing pace of globalization and communications technologies. But after his discussions of Google and China and the rest of the usual cast of characters in any good "the knowledge economy is upon us" drama, he offers up the same, lame ending and moral. This is the new passion play of our age: Globalization and affiliated phenomena will offer a brisk challenge that must be overcome if America is to retain its wealth and leadership, but with hard work globalization will make all the world a better place.

To be fair, Friedman recognizes the risks to "human rights" (whatever that means), the risks to the environment, the risks to peace and stability, and the risks to culture and tradition. I don't fault him for failing to acknowledge these arguments, even if his versions are rather anemic. What I do have a problem with is his--and virtually EVERY mainstream pundit's--blind acceptance that Ricardo's theory of comparative advantage is fundamentally sound. This is the unquestioned commandment, mountaintop tablets and all, of our political and economic processes. I think it's bunk.

Basically, Ricardo said that if two countries each focus on the one of two products that they are best at producing (due to economies of place), they will be able to produce this product at a comparative advantage to what it would cost the other country to produce it. If they then trade these products, they will both be enriched overall, because they will have the same two products, but will each have incurred less cost in their production.

There is some validity to this theory in a world where primarily luxury products can be traded, and knowledge and service industries were firmly protected from trade--remember, Ricardo wrote about 200 years ago. Even then, his theory depends on low transaction costs (dubious), and an ignoring of equivalent goods (England couldn't produce Port wine as efficiently as Portugal, but they could produce fine ales with equal efficiency--does the minor disequivallence of these goods justify the significant transaction costs?).

Ricardo's theory of comparative advantage is still quite popular today--I'll argue because it provides intellectual support to a series of policies that greatly enrich the very class of individuals that is capable and tasked with evaluating the merits of the theory. But in today's world, much more than luxury goods can be traded. In fact, nearly everything is fungible and transportable, and transaction costs are at a historic low. Populations can be transported where they are economically most in demand. Intellectual work can be outsourced--law and accounting are increasingly being done in India, even if you still have a friendly American face meet with face to face. This creates a situation where Friedman's language--that the world is flat--is increasingly appropriate. The bottom line is that the human factor in economics is increasingly commoditized--both on the production and consumption end of the spectrums. In a flat world without barriers to trade and capital mobility, there is only surface tension holding back the complete optimization of the human factor. No matter how low American wages go, someone will always be out there in some new China or India, ready and eager to do the work for even less in order to feed their family. And this doesn't just apply to unskilled labor--skilled labor, to include PhD's, even to include innovators, is still a production input to be optimized. Sure, it takes a little longer to overcome the institutional barriers of education, but there is nothing stopping virtually any service from being re-bid to increasingly lower and lower bidders.

There is this myth that at least innovation and highly specialized skills--doctor, lawyer, physicist, etc.--are immune from outsourcing because they depend on specialized institutions of higher learning, of which the best are in America. FALSE: take Microsoft's recent establishment of a post-doctoral institution in China that ruthlessly tests and skims the highest IQ individuals from the population, sets them up in state of the art research facilities at relatively low wages, and then leverages their innovative capabilities by providing ultra-modern connectivity with the rest of the Academy. Goodbye MIT, hello Guangdong. The only factor that determines innovation that can't be taught and relocated as necessary to ensure the bottom line is IQ (or whatever similar metric you prefer), and IQ can be scouted, recruited and relocated anywhere.

There is no limit to how far the human component of the economy can be marginalized, optimized and routinized. The global economy is a system of evolving, hierarchal entities that are structurally bound to focus on the bottom line. Detroit can pay auto-workers good wages, at least until their inefficiencies catch up with them and they have to cut back to compete with the reality of overseas labor options. Costco can offer all their workers good health care, at least until Wall Street hammers them for having a lower profit margin than Wal-Mart. These temporarily inefficient bubbles can last for a little while, but the quickening of global financial transactions, analysis, and capital flow are shortening their already precarious life-spans. If a specialist in New Delhi can read your CAT scan over email, what's to stop internal competition between healthcare providers from bringing her over to the US to take over for all M.D.s at a quarter of the price? It sure isn't "bedside manner"... the call center personnel in India already get more training in that (and American accents) than do most of our doctors. The bottom line is that there is no barrier to the complete marginalization of the human factor in the economy. It is SKYNET come to life, only more real and more dangerous to our humanity--a systemic, structural, machine force that demands ongoing optimization between non-human economic entities, and the last factor to be optimized is the human one. It's like a lens of water on a flat surface that just came in contact with a drop of soap--the surface tension of time is the only thing standing in the way of the juggernaut of hierarchal intensification.

Anti-Economies

It's economics 101: Economy of Place and Economy of Scale are the driving forces behind our global economy. But are there opposing economies to each of these fundamental forces? Hey, anything's possible. Imagine a world far, far away, before people knew about positrons...

Economy of place is the concept that some things are more efficiently done in certain places--to use the classic example, it would be just plain silly for to try to grow grapes for Port in dreary England when they grow so nicely in Portugal. Lumber is more ripe for the logging in Oregon than it is in Kansas. So what's the "anti-economy of place?" Well, that would be the Economies of Independence and Diversity.

Economy of scale is the concept that it is more efficient to do lots of one thing rather than trying to do a little of everything. You can specialize and stratify and apply all kinds of fun economic terminology, but bottom line is, if all you do all day is draw out wire into push-pins, you're going to get pretty good at it. But if you only had to draw out wire into a push-pin when you need a push-pin (can't remember the last time that happened to me), you will probably be very slow and inefficient in their manufacture. This is economy of scale--and it applies even better to things like microprocessors and flu vaccines than push pins. So what's the "anti-economy of scale?" That would be the Economies of Simplicity and Ontogeny.

Economy of Independence: There is a certain, undeniable efficiency of not depending on things beyond your control. If Lampedusa's primary economic product is capers, and if they depend on a strong market for capers to be able to purchase other fundamentals like food, clothing, shelter, etc., then they may reap the advantage of economy of scale, but they certainly also incur the disadvantage of diseconomy of dependence. Their prosperity--that is, the value of their economy of scale production--is dependent on the fickle demand for their one product. In addition, the diseconomy of dependence also demands that they incur increasing transaction costs for all the products that they must import...

Economy of Diversity: There is also a certain, undeniable efficiency found in diversity. No two environments are the same, no two sets of initial conditions are the same, and therefore there is no single solution to these diverse problems. While paying an architect to produce just one home design and then duplicating that design across endless tracts of land is efficient due to economy of scale, it is also inefficient due to failure to exploit economy of diversity. Every home site is slightly different, with different sun exposure, microclime, prevailing winds, views, etc. Not to mention that every occupant has different needs. The efficiency of designing each home to meet the exact demands of its site and occupant is an example of economy of diversity.

Economy of Simplicity: Economy of place and scale create massive information processing burdens--that is, the burden to coordinate the production of specialized elements (economy of scale) and distant elements (economy of place). The larger the hierarchal organization, the greater the percentage of its effort that must be dedicated to internal information process, command and control, etc. While small localized production faces diseconomies of place and scale, it also reaps economy of simplicity: One guy going out to check his chickens doesn't have to allocate much of his time to HR concerns, vision statements, planning meetings, etc. He just goes out and checks his chickens. So while his time may be less efficiently spent, he spends nearly 100% of his time on that task. In a major corporation, let's say Tyson, a significant portion of their cumulative time is spent on tasks other than their direct production of chickens.

Economy of Ontogeny: Finally, while spending your entire life attaching button B to sleve hole A may be amazingly efficient from the perspective of economy of scale, it isn't exactly fulfilling. It might even make you go insane. This isn't just whining--our genetic ontogeny creates certain inflexible limits on the tolerances of human activity. These limits are murky and far-reaching, but one pretty clear example is that a person who gets to make an entire shirt will enjoy better mental health than someone who just attaches button B--and from a purely economic standpoint, that superior mental health makes them a more efficient, more reliable, longer lasting human asset. It may seem like an insensitive analysis, but the point is actually quite humane: keeping people happy will also make them more economically efficient. So even if it comes at the cost of economy of scale, economy of ontogeny may be worth the cost...

The bottom line here is that there are very real diseconomies intractible to the "standard" economies of scale and place. I certainly don't have hard numbers to prove that one outweighs the other, but it is at least a starting point to recognize that there is a coutner-weight--something that is normally ignored. It's great to buy organic produce and socially responsible mutual funds, but until "normal" economists are convinced that it actually makes more sense to be less hierarchal--with less narrowminded focus on economy of place and scale--it will be difficult to affect any real change in our economy of hierarchy...

The War is Lost

Today US forces destroyed 8 bridges in Iraq with precision-guided bombs. Why? As John Robb point out, the US military is concerned about the increasing apparent coordinated action by the Iraqi insurgency, so the US is cutting lines of communication--in this case bridges. This is an essential part of defeating a hierarchal opponent--interdict their lines of supply and command & control. Unfortunately, it will have no impact on the largely rhizomatic, networked, independent factions of the Iraqi insurgency. It will, however, disrupt the hierarchal operations of the US military, as they depend on the very bridges that they are destroying.

The internal coordination of the iraqi insurgency is an EMERGENT phenomenon--their non-hierarchal makup fundamentally precludes hierarchal, centralized direction and supply of their activity. America's tactical blindness is due to a lack of understanding of the differences in information processing between hierarchy and rhizome. Hierarchy processes information mechanically, it is machine intelligence, much like a computer; there is centralized direction of resources, and information flows in two directions via fixed channels. Rhizome, however, is emergent intelligence, much like the human brain. There is no (or little) conscious coordination between the various nodes in the insurgency, just like there are no controlling neurons in our brain, and yet the human brain and the iraqi insurgency are capable of information processing feats that are beyond the abilities of the most capable computer.

This is why the destruction of 8 bridges will have no impact on a rhizome insurgency. if you open up the human brain and kill 8 critical neurons, it will have no substantial impact on the ability of the brain to produce emergent information processing. Conversely, if you open up a computer, and destroy 8 critical transistors in your Pentium 4, the computer will be severely damaged, possible rendered non-functional. The fact that the US decided to destroy some of the very links that it depends on is evidence that they neither understand their enemy or themselves.

Sun Tzu said:

So it is said that if you know others and know yourself, you will not be imperiled in a hundred battles; if you do not know others but know yourself, you win one and lose one; if you do not know others and do not know yourself, you will be imperiled in every single battle.

America is desparate to respond, but cannot do so effectively because it does not understand the structural makeup of the major actors. It has lost.

The New Map: Terrorism in a Post-Cartesian World

I haven't posted much original content recently because I've been working on this:

The New Map: Terrorism in a Post-Cartesian World

The fundamental problem of political philosophy is still precisely the one that Spinoza saw so clearly (and that Wilhelm Reich rediscovered): Why do men fight for their servitude as stubbornly as though it were their salvation? (1)

- Gilles Deleuze

The Long War, Philip Bobbitt’s concept of the 20^th century conflicts from World War I through the end of the Cold War, provided a consistent conceptual framework through which to view our world.(2) In this conflict, the struggle by Nation-States to legitimate one of a variety of theories of domestic political order was played out on the international stage. This century-long conflict ensured the continuity of the Nation-State framework until the world system could be unified behind a single, victorious theory of how to internally organize that state.(3)The eventual victory of the democratic-capitalist approach has resulted in the confirmation and acceleration of the trend towards globalization of the world’s economic activity. But, as with the conclusion of prior epochal conflicts,(4) the close of the Long War opened the door for a host of new threats to the Nation-State status quo. Chief among these threats, international terrorism poses a direct challenge to the very fabric of the Nation-State system.(5) Having spent the past nine years in the intelligence and counter-terrorism community, I am forced to conclude that our increasing failure to effectively combat terrorism is not merely the failure of programs and policies, but rather the fundamental failure of our paradigm. In order to understand and effectively confront terrorism, we must replace the current international paradigm of the Nation-State system with a New Map of our world: globalization and multiculturalism are invalidating the Cartesian geography of the Nation-State system, laying the framework for the coming epochal conflict embodied by the paradigm of hierarchy versus rhizome.

A paradigm shift is not a trivial affair.(6) In order to define and utilize this new paradigm it is first necessary to understand the old paradigm of the Nation-State system. Building upon this foundation, I will explain how globalization and multiculturalism led to the breakdown of Cartesian order, and with it the Nation-State. From there I will demonstrate that in the absence of a Cartesian world order it is not discrete state actors, but rather conflicting organizational principles such as hierarchy and rhizome that define our world.(7)These principles, and the inherent conflict between them, provide the paradigm for the New Map. I will conclude by examining how this new paradigm views counterterrorism in a manner that is fundamentally inconceivable to the Nation-State.

I. The Nation-State System

Our international system is founded upon the Nation-State paradigm that has gradually evolved out of developments among Italian city-states during the Renaissance.(8) Within the Nation-State paradigm, the state’s legitimacy is grounded upon its ability to provide security and welfare to a homogenous constituent nation.(9) This legitimacy is measured by the ability of the state to provide continuous, absolute, and relative gains in the standard of living of its nation. Despite the need to create gains relative to other nations, and especially to create gains relative to competing theories of Nation-State during the Long War, it was also necessary for the Nation-State to preserve at least the pretense of internal equality in order to maintain a unified national base. At least in first-world nations, a “[w]elfare ideology had…fostered the nationalist myth of a raceless, classless society."(10) It is the redistributive policies and entitlement programs that resulted from this need for internal equality that are today making the Nation-State so vulnerable to the processes of globalization.(11)

One of the defining features of the Nation-State system is its Cartesian sense of space.(12) National groups are assumed to conform to the exclusive territories and physical borders of the Nation-State. This is a critical assumption, as the legitimacy of a Nation-State is based upon its ability to provide for its nation, something that it can only do effectively if that nation is contained entirely within the borders of its sovereignty. The validity of a Nation-State on the international stage is in turn demonstrated by its ability to exert complete sovereignty over its territory. As long as all states conform to the notions of exclusive territory and total sovereignty, the system is stable. Since the end of the Cold War, most theorists have been attempting to shove the square peg of reality into the round hole of the Nation-State paradigm, but these efforts are “no more than the work of early cartographers . . . [t]hey are products of illusion, and they are faithful to their roots.”(13) In actuality, any process or phenomena that threatens to blur the exclusivity of the Cartesian system, that exhibits multiple and overlapping affinity groups, poses a mortal challenge to the Nation-State system.

II. The Eroding Foundation of the Nation-State

In the latter half of the 20^th century, multiculturalism has spread throughout “Western” democracies,(14) with the notable exception of Japan.(15)The unprecedented human and cultural mobility of the latter half of the 20^th century has undermined the contiguous ethnic nation that served as the foundation for the Nation-State.(16) It has been proposed under the “melting pot” theory of cultural assimilation the notion of the ethnic nation would dissolve. This would then lead to the rise of a “nation” defined not by ethnicity but by affiliation with a given state and its principles—a self-defining Nation-State.(17) For a variety of reasons, however, this self-defining “Nation-State” has not materialized. Alternative theories of multiculturalism encouraged immigrant groups to maintain their separate identities(18) while racism, lack of prior economic accumulation, international media access, and geographic proximity to parent-nations often conspired to reinforce these national divisions. While the homogenous nation upon which the Nation-State is founded was generally a historical fiction, it had been both sufficiently real and accepted as to serve as a stable foundation for the Nation-State. With the spread of multiculturalism, the contiguous, Cartesian nation that once served as the basis for the Nation-State is steadily eroding.

Globalization, the process of seeking international economies of place and scale, is another assault on the territorial barriers of the Nation-State system.(19) It creates a positive feedback cycle by both benefiting from and causing the destruction of the territorial exclusivity of the Nation-State. While the dissolution of Cartesian limitations facilitates the necessary further intensification of hierarchal structure, it also facilitates the emergence of the competing, co-spatial, contemporaneous paradigm of rhizome that is currently embodied by the phenomena of international terrorism.(20)

The rise in trans-national terrorism is perhaps the final straw that, when combined with the influences of multiculturalism and globalization, destroys the legitimacy of the Nation-State. The Nation-State system is predicated upon the twin principles of sovereignty: a domestic monopoly on the use of violence, and a singular focus for inter-state violence.(21) Terrorism invalidates both claims. Exacerbated by reactionary ideologies (22) and the expanding economic inequality brought by globalization,(23) terrorism undermines the state’s role of security provider.(24) Additionally, as independent international actors, both terrorist organizations and multinational corporations represent their own interests, unconstrained by either a Cartesian notion of Nation-State borders or the prevailing interests of a national constituency. In a world freed of the rigid delineation of the Nation-State system, and with the substantial, overlapping web of affiliation and connectivity created by, among other things, terrorism and multinational corporations, the stage is set for a defining conflict that will replace the last vestiges of the Nation-State with the New Map.(25)

III. Beyond the Nation-State, Beyond Cartesian Order

Fueled by the breakdown of Cartesian order, the spread of multiculturalism, and technological advancements in communication and transportation, the hierarchal process of globalization is forcing the Nation-State to evolve or die.(26) Those states that are evolving to maintain viability are gradually taking the form of the Market-State,(27) an awkward and unfinished formulation where the actors of globalization exert their influence on the state to leverage the remnant allegiances of national populations in their favor.(28) But in the face of the growth of globalization, a rhizome(29) countermovement is emerging.

It may have been Nietzsche who best captured the emergence of rhizome with his famous question. “Problem: where are the barbarians? Obviously they will come into view and consolidate themselves only after tremendous socialist crises."(30) The social crises created by globalization, multiculturalism, and the decline of the Nation-State system has opened the door to a fundamentally new kind of “barbarian” in rhizome’s structural opposition to hierarchy. Hierarchy, an unstable organizational pattern(31) that is constantly evolving toward a more intense, centralized, and interdependent form, is the organizing principle behind globalization. Rhizome, the opposing constitutional system of a network of stable-state, independent but interacting nodes is the animating principle behind both terrorism and the more benign economic processes of localization and self-sufficiency that stand in opposition to globalization.(32) The interaction of hierarchy and rhizome inherently generates conflict as hierarchy’s attempts to create economic dependency through economies of place and scale are mutually exclusive of rhizome’s tendency to devolve economic structures towards localized independence and parity.

In a world largely stuck in the mindset of the Nation-State and oblivious to the emerging conflict of hierarchy versus rhizome, terrorism is the vanguard of a rhizome movement that sits on the cusp of a dawning, non-Cartesian reality. It is what Antonio Negri has called a “diagonal” that opposes hierarchy by confronting its weaknesses, rather than its strengths.(33) Rhizome is out of phase with hierarchy while simultaneously occupying the same point in history. It is emergent, analogous to the emergent intelligence of the human brain(34) compared to the machine intelligence of hierarchy.(35) This emergent nature manifests itself in the unconsciously coordinated action of ideologically linked rhizome nodes, affinity groups that jump the boundaries of Nation-State borders. One example is the complex web of interaction between Middle-Eastern Islamic extremism, South American populism, the struggle of indigenous groups to control hydrocarbon resources, and cross-border drug-trafficking. It is this kind of emergent “nation”—the networked affiliation between groups as diverse as al-Qa’ida, Hugo Chavez and Salvadoran Maras(36)—that is replacing the Cartesian “nation” of the Nation-State system. While the fringes of the United States intelligence community understand the watershed threat posed in combination by these seemingly unrelated phenomena(37), the Nation-State paradigm that dominates state power is not capable of perceiving the greater threat. Perhaps more importantly, because rhizome is oblique to the perception of hierarchy, the actors of globalization do not realize that rhizome terrorism is not fighting the state itself, but that the source of conflict is the fundamental incompatibility of rhizome with the hierarchal engines of both globalization and the state. Proponents of globalization suggest that the leveraging of economies of place and of scale will bring wealth to the worlds poor and one day eliminate the root cause of terrorism. Such theories demonstrate a fundamental lack of understanding of the cause of terrorism: rhizome movements do not seek to regress to less efficient forms of hierarchy, but rather seek freedom from hierarchy, and its symptoms of dependency, disparity and instability. Rhizome is not merely the struggle against hierarchy, but it is the proposition of an alternate mode of economic organization that is fundamentally more compatible with human ontogeny,(38) and that actually reduces society’s capacity for conflict.(39)

IV. Navigating the New Map

New paradigms present opportunities and demand actions that are inconceivable to the preceding paradigm. Mutually Assured Destruction is an example, a strategy that, while rational to the Nation-State, was entirely incomprehensible to the preceding paradigm of the State-Nation.(40) Similarly, the New Map presents the opportunity to address the fundamental causes of terrorism, but only in a manner that is inconceivable to the Nation-State: defeating terrorism by co-opting its organizational principle of rhizome. This sounds irrational and completely “un-American.”(41) It is. Those within the Nation-State paradigm praise as “American” those things which are fundamental to the constitutional nature of the American Nation-State. Similarly, the principles of the French and American Revolutions were antithetical to the fundamental basis of the kingly states of France and Britain.(42)That did not invalidate the French or American revolutions, and similarly the “un-American” nature of rhizome does not mean that it is not the most prudent course of action at the dawn of a new age.

Within the New Map there are two choices. Existing Nation-States can embrace hierarchy, and transition to the market-state model, as envisioned by constitutional law professor Phillip Bobbitt,(43) or they can embrace rhizome and embark upon the same bold adventure of constitutional invention that created America over two centuries ago. Those that embrace hierarchy will likely continue to face the emergent, rhizome forces of those who must, by definition, reside at the base of hierarchy’s pyramid—terrorists and freedom fighters alike. Those states that choose to transition to rhizome, however, may finally escape this structural violence of hierarchy.

The New Map brings the uncomfortable situation of treading in new and unfamiliar territory, with its fundamental departure from the historical establishments upon which our cultural identities are founded. But it may also provide a source of hope for the future. The absurdity and injustice of national borders that elevate the economic well-being of select groups based mainly upon their race or ethnicity may recede or fade away.(44) Absent the Nation-State bastions of ethnic and racial division, multiculturalism may finally fulfill its promise of tolerance and equality among humans. Similarly, the promise of rhizome structure to reduce social stratification, wealth disparity, and motivation for conflict may create a stable, just basis for international society—a basis that is impossible within the strict confines of sovereignty and territory that define the Nation-State system. With an understanding of the New Map, it becomes self-evident that clinging to the remnants of the Nation-State will only serve to fuel reactionary ideologies and terrorist tactics. It is by accepting the potential of the New Map and fostering the development of rhizome structure that we can hope to disarm terrorism, eliminating the very division and disparity that is its raison d’être.

1. Gilles Deleuze & Felix Guattari, Anti-Oedipus 29 (Brian Massumi trans., U. Minn. Press 1983) (1980).

2. See Philip Bobbitt, The Shield of Achilles: War, Peace, and the Course of History 7 (2002).

3. The chief theories of Nation-State organization are the democratic-capitalist model, embodied by the U.K. and the U.S., the communist model, embodied in the U.S.S.R., and the fascist model, embodied by Germany under National Socialism.

4. For example, the close of the era of kingly states with the Napoleonic Wars unleashed the forces of national sentiment on the largely unprepared aristocracy of Europe.

5. Kenichi Ohmae, The End of the Nation State 7 (1995).

6. See Denise Breton & Christopher Largent, The Paradigm Conspiracy: Why Our Social Systems Violate Human Potential – And How We Can Change Them 7 (1996).

7. James Rosenau also sees a global conflict, but rather than juxtapose the concepts of hierarchy and rhizome, he uses the term “fragmegration” to denote the opposing tendency of hierarchy to integrate and centralize while rhizome fragments the world through decentralization and localization. See James Rosenau, Distant Proximities: Dynamics Beyond Globalization 2003.

8. The development of absolute sovereignty contained in a discrete state stems from the rejection of Papal authority by Italian city-states, and culminates in the treaties that ended the Thirty Years War (1618-1648), commonly known in their collective form as the Peace of Westphalia. See Treaty of peace of Münster, Fr.-Holy Roman Empire, Oct. 24, 1648, 1 Parry 271 and Treaty of Osnabrück, Swed.-Holy Roman Empire, Oct 24, 1648, 1 Parry 119. The association of a single state with a single nation, forming the modern Nation-State concept, was most significantly advanced at the Congress of Vienna, which laid the foundation for Bismark’s unification of the German nation under the Prussian state. See Final Act (General Treaty) of the Congress of Vienna, June 9, 1815, 64 Parry 453.

9. See Philip Bobbitt, The Shield of Achilles: War, Peace, and the Course of History 468 (2002).

10. Jane Kelsey, Restructuring the Nation: The Decline of the Colonial Nation-State and Competing Nationalisms in Aotearoa/New Zealand, in Nationalism, Racism and the Rule of Law 177 (Peter Fitzpatrick ed., 1995).

11. See Peer Zumbansen, Quod Omnes Tangit: Globalization, Welfare Regimes and Entitlement, in The Welfare State, Globalization, and International Law 135 (Eyal Benvenisti and Georg Nolte eds., 2004).

12. Cartesian space refers to the contiguous, exclusive territories of Nation-States laid out on a Cartesian plane, as proposed by Rene Descartes.

13. Kenichi Ohmae, The End of the Nation State 8 (1995).

14. See Vernon M. Briggs, Mass Immigration and the National Interest (1996).

15. See Wilhelm Heitmeyer, Xenophobia: Modernization's Curse, 5 European Affairs 51-57 (1991).

16. See Gerard Delanty, Beyond the Nation-State: National Identity and Citizenship in a Multicultural Society, 3 Sociological Research Online (1996), http://www.socresonline.org.uk/1/3/1.html.

17. See Gerard Delanty, Inventing Europe: Idea, Identity, Reality (1995).

18. See Peter J. Pitts, Tossed Salad for the Holiday ,The One Republic, Dec. 22, 2004, http://www.californiarepublic.org/archives/Columns/Guest/20041222PittsTossed.html.

19. See Thomas L. Friedman, The World is Flat: A Brief History of the 21st Century (2005).

20. See Jeff Vail, Rhizome, Guerrilla Media, Swarming and Asymmetric Politics in the 21^st Century, in Politics To-Go: A Guide to Using Mobile Technology in Politics 47 (2005).

21. See Philip Bobbitt, The Shield of Achilles: War, Peace, and the Course of History 206 (2002).

22. See Robert Wright, Nonzero: The Logic of Human Destiny 232 (2000).

23. See Anuradha Mittal, The South in the North, in Views from the South: The Effects of Globalization and the WTO on Third World Countires 164 (Sarah Anderson ed., 2000).

24. See John Robb, Primary Loyalties, Global Guerrillas, Jan. 5, 2005, http://globalguerrillas.typepad.com/globalguerrillas/2005/01/primary_loyalti.html.

25. See, e.g., Nico Schrijver, Sovereignty versus Human Rights? A Tale of UN Security Council Resolution 688 (1991) on the Protection of the Kurdish People, in The Role of the Nation-State in the 21st Century: Human Rights, International Organizations and Foreign Policy 347 (Monique Castermans-Holleman, et al. eds., 1998).

26. Where the Nation-State has refused to abandon its national roots, as in Colombia or Somalia, the resulting failed state has not, in turn, failed the processes of globalization. On the contrary, the argument has been made that such total breakdowns of the Nation-State create conditions that are ideally suited to business interests. See John Robb, Guerrilla Entrepreneurs, Global Guerrillas, Oct. 22, 2004, http://globalguerrillas.typepad.com/globalguerrillas/2004/10/guerrilla_entre.html.

27. See Philip Bobbitt, The Shield of Achilles: War, Peace, and the Course of History (2002).

28. See John Breuilly, Nationalism and the State 94 (1982).

29. See Gilles Deleuze & Felix Guattari, A Thousand Plateaus: Capitalism and Schizophrenia 506(Brian Massumi trans., U. Minn. Press, 1987) (1980).

30. Friedrich Nietzsche, The Will to Power 465 (Walter Kaufman trans., Vintage Press, 1968) (1888).

31. Any pattern that is predicated upon continuous growth must eventually exceed its resource base and collapse. See Joseph A. Tainter, The Collapse of Complex Societies (1988).

32. For a detailed account of rhizome as the animus for economic localization efforts by marginalized groups in opposition to the perceived threat of globalization, see Jeff Vail, A Theory of Power (2004), available at http://top.anthropik.net/.

33. Michael Hardt & Antonio Negri, Empire (2000).

34. Rhizomatic intelligence is similar to human intelligence in that uncontrolled, non-hierarchal interaction leads to the emergence of directed action, the direction for which cannot be sourced from the interaction. See, e.g., Howard Bloom, The Global Brain (2000) and John H. Holland, Emergence: From Chaos to Order (1998).

35. For a discussion of the information processing capabilities of Hierarchy and Rhizome, see Robert Anton Wilson, Quantum Psychology (1990).

36. Maras, or Central American street gangs such as Mara Salvatrucha-13, now constitute the largest organized crime presence within the United States. They utilize their extensive cross-border ties and their shared ability to identify with a distant homeland to control the majority of the trans-American drug trade.

37. See, e.g., Jeff Vail, Keynote Address at the Summer 2005 Interagency Forum on Infrastructure Protection: The Global Threat Puzzle: Understanding the Rhizome Threat (Jul. 8, 2005).

38. For an in-depth examination of the potential for rhizome structure to better meet the demands of human ontogeny, see Jeff Vail, A Theory of Power (2004), available at http://top.anthropik.com/.

39. See Jeff Vail, Defending Pala: Rhizome as a Mode of Military Operations, Sep. 6, 2005, http://www.jeffvail.net/2005/09/defending-pala-rhizome-as-mode-of.html.

40. Robert McNamara, Secretary of Defense under President John F. Kenedy, conceived of the concept of Mutually assured destruction, but had a difficult time convincing Soviet Premier Alexei Kosygin of the concept, as he was stuck in the mentality of the State-Nation (while Russia is known for nationalist semtiment, the U.S.S.R. was a state that was a diverse collection of nations, and suffered from ‘early-onset fractionalism’ as a result—perhaps the first example of the failure of a self-defining Nation-State). See Mad is not Bad, 17 New Perspective Quarterly, Sep. 25, 2005, http://www.digitalnpq.org/archive/2000_summer/mad_not_bad.html.

41. For example, in President Bush’s address of , he noted that “We will defend the values of our country…we will persevere in this struggle no matter how long it takes to prevail.” George W. Bush, President of the U.S., Presidential Address (Nov. 8, 2001), available at http://www.whitehouse.gov/news/releases/2001/11/20011108-13.html.

42. See Caroline Thomas, New States, Sovereignty and Intervention 4 (1998).

43. See Philip Bobbitt, The Shield of Achilles: War, Peace, and the Course of History 283 (2002).

44. See Paul Treanor, Why Destroy the Nation-State, http://web.inter.nl.net/users/Paul.Treanor/nationstate.html.