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Dear friend,
One of the arguments against centralisation is that it can be captured by a small group of people who might not have the best interests of the larger society in mind. Decentralisation is often seen as an answer to the problems with centralisation, and the internet is considered to be a prime example of a decentralised network.
In her book, Who Can You Trust?, Rachel Botsman points to how the vision some of us had about the internet didn’t exactly turn out the way we hoped.
She writes: “Take Amazon, Alibaba or Facebook. They might have begun as ways to democratise commerce or information, but they have become centralised behemoths in control of valuable and ever-more sensitive data.
“What’s more, institutions meant to keep dominating powers in check—regulatory bodies and labour unions, for example—are ill-equipped to deal with a new digital era of fast-paced monopolies. One of the real challenges for distributed trust is whether it can resist, or at least weather, market forces and human greed.
“Ideas such as China’s Social Credit System show how distributed networks of trust could become national networks of shame and interference, controlled by governments. And what has happened to those early utopian bitcoin miners? Mining power has ended up dangerously concentrated in China, at odds with the globalised ideals underlying bitcoin. The mass exchange of diverse ideas and the decentralisation of information that we first envisioned the World Wide Web would bring us have happened, but so has a new kind of homophily and centralisation—hyperlinks and hierarchies managing what we see and read—inside a handful of social networks. It’s as if the small local cafes where we talked and disagreed with strangers have been replaced by a chain of “McCafes” where we are given algorithmically determined food, regardless of what we might actually want. The consequence is that we have become vulnerable to digital concentrations of power. We want power handed back to the people, but what if it’s handed to the wrong people? Or only some of the people? Or, worse still, only a few of the wrong people?”
Important questions to ask.
Have a great week ahead.
Recession risks
There’s an old joke about economists and it goes: “they predicted nine of the past five recessions.” Yet, we should take their warnings about recession seriously, because in some cases, their predictions about recessions turned out to be wrong because governments acted on them, and took corrective measures.
In The Guardian, Kenneth Rogoff, professor of economics and public policy at Harvard University and former chief economist of the IMF, says that the risk of a recession in the US, Europe and China has gone up. He writes
- China’s growth trajectory has long been slowing, with only a combination of luck and mostly competent macroeconomic management preventing a severe downturn. But no amount of careful macroeconomic stewardship can save the day if the Chinese leadership has made the wrong call on Covid-19… China is tilting at windmills in trying to tame the increasingly contagious virus, in which case the centres will prove to be a vast waste of resources, and the lockdowns futile.
- The risk of a US recession has surely soared, with the main uncertainties now being its timing and severity. The sanguine view that inflation will decline significantly on its own, and that the Fed will therefore not have to raise interest rates too much, is looking more dubious by the day.
- As for Europe, blowback from economic slowdowns in China and the US would have threatened its growth even without the war in Ukraine. But the war has greatly amplified Europe’s risks and vulnerabilities.
“With luck, the risk of a synchronised global downturn will recede by late 2022. But for the moment, the odds of recession in Europe, the US, and China are significant and increasing, and a collapse in one region will raise the odds of collapse in the others.”
Dig deeper
How protectionism can lead to higher prices
Many central banks around the world are tweaking their interest rates to bring inflation down. Just last week the Reserve Bank increased interest rates. So did the US Fed. Higher interest rates might bring the inflationary pressures down. But is there a bigger risk of prices going up because of structural reasons? There might be.
Vijay Govindarajan, a professor at Dartmouth College’s Tuck School of Business, and his co-authors explain how this could play out. They start with the wave of specialisations across the world.
“[California’s] Silicon Valley became the global leader in new digital business ideas, Taiwan became the global supplier of semiconductors, and China’s Shenzhen region created an ecosystem for manufacturing electronic products. In addition, Brazil became the largest exporter of beef, China of steel, Canada of aluminium, Germany of cars, and the US of radios and TVs and refined petroleum.
“In other words, each region started specialising in producing goods in which it had comparative advantage or economies of scale. Goods crisscrossed the globe at various production stages before reaching customers. This specialisation and trade lowered prices of goods and services and accelerated innovation. Just consider the price you recently paid for a large-screen LCD TV. You might find it to be lower than the inflation-adjusted price you paid for a small black-and-white TV in the 1990s. This was the outcome of well-functioning specialisation and global trade. In other words, countries are better off specialising in a few things and trading the rest, instead of trying to be self-sufficient.
“Now there is a real danger that at least some of that progress could be lost or reversed, forever. Countries may revert to more protectionist policies and attempt to become more self-reliant. Imagine a scenario where each country attempts to have its own steel mills, produces its own cars, runs its own airlines, and has its own oilfields and refineries. In addition, many countries would spend more on defense, which means fewer funds for real development. All of this would make goods and services more expensive.”
Dig deeper
Literally speaking
(Via WhatsApp)
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Warm regards,
Team Founding Fuel
