Alex Soojung-Kim Pang, Ph.D.

I study people, technology, and the worlds they make

Tag: globalization

Four Scenarios for the End of the American Century by 2025

University of Wisconsin history professor Alfred McCoy is blogging about a project he and an international team of scholars has just completed, a series of scenarios on "the end of the American century." This is part of a larger project titled "U.S. Empire Project: Rise & Decline of American Global Power," which seems to be keeping alive Madison's rich tradition of radical scholarship.

It's not clear from the description of the project what kinds of methods they used to craft the four scenarios (or how they were chosen, etc.), but I hope to learn more about the project soon. From McCoy's post:

As a half-dozen European nations have discovered, imperial decline tends to have a remarkably demoralizing impact on a society, regularly bringing at least a generation of economic privation. As the economy cools, political temperatures rise, often sparking serious domestic unrest.

Available economic, educational, and military data indicate that, when it comes to U.S. global power, negative trends will aggregate rapidly by 2020 and are likely to reach a critical mass no later than 2030. The American Century, proclaimed so triumphantly at the start of World War II, will be tattered and fading by 2025, its eighth decade, and could be history by 2030….

Viewed historically, the question is not whether the United States will lose its unchallenged global power, but just how precipitous and wrenching the decline will be. In place of Washington's wishful thinking, let’s use the National Intelligence Council's own futuristic methodology to suggest four realistic scenarios for how, whether with a bang or a whimper, U.S. global power could reach its end in the 2020s (along with four accompanying assessments of just where we are today). The future scenarios include: economic decline, oil shock, military misadventure, and World War III. While these are hardly the only possibilities when it comes to American decline or even collapse, they offer a window into an onrushing future.

Moving R&D overseas

Ed Luce in the Financial Times worries about the shift of R&D in American (or American-founded) companies to China, and hopes that the departure of Larry Summers will occasion a rethinking of neoliberal trade policies.

Take Applied Materials, a big US manufacturing company, which earlier this year shifted its chief technology officer and research and development operations to China. The company said it needed its R&D to be close to the source of its manufacturing operations and to its biggest future market. This is the opposite of what is supposed to happen. America was meant to keep the high-end jobs at home, while China would get all the low-value added production.

When I was at IFTF I wrote about the gravitational pull of manufacturing, and argued that it's actually very hard to disaggregate R&D and product development (the high-end creative stuff that we were supposed to keep here in California) from manufacturing (which could be done by teenage girls and brown people in– well, who gives a damn where it's done). This is true for several reasons. Historically, some of the biggest innovations have emerged in the course of working on production problems (Bill Leslie's work explicates this relationship nicely). As designers know, creating something that can be mass-produced is not a trivial intellectual exercise: there's a special kind of genius necessary to make prototype (like the computer mouse, say) and turn it into a product. Manufacturing high-tech objects can be pretty damn hard, and requires more tacit knowledge and skill than we usually realize (Intel's Copy Exactly program is a great example of a company's attempt to get its hands around this fact). Finally, if a company has to choose between having imaginative research and getting products out the door, it's going to subordinate the former to the latter.

Not everyone sees this as a bad thing. Matthew Yglesias, for example, argues that

the alleged need for R&D to be proximate to manufacturing options (plausible) cuts in both directions. Conventional wisdom is that manufacturing operations will all drift to low-wage countries. But if the USA is a better location for R&D than China, and if it’s strongly desirable to co-locate R&D and manufacturing operations, then many firms will want to retain manufacturing operations in the United States of America. So if this story is right, then more and better education for America is the key to retaining high-wage manufacturing jobs.

I think this is wrong for two reasons. First, it's a lot harder to move the infrastructure for manufacturing than it is to move R&D, and it's very hard to get a factory back (or just as important, the skill necessary to manufacture things) once you've lost it. It's much easier to have production engineers fly to Taiwan or Shanghai every 6 weeks (though it sucks for those people). Second, it raises the question of why manufacturing jobs have left the U.S. at all, if R&D can attract manufacturing?

The very long shadow of the history of technology

A confession: when it comes to thinking about the future, I hold two views. On one hand, I find the black swans work of Nassim Taleb– the argument that the speed and complexity of the modern world has left it vulnerable to more, and more unpredictable, crises– pretty convincing. (Call this the New View.)

On the other, I also believe that much of what we claim is novel about this modern age is not so new. Many facets of globalization– the importance of migration, global trade, etc.– are actually as old as civilization. I also believe that other things, like a belief in greater vulnerability to epidemics and financial panics (or just as worrying, the belief that we are now immune from such things), are a product of a relatively short-term view of history. You could better understand our current world, and think more clearly about the future, if you stretch your view of the past from the last 50 years to the last 500 or 5,000. (Call this the Long View.)

Obviously, the New View and the Long View are contradictory. I get around that by not thinking about both of them at the same time. But I'm trying to construct a framework that fits them together.

This morning I ran across another data-point in the Long View: a new piece by Diego Comin, Erick Gong, and William Easterly looking at very long-term trends in technology and economic development. As Easterly explains,

We collected crude but informative data on the state of technology in various parts of the world in 1000 BC, 0 AD, and 1500 AD.

1500 AD technology is a particularly powerful predictor of per capita income today. 78 percent of the difference in income today between sub-Saharan Africa and Western Europe is explained by technology differences that already existed in 1500 AD – even BEFORE the slave trade and colonialism.

From the abstract (pdf):

The emphasis of economic development practitioners and researchers is on modern determinants of per capita income such as quality of institutions to support markets, economic policies chosen by governments, human capital components such as education and health, or political factors such as violence and instability.

Could this discussion be missing an important, much more long-run dimension to economic development?… Is it possible that history as old as 1500 AD or older also matters significantly for today’s national economic development? A small body of previous growth literature also considers very long run factors in economic development…. This paper explores these questions both empirically and theoretically. To this end, we assemble a new dataset on the history of technology over 2,500 years of history prior to the era of colonization and extensive European contacts…. We detect signs of technological differences between the predecessors to today’s modern nations as long ago as 1000 BC, and we find that these differences persisted and/or widened to 0 AD and to 1500 AD (which will be the three data points in our dataset, with 1500 AD estimated from a different collection of sources than 1000 BC and 0 AD). The persistence of technological differences from one of these three “ancient history” data points to the next is high, as well as robust to controlling for continent dummies and other geographic factors.

Our principal finding is that the 1500 AD measure is a statistically significant predictor of the pattern of per capita incomes and technology adoption across nations that we observe today.

Of course, one can get into how this is a different set of forces than most futurists are interested in– but to the degree that it serves as a corrective to the tacit view held some futurists that history doesn't matter at all– a kind of social science version of transhumanism, in which thanks to technology (or migration or whatever) we're able to ignore the past and its gravitational pull– it's worth reading and pondering.

H. G. Wells on Professors of Foresight

Via Stories of the Future, I came across this 1932 essay of H. G. Wells, "Wanted: Professors of Foresight:"

It seems an odd thing to me that though we have thousands and thousands of professors and hundreds of thousands of students of history working upon the records of the past, there is not a single person anywhere who makes a whole-time job of estimating the future consequences of new inventions and new devices. There is not a single Professor of Foresight in the world. But why shouldn’t there be? All these new things, these new inventions and new powers, come crowding along; every one is fraught with consequences, and yet it is only after something has hit us hard that we set about dealing with it.

Tonight we are confronted with two facts, one bad and one good; the first, which has only been hinted at, that acts of war have become hideously immediate and far reaching; and the second that the whole round world can be brought together into one brotherhood, into one communion, one close-knit freely communicating citizenship, far more easily today, than was possible with even such a little country as England a century ago.

Tell me if that second paragraph couldn't have been written this afternoon.This should make us pause in any claims that ours is a unique period in human history, in which the opportunities for collaboration and mutual understanding are unprecendented. Ten years after Wells published this essay, where was the world? Fully engaged in World War II.

Leon Fuerth on “Strategic Myopia: The Case for Forward Engagement”

From Leon Fuerth, "Strategic Myopia: The Case for Forward Engagement":

The habit of heavily discounting the future in favor of the nearterm must be abandoned, for the simple reason that the future—defined here as the rate of incidence of major social change—is accelerating. That acceleration represents, in turn, the dramatically quickened pace of science and technology, translated into ethical, political, economic and social consequences. If we are overtaken and swamped by the accelerating rate of change, then it is likely that our society will fail to grasp major opportunities for advancement and forfeit them to others who are more alert. We will also fail to take action in time to mitigate the societal impact of major, abrupt dislocations….

Leaders are not unmindful of the need to think of the longer-term implications of their actions, but they also know that representing the interests of the future often involves significant political risk to themselves in the present. Faced with such a choice, they frequently take comfort from the bromide that it is impossible to predict the future. That is certainly true in a literal sense, but it obscures a much more important fact: that it is entirely feasible to think about the future in disciplined fashion and to reach conclusions about it that ought to be important factors in the making of contemporary policy.

Forecasting will never reach the point at which it eliminates doubt. However, it can be used as part of an orderly policymaking process to diminish risk and to maximize opportunity. Our era is destined to be marked by accelerating, deep change. In such a period it is increasingly dangerous to make policy only in the short term or to look at the universe of possibilities through the filter of ideology. An important hallmark of successful governance is the timely ability to recognize what may happen, in order to have the best possible chance of influencing what does happen. Democratic governance is at risk of losing this capacity by failing to analyze the alternative paths that lead towards futures that are desirable, or away from those that are not, and especially by failing to begin that process early enough to permit adequate time for the debate and deliberation our system requires.

During the Cold War, the United States practiced “Forward Deployment”: placing its intelligence sensors and its military forces at strategic locations chosen to improve our ability to engage the enemy as early as possible, on terms advantageous to ourselves. We should now be practicing what ought to be thought of as “Forward Engagement”: recognizing and responding to major societal challenges sooner rather than later, when our leverage over the course of events is greatest and the costs for influencing them are lowest.

“In the current era it is prosperity, not ideology, that keeps authoritarian regimes in power”

This bit by Anne Applebaum in Slate caught my eye a little while ago:

I would say that in the closing days of the 2000s, the future does not look good for all authoritarian regimes. However, the signs are very positive for one particular authoritarian regime: China. Partly this is because the Chinese, unlike the Iranians and the Russians, continue to deliver prosperity, and in the current era it is prosperity, not ideology, that keeps authoritarian regimes in power.

Perhaps, then, we are embarking not upon a new twilight of liberalism but, rather, on an era in which prosperity, in the form of infrastructure as well as consumption, becomes the focus of international competition and U.S. foreign policy. We are already heading that way: The Copenhagen climate summit failed, after all, because the United States and China could not agree on a matter that affected their prospects for growth. Meanwhile, Islamic fundamentalist terrorism, the focus of U.S. foreign policy for the past decade, is dwindling to the status of major nuisance.

Some time ago I wrote about Buckminster Fuller and the geodesic dome, and its curious cultural trajectory– its use by Cold Warriors in international exhibitions in the 1950s, then by commune-builders in the 1960s and early 1970s. American exhibits at trade fairs were designed to show people in non-aligned countries what was best about the United States, and why the model of liberal, democratic capitalism was superior to the Soviet model; but organizers argued about just what was "best." Exhibits tended to emphasize economic growth and prosperity, rather than personal liberty, the belief that government belonged to the people, or the power of workers to organize and assert their rights: the message tended to boil down to, "Americans are free… to buy houses, freezers, and cars."

Some of these were trade fairs, which were pretty tightly focused on promoting trade and industry. But the equation of freedom with prosperity was pretty clear and consistent, and according to contemporary accounts (in the American press, anyway) it was pretty successful. So if the Chinese are able to make a convincing argument that their system delivers prosperity and growth, I wouldn't dismiss the attractiveness of that claim.

China, future hegemon

Nobel laureate Robert Fogel has an article in the latest Foreign Policy arguing that by 2040 China is likely to dominate the world economy— just as it did for eighteen of the last twenty centuries:

In 2040, the Chinese economy will reach $123 trillion, or nearly three times the economic output of the entire globe in 2000. China's per capita income will hit $85,000, more than double the forecast for the European Union, and also much higher than that of India and Japan. In other words, the average Chinese megacity dweller will be living twice as well as the average Frenchman when China goes from a poor country in 2000 to a superrich country in 2040. Although it will not have overtaken the United States in per capita wealth, according to my forecasts, China's share of global GDP — 40 percent — will dwarf that of the United States (14 percent) and the European Union (5 percent) 30 years from now. This is what economic hegemony will look like.

Why will it do so well? Enormous investments in education; growing productivity and development in rural areas and in the agricultural sector; the systematic underestimation by Chinese officials of its growth rate; and the relative decline of the EU as a global economic powerhouse.

I'm not sure I agree with the piece's conclusions, but it's a provocative piece and worth reading.

The world is flat, and Cafes Zoë are unavoidable

There’s one in Menlo Park that I go to a lot.

via flickr

Tonight I found another one in Budapest, on Raday Utca. Rather different, but still the same name (allowing for the fact that Hungarians, like Asians, put family names first).

via flickr

Now I need to look for them in Vienna and London….

[To the tune of Wynton Marsalis, “Autumn Leaves,” from the album Live at Blues Alley (Disc 2) (I give it 3 stars).]

High-frequency trading and the persistence of place

One of the enduring expectations about cyberspace is that it would erase the importance of place in commerce. A group of designers working in ateliers and studios in Nairobi, Munich, Buenos Aires and Perth, financed by money pulled together in Silicon Valley, would create products sourced to factories in Malaysia and China, thence to be sold in Seoul, Mumbai, Toronto… you get the picture. Talent was what would matter in this world. Place wouldn't.

Ironically, you can make the case that the trend toward placelessness has been most evident in manufacturing, though it's been so for a combination of brutal economic rather than utopian technological reasons, and has required an enormous amount of labor to make those transfers work. Put another way, manufacturing has become more placeless not because technology has made place irrelevent, but because it's helped connect multinationals to mouth-wateringly cheap labor markets. But it hasn't been a matter of effortlessly transferring zeroes and ones around the world at the speed: to make this system work, you've got to put a lot of engineers on planes to Shanghai, just as you need to get a lot of farmers' kids into the cities.

Placelessness has also had a mixed record in finance, the most abstract of economic activities. On one hand, I can transfer money between my checking and savings account on my iPhone. On the other, the financial centers in New York and London are now even more tightly connected together, and process a greater portion of the world's wealth, than ever before. (And as recent events have shown, they have a greater capacity to destroy it, too.) So place continues to matter in finance, even as technology makes some kinds of transactions easier to conduct in a wider variety of places.

This trend is something that's interested a number of cultural and economic geographers, though they're still lots to do on the subject. As Caitlin Zaloom, an amazingly smart observer of the enduring materiality and social nature of financial markets, says,

Globalization theorists such as David Harvey and Manuel Castells argue that under neoliberalism, capitalist institutions have used information technology to flatten the distinctions among places, reducing the significance of spatial distance and temporal difference. They claim that this is nowhere more true than in the sphere of global finance, since economic networks are bound together with technological systems that permit institutions to coordinate activity in real time on a planetary scale, and that allow modern financial instruments to turn commodities—oranges, grain, Treasury bonds, and the like—into abstractions that are bought and sold thousands of times without ever moving an inch. Even global skeptics, it seems, are willing to admit that the speed and scale of financial markets enabled by innovative communications technologies is something new and profound. Never before have financial actors been able to trade with dealers from Frankfurt to Singapore at any time of the day or night. However, these depictions often overstate the role of technology, leading observers to believe that such interconnections were inevitable, a narrative that obscures the human activities that propel money through technological channels, including the labors, false starts, and complex histories of the social and technical forms of global work. (Zaloom, "Markets and Machines: Work in the Technological Sensoryscapes of Finance," American Quarterly 58:3 (September 2006) 815-837, quote on 816.)

Today I ran across another example of how place continues to matter in finance, but at a very small scale: high-frequency trading. If the concentration of wealth and financial services in places like New York and London is like gravity, high-frequency trading is like the strong force in particle physics: it operates at very small scales, but at that scale is incredibly powerful. As the New York Times explains in a July article, "in 1998, the Securities and Exchange Commission authorized electronic exchanges to compete with marketplaces like the New York Stock Exchange. The intent was to open markets to anyone with a desktop computer and a fresh idea." But things have't quite worked out that way:

But as new marketplaces have emerged, PCs have been unable to compete with Wall Street’s computers. Powerful algorithms — “algos,” in industry parlance — execute millions of orders a second and scan dozens of public and private marketplaces simultaneously. They can spot trends before other investors can blink, changing orders and strategies within milliseconds.

High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits — and then disappear before anyone even knows they were there.

High-frequency traders also benefit from competition among the various exchanges, which pay small fees that are often collected by the biggest and most active traders — typically a quarter of a cent per share to whoever arrives first. Those small payments, spread over millions of shares, help high-speed investors profit simply by trading enormous numbers of shares, even if they buy or sell at a modest loss.

In this world, as UCSD graduate student Martha Poon observes,

The trades are so fast that materiality matters. ‘Co-location’, which involves situating the trading room next to the exchange so that the wires and cables running between them are as short as possible, actually confers an advantage to high frequency traders.

As a result, LSE lecturer Yuval Millo points out,

In a world where every millisecond counts, event at light-speed speeds, physical distance counts. In fact, we should say ‘physical distance’ counts AGAIN. Yes, physical distance, which used to be an all-important factor in the face-to-face trading pits, is now making a comeback in the form of vicinity from the exchanges’ servers.

This, of course, brings back the issues about the politics embedded in market spatiality. Kate Zaloom shows how important were the top steps of the trading pit in the Chicago futures exchanges, and, consequently, how the political (and sometimes physical!) struggles for these coveted locations. Can we expect similar fights to rage over positions in the electronic communication network that transmits trading orders? Judging from the evolving competition for ‘electronic proximity’ the answer is positive. For example, Wall Street & Technology reports that in 2007 about a 100 trading firms relocated their serves into Nasdaq’s trading headquarters, just to be close to the executing servers and to shave off about 7-35 milliseconds from the communication time (depending on previous location of trading servers). Similar trend is evident in NYSE and the Chicago futures markets.

What does trend teach about the techno-social nature of markets? From an actor-network perspective, this is yet another evidence that markets, just like any other social institution, do not exist in a baboon society. That is, materiality, in general, and tools and devices, in particular, are delineating and indeed, shaping social interaction. There is at least one more insight to be gleaned here, though. It is true that physical space is reintroduced to markets through the relocation that comes along with HFT, but something much more important is being introduced to market with it: the rich, nuanced information that used to be the lifeblood of face-to-face trading and the infrastructure of liquidity supply is now communicated electronically.

This last point is kind of subtle, but it's interesting to think of algorithmically-executed orders as a form of "rich, nuanced information."

So what can we conclude? Place still matters because there's money to be made in occupying distinct physical locations; and it matters even in electronically-driven finance because, at bottom, this is still a physical activity: while it's easy and fashionable to think of modern finance as just a bunch of digitized signifers, the reality is that those zeroes and ones exist on servers, move through Ethernet cables, and are analyzed and responded to by software sitting on computers. Under some conditions we can ignore all that; but the fact is that even in the most information-intensive, abstract activities, materiality is still there.

[To the tune of Isabelle Antena, "Nothing To Lose," from the album Versions (I give it 2 stars).]

© 2019 Alex Soojung-Kim Pang, Ph.D.

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