Imagine the world of 500 million Bill Gates and Jeff Bezos roaming the earth.. What will the government role be in such society? What role will corporations play? How would human labor be organized? What will be the meaning of nationality?
We are in the middle of major shift that is difficult to see on the surface but the ground has been shifting since the dawn of the internet. There are numerous publications on how technology will transform business and “how to” guides to make the transition. However, there is limited material on how this new era of information technology will impact you as the individual. The good news is, the new era provides ample of opportunities to leap frog to prosperity. Those who can educate and motivate themselves will be almost entirely free to invent their own work and realize full benefits of their own productivity. Ideas become wealth rather than physical capital alone. Anyone who thinks clearly will potentially be wealthy. They are the class of ” Sovereign Individuals”. Convergence of technology and globalization will be equalizer for financial success. Race, gender. location no longer limitation to tapping into global market to deliver services.
“The future is disorder. A door like this has cracked open five or six times since we got up on our hind legs. It is the best possible time to be alive, when almost everything you thought you knew is wrong“. – Tom Stoppard, Arcadia
Unbeknownst to most, we are currently in the middle of major shift – rewriting the rules of the government and meaning of citizenship. New technologies creating new ways of forming social, political or profit based organizations (e.g. Facebook, Twitter, Linkedin) where rules of engagement are dictated by those who organize them and providing opportunities to earn and, in some instances, create new forms of capital. In the past it was strictly the role of church or government. In 15th century church played the role of government by collecting taxes and determining rules and regulations of societal conduct. The details of life were almost as thoroughly regulated by canon law as they are today by bureaucracy. Canon law dictated monopoly prices to ensure only goods from church controlled regions were sold in the marketplace. Even ban on eating meat on Fridays was commercially motivated. It poured profits from fisheries where Church was the primary owner. It even went as far as controlling marital conduct between spouses which led to growth of the prostitution from which Church profited mightily. You get the point…By the end of 15th century, the costs of supporting institutionalized religion had reached the extreme, much as the costs of supporting government have reached extreme today. The demise of church control was predicated upon the fact that it was too big to sustain itself. It could no longer collect enough revenue to support its size. Western governments today find themselves in similar predicament. In order to keep funding themselves, revenue (aka taxes) must keep up with the spending. Tax revenue has gone up year over year while the government budget spending gone up at even higher rate.
While during industrial age it was accepted by individuals as the norm because there was little choice other than comply with government imposed taxation. Your livelihood was directly tied to specific location or region (forced citizenship). People worked for companies or ran those companies in capital heavy industries and inflexible infrastructure. You simply could not transfer your work or business on-line or tax friendly region. Information age is changing this dynamic. Hello the world of digital nomads! In the recent MBO Partners State of Independence Research Brief, 4.8 million Americans described themselves as digital nomads. Among traditional U.S. workers, 27% said they “might” become digital nomads in the next 2-3 years, and 11% said they planned to. 2020 likely accelerated this transition to more individuals becoming digital nomads.
The other cohort who is closely watching this trend unfold and are voting with their feet – Wealthy Americans… Eric Schmidt acquired all the typical trappings of a mega-rich U.S. citizen: a superyacht, a Gulfstream jet, a Manhattan penthouse. One of his newest assets is far less conventional: a second passport. Alphabet Inc.’s former chief executive officer applied to become a citizen of Cyprus, according to an announcement last month in a Cypriot newspaper that was first reported by the website Recode. Schmidt, 65, joins a growing club of individuals participating in government programs enabling foreigners to acquire passports. In previous years, U.S. citizens rarely sought to buy so-called golden passports. The business mainly thrived targeting people from countries with fewer travel freedoms than the U.S., such as China, Nigeria or Pakistan. But that’s changing. People close to the industry say they’ve been inundated with inquiries from citizens of the world’s richest country. “We haven’t seen the likes of this before,” said Paddy Blewer, a London-based director at citizenship and residency-advisory firm Henley & Partners, referring to queries from U.S. individuals. “The dam actually burst — and we didn’t realize it — at the end of last year, and it’s just continued getting stronger.” What is the reason of such sudden interest to obtain second passports? Taxation and fear of civil unrest. US is the only developed country in the world to tax its citizens on income earned anywhere in the world. The rule dates back to Civil War. The point being, “sovereign individuals” have options to reside in countries or jurisdictions that are favorable to their financial and personal interests. Options create competition and the number of countries competing for those “sovereign individuals” will likely to increase.
This new trend has first and second degree effects. First, it diminishes the government’s ability to collect needed revenue. As by product of wealthy individuals departing to tax and investment enclaves, taxes for those who stay behind (have nots) go up. And the vicious cycle of higher taxes, decreased purchasing power, limited upward mobility goes on… until the show stops and new form of society emerges (not without period of chaos and turmoil). COVID has been an accelerator of emergence of this new form of society. It established caste system in US: digital haves and physical have nots. In other words, it divided society into individuals who can earn livelihoods and, in some cases, become even wealthier (e.g. Amazon shareholders) as result of pandemic versus those whose livelihoods vanished overnight. Pandemic is not the root cause of this divide, it simply brought to surface something that has been forming for years. It accelerated the trend and turned into reality overnight. Similar to how businesses were forced to go digital or die. Only in this case we are talking about real people with real consequences for their families and future generations.
While this divide of haves and have nots is apparent in the workforce. There is broader phenomenon taking place that is not quite visible on the surface – transition from national fiat to privatized money. We are living in unprecedented time period of cheap money. Since 2008 government has done everything in its power to inject economy with liquidity and as result causing all sorts of havoc. In order to understand what is happing , we must go back in time. The creation of printing press enabled government to print money nationalizing money supply. What got lost in history is the fact that actual money was gold. Printed paper certificates or coins were simply form of exchange for the sake of convenience (it would be difficult to pay for coffee in gold dust), not the actual money. Governments around the world agreed that while they will trade in dollars, it will always be backed by gold. Federal Reserve bank was created with the mandate of ensuring balancing between printed currency (fiat money) and gold (real, scares money). All was fine until US realized in 1970s that it does not have enough gold to back its paper currency. Solution? Get rid of gold standard….remove requirement to back all printed money by gold. As result, Federal Reserve is now able to print as much fiat as it wants without any accountability. It actually does not even need to print anything, simply add zeros to the ledger. Wow.. imagine you are able to add as many zeros as you would like to your bank account without having to do anything or be accountable to anyone. How you would behave? If you are like most of us mortals, you will be added those zeros as fast as fingers can move. Government essentially is behaving in the same fashion. It took them less than a minute and zero cost to “print” 4 trillion stimulus money. The result… devaluation of fiat money. Yes, same money you hold in your checking or savings account is now worth less because government created more of it.
Now we are seeing yet another shift that is deepening the caste system of haves and have nots. The rise of digital currency such as bitcoin – bitcoin standard. Everyone is mostly focused on Bitcoin price but miss the bigger picture (yes, Bitcoin is up 195% year to date). The thing is haves (“Sovereign Individuals”) are coming to realization that they have the choice to make: 1) keep fiat money that have no attributes of real money (and in some cases pay interest to the bank for holding it…) or b) look for alternative solutions. Their choice is clear: buy bitcoin. In addition, when these haves (“Sovereign Individuals”) are migrating to tax and investment friendly enclaves, guess what is first thing they “pack” with them? You guessed it…money. What they uncovered, it is simpler said than done. Why? Governments are not so quick to depart with the capital. Hence the rise of new form of money that is denationalized. According to James D. Davidson and Lord M. Moog “While paper money will no doubt remain in circulation as the residual medium of exchange for the poor and computer illiterate, money for high value transactions will be privatized”. And this is happening already. Bitcoin average transaction value currently stands at $151,000 .It spiked by 30% since July when pandemic across the globe set in. The fact is that regular folks do not transact in hundreds of thousands of dollars, only organizations or “sovereign individuals” do. Bitcoin is becoming asset holding instrument for the wealthy. Why? Well you can transfer bitcoin in minutes for the cost of few dollars versus fiat currently which takes dates, even weeks and will cost a fortune. And try buying gold these days, not as simple as you would think (but this is another blog in itself).
Transition to sovereign money will not happen overnight and without governments intervention. There is a flurry of activity in central banks around the world to create their own digital currencies like Bitcoin. Wall Street Journal wrote an insightful peace on this topic – Why Central Banks Want to Create Their Own Digital Currencies Like Bitcoin – WSJ“. “The pandemic is accelerating a shift away from the use of physical cash in most developed economies, with alternative payment methods or private cryptocurrencies potentially taking its place. Central banks are exploring ways to create a digital version of cash: money that is trusted, convenient to use and widely available to people, for making payments and getting paid. Digital currencies have the potential to make it easier, cheaper and faster to move money around. If foreign countries issue their own digital currencies, or if private cryptocurrencies were to gain popularity, they could eat into use of the traditional forms of money issued by central banks, and pose a threat to policy makers’ ability to transmit monetary policy. Unlike opening up a bank account, users don’t have to provide any identifying information to start a cryptocurrency account. That is also making it challenging for authorities to track, trace and crackdown on malicious actors using cryptocurrencies”.
Government is not alone in this fight. 2020 has seen a competitive landscape develop, with both the private sector and governmental sector involved in the issuance of a variety of crypto-fiat hybrids. Recently new phenomenon – stablecoins are gaining ground with current capitalization rate of close to $10 billion. One of the most hyped stable coin projects, Libra, seems to be moving forward with its updated whitepaper v2. If Libra succeeds, stablecoins backed by several fiat currencies will be released to the circulation with potentially immediate mass global adoption. Let’s be clear, both government and private sector are flighting against common enemy, Bitcoin which is the ultimate private/independent form of money.
The transition to more privatized version of money will take decades to play out. Eventually we will not be relying on government to provide us with money. This will be more return to the norm than exception. While the concept of private money sounds very foreign to us today, private competing currencies circulated in Scotland in 18th century. During that time period, Scotland did not have Federal Reserve bank. Private banks issued their own private currency backed by gold. Michael Prowse of the Financial Times summarized Scotland’s free-banking experience: ” There was little fraud. There was no evidence of over-issue of notes. Banks did not typically hold either excessive or inadequate reserves. The free Banks commanded the respect of citizens and provided as sound foundation for the economic growth that outpaced that in England for the most of the period”. Essentially society had sound monetary system until Federal Reserve banking system started to dominate….
The other major shift underway that is not visible on the surface – transfer of information from nation state to individual. Through out the history, either Church or Government owned printing press. The rise of internet democratized information and platforms such as You tube, Twitter lowered entry to reach global audience. As result, we are seeing the emergence of “sovereign individuals” who are followed by millions and able to monetize the audience. From make up artists and video gamers to university professors and politicians, With the rise of the internet the game of leverage has changed. In industrial world convicting people to labor for your organization was the leverage, today code and online media is leverage.
“Code and media are permission-less leverage. They’re the leverage behind the newly rich. You can create software and media that works for you while you sleep.” NAVAL RAVIKANT
Internet opened window of new opportunity to make the living for those who have good ideas and have grid to pursue those opportunities, but it takes discipline and, as we all know, by nature humans are inclined to stay still unless tiger is chasing after them. As result, most individuals remain oblivious or unaware (Netflix has their full undivided attention) of those opportunities.
“The internet has massively broadened the possible space of careers. Most people haven’t figured this out yet.” – NAVAL RAVIKANT
My favorite type of emerging “sovereign individual” are professors whose wisdom has been walled off by universities is now finding the voice on the global stage… as Scott Galloway (one of those professors) would say: “ Gangster Move”. Another good example is Ben Thompson who was able to move his blog behind paywall as early as 2014 and now bringing seven figures in revenue while living in Taiwan. Recently he wrote on how can one differentiate herself online – https://stratechery.com/2020/never-ending-niches/. And then there is an army of social media influencers that essentially rewrote the rules of digital advertising. The point here is that as long as you have something to say or write that is valuable to the audience, the information infrastructure allows you to do so.
“As social media expands its cultural dominance, the people who can steer the online conversation will have an upper hand.” – New York Times
You see the thing is information age has changed the rules of the game. During industrial age, folks with very limited skills could find factory work that provided middle class lifestyle. That is no longer the case. Internet created further divide between skilled (tech savvy) and non skilled labor (physical labor). Technology creates an interesting dynamic. At one point in time, industrial and agricultural automation was attractive to non skilled labor because it created earnings opportunities for them and lowered their cost of living. New tools allowed those without skills to produce goods of quality equal to those made by persons of high skills. A genius and moron on the assembly line would both produce the same product, and earn the same wage. Information age made this distinction between the two types crystal clear. “Genius” joined digital economy while the rest stayed behind. 2020 pandemic highlighted the difference even more so. We are in the middle of greatest shift of services employees and factory workers to warehouse and packing employees. Folks who lost work because of physical aspects of their labor, they did not join digital workforce or found other ways to make living on-line, instead they were gobbled by Amazon machine (and making corporate elites that much wealthier). As New Your Times article pointed out: “Amazon has embarked on an extraordinary hiring binge this year, vacuuming up an average of 1,400 new workers a day and solidifying its power as online shopping becomes more entrenched in the coronavirus pandemic. Amazon added 427,300 employees between January and October, pushing its work force to more than 1.2 million people globally, up more than 50 percent from a year ago. Its number of workers now approaches the entire population of Dallas. The spree has accelerated since the onset of the pandemic, which has turbocharged Amazon’s business and made it a winner of the crisis…” Instead of using this time to accelerate digital skills development for vulnerable population, they simply got ‘forced” into cheap labor in Amazon warehouses…
So what would the world look like with 500 million Jeff Bazos and Bill Gates roaming the earth? In short, the concept of locality would be transformed and, in some instances, loose any meaning. Money would be denationalized to accommodate the global nature of their daily lives and also because government backed money is loosing its value due to unprecedented quantitative easing. They are likely to close themselves off in gated communities, away from chaotic existence of the rest. Fewer people will do more work – underlying theme of information age. Information does not have the same constraints that physical goods have: it travels seamlessly across borders. It is much more efficient, eradicating a lot of waste from the system. But much of that waste and inefficiency are our jobs. As it takes away the old, technology provided new opportunities to individuals with good ideas and clear thinking to create unpresented wealth and join the class of “sovereign individuals”. What you decide to do with this opportunity is entirely up to you…
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