Global Guerrillas

Quote: The Militia Mindset

“We don’t consider ourselves sea bandits. We consider sea bandits those who illegally fish in our seas and dump waste in our seas and carry weapons in our seas. We are simply patrolling our seas. Think of us like a coast guard.”
Interview with the Somali Pirate, Sugule Ali, via satellite phone from deck of a seized Ukranian merchant ship carrying heavy weapons.

ONWARD TO A HOLLOW STATE

The modern nation-state is in a secular decline, made inevitable by the rise of a global market system. Even developed nations, like the US, are not immune to this process. The decline is at first gradual and then accelerates until it reaches a final end-point: a hollow state. The hollow state has the trappings of a modern nation-state ("leaders", membership in international organizations, regulations, laws, and a bureaucracy) but it lacks any of the legitimacy, services, and control of its historical counter-part. It is merely a shell that has some influence over the spoils of the economy. The real power rests in the hands of corporations and criminal/guerrilla groups that vie with each other for control of sectors of wealth production. For the individual living within this state, life goes on, but it is debased in a myriad of ways.

The shift from a marginally functional nation-state in manageable decline to a hollow state often comes suddenly, through a financial crisis. This crisis typically has the following features:

• Corporations and connected individuals systematically loot the nation-state of financial assets and natural resources through a series of insider/no cost deals. These deals are made to "save" the nation's economy or financial system from collapse.
  
• Once the full measure of the crisis is known, the nation-state's currency falls precipitously, it's debt becomes expensive, and it is forced to submit to international oversight/rules.
  
• The services the state provides rapidly evaporate as its bureaucracy is starved for cash/financing. This opens up a window for the corruption of government employees unused to deprivation.

The Dynamic of Primary Loyalties

The decline from functional but weak nation-state is extremely sudden. For individuals, there is a rapid and sustained decline in the standard of living. Additionally, there are spot shortages of critical items and commodities -- particularly food, medicine, and energy (since these are globally fungible). Large and small business fail across the board, or become prey to connected companies/individuals with access to the remaining coercive power of the nation-state. As the deprivation becomes commonplace, people turn to primary loyalties for support and services -- loyalties to a corporation, tribe, gang, family, or community. These groups, energized by new levels of loyalty but deeply obligated to reciprocate this loyalty with support, become extremely aggressive in pursuit of their survival. Once this shift in loyalty is made, a self-generating cycle of violence, crime, and corruption (fueled in large part through connections to the global market system) becomes entrenched. The nation-state, at that point, becomes irretrievably hollow.

The Looting

It's instructive to view the US Treasury's plans for a bail-out of the global financial system through the lens of the hollow state. By this measure, the bailout as it stands today, is a form of financial looting of the US Treasury (it isn't socialism, since the government isn't nationalizing the financial system). Trillions of dollars in government monies ($700 billion to begin with) will be infused directly into the coffers of corporations and wealthy individuals (via hedge funds). Specifically, the plan buys toxic assets at inflated prices and sells them back for nearly nothing -- no equity or assets of real value are provided in exchange for the purchase. The national debt will likely grow 20-30% in a single year, with obligations extended to many trillions more in guarantees.

Given this, one potential next step forward is a decline the credit rating of US debt (which radically increases the costs of US borrowing), a collapse in the dollar relative to more stable global currencies, and a rapid decline in government services. Other scenarios achieve the same result with different timing. Regardless, our (the US and the UK) journey to a hollow state has officially begun.

NOTE: Philip Bobbitt got it wrong in his book, "The Shield of Achilles." The prosperous market-state he envisioned through constitutional reform isn't possible. The REAL market-state, the form of governance that that has truly embraced the global market system, is hollow. In effect, a state that doesn't place any barriers between itself and the global marketplace. As a result, the only real opportunities created by the emergence of the market-state are opportunities to steal extreme wealth.

JOURNAL: Information Cascades

Information cascades are important. They explain many of the big problems we currently face. Here's how an information cascade works:

1) An event occurs or a problem surfaces.

2) A person who is perceived to have good data/insight into the event or problem makes a decision.

3) Other people, observing the first person's decision, opt to avoid original analysis/discovery and copy the earlier decision.

4) The more people that copy the earlier decisions, the less likely any new discovery or analysis is done.

If the earliest decision was correct, then everything works out. If it isn't, the error is compounded until it becomes a major problem when it collapses. In today's world, with its copious communications systems, information cascades occur with increasing rapidity. They can spiral out of control in hours/days. This also means that on the flip side, an information cascade can collapse suddenly, when the original decision(s) is(are) proven wrong.

An information cascade is a good explanation for why the financial industry became so hopelessly lost. They based their decisions on economic and financial theories that claimed to have predictive power in EXTREMELY complex domains (since this methodology came from careful study in academia, it was assumed to be correct). The information cascade was the rampant application of these theoretical models throughout the financial industry over decades. However, as Nassim Taleb (although the writing is often tough to decipher) points out in this brief, the true predictive capacity of these models was nil/nul/void, since they are extremely vulnerable to black swans -- the collapse of the massive hedge fund, Long Term Capital Management proved this point nearly a decade ago. So, what happened when the black swan arrived that demonstrated that these models were wrong? The system imploded as confidence in all of the previous decisions made with those models are called into question (the information cascade collapsed).

In warfare, information cascades can generate disasters too. For example, the government's recent claims of success in Iraq (although better models of the conflict indicate that this is a temporary lull, far from "victory") can lead to similar adventures in the future (as we are seeing that now in Afghanistan) as the press and population echos the assessment. Finally, information cascades also can work as a means of disruption. As a guerrilla, information cascades can turn an attack on nominally stable social systems into a systempunkt (the critical point within a system, that if attacked, amplifies damage throughout the entire network). Fore example, think 9/11 or the Golden Mosque.

JOURNAL: The Weaknesses of Highly Optimized Systems

I've written about the ways to attack or undermine systems with highly optimized tolerance in the past (systems that fit this description include everything from financial networks to electricity networks). Generally, my conclusion was that the best approach is to focus on design flaws. However, this analysis was less than complete. Systems that exhibit highly optimized tolerance are vulnerable to ALL of the following:

• Design flaws. These attacks come from outside the system (exogenous) variables. In warfare, the design of COIN (the US military's counter-insurgency doctrine) didn't account for open source insurgency. As a result, it was of little use in Iraq. Fortunately (or unfortunately, since it took four years of failure to grasp that the model was flawed) new methods/models of counter-insurgency were designed on the fly (based on local observations) that created the Anbar Awakening. In finance, we designed a system of national economic investment that relied nearly exclusively on capital markets (at the expense of individuals/incomes). The result was that capital markets became, without the decisions/input of hundreds of millions of Americans making daily investment decisions, completely divorced from reality.
  
• Exploitation. I touch on this in my recent brief on "Bow-Tie Control Systems." In short, its often possible for bad actors to access the core features/services of complex systems. This allows them to exploit these features for personal gain. If the exploitation becomes too intense, the entire system fails. In biology, cancer exploits the core machinery of the cell to propagate/function. In finance, investment banks accessed the mortgage market to exploit its cash flow for personal gain. In each case, too much success resulted in the death of the host system.
  
• Black Swans (events with small probabilities that yield exceptional or disastrous outcomes). Basically, this is what happens when a variable in your system's design (that you think you understand) blows up. Why does this happen? In most cases, we don't have nearly enough experience with almost all of our complex systems to truly understand the magnitude of potential variation in many of the variables we use (as in: hindsight doesn't work if the period of observation is too short). Let's use another example from Iraq (warfare). While we understood that terrorists could make things worse through targeted attacks , we completely under appreciated the magnitude of disruption possible. As a result, the attack on the Golden Mosque sent the country into civil war for a year. In finance, the historical probability distribution of defaults on home mortgages was completely wrong, by several orders of magnitude. The result was systemic financial failure as top rated assets quickly became worthless junk.

AMERICA'S ECONOMY AND OPEN DECISION MAKING

The global financial system is melting down. Our approach to decision making may have been the reason we are at this impasse today. This brief is a little bit of a departure for me, but I think it may be worth the effort. Feedback is appreciated.
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This gets us to the nexus of our current problem. The environment within which we make decisions is getting more complex, uncertain, and incomplete at a faster rate than the mental constructs we use to model it are being improved. To wit: ever greater amounts of novelty (for example: new technology) is being produced than ever before yet our strategies and methods are scarcely different than those we used half a century ago.

From the brief "Open Decision Making." Read the entire thing.

The 20th Century's central struggle was between the ideological systems that advocated governmental control of the economy and those that relied on market control. The market-based systems won. Why? In short, market-based systems made better investments, over the long term, than government managed systems. The lesson: systems with large numbers of decision makers, each with capital to invest, make better decisions.

As is often the case, the emerging victory of the market-based system created yet another problem/struggle. Specifically: is it better to trust that individuals empowered with growing salaries/wages will make the best investments for future economic success -- or -- is it better to grow corporate profits (at the expense of wages/salaries) and let capital markets invest the excess?

Between WW2 and 1974, while still engaged in a bitter struggle with Communism, the US hedged its bets on that question. Both individuals and the capital markets received an equal share of the benefits of productivity growth. Incomes rose mightily and we became broadly wealthy, mirrored by generous growth in the capital markets, relative to the start of the century. As a result of this shared decision-making system, smart investments in infrastructure, industry, education, and much more made America the economic powerhouse of the world. In short, we prospered.

However, the shared decision making system ended. From 1974 onwards, the rewards of productivity growth (economic expansion) went exclusively to the capital markets and not into income growth for individuals. This was likely done, although the mechanism is unclear, under the assumption that the discipline of capital markets produced better investment decisions than individuals. Regardless of the motive or the specific mechanism, where the flow of capital from American economic activity went, couldn't be clearer:

• Median per capita incomes in the US are the same as they were in 1974 -- there hasn't been any income growth at all.
  
• In contrast, we have seen torrential capital accumulation / concentration and the capital markets have enjoyed a nearly 30 year run of unbridled expansion.

So, what was the result of this concentration/narrowing of decision making power in the hands of the capital markets? How did they invest thirty-four years of American productivity growth for the future?

As of this year, the final results of this American experiment in financial decision making are in. The allocation of this capacity exclusively to capital markets, rather than sharing that decision making with hundreds of millions of Americans, has produced a horrible result. Instead of investing the accumulated wealth of America in productive assets that yielded long term benefits, the money was invested in derivatives (illusory financial products) that yielded nothing of tangible value. In short, the narrow group of actors that operate within the capital markets made the decision to forgo the long and difficult process of growing investments in the tangible world in favor of the outsized returns available through investments in virtual products. That investment is now evaporating.

What it Means

Even under the most ideal conditions, its dubious whether the capital market's decision making loop (the sum total of the intellectual product of all capital market participants) can even closely approximate the requirements of the rapidly evolving global environment we currently find ourselves in. In short, we are falling behind ever more every day. Given a situation where decision making is falling behind the requirements of the environmental reality, we can expect inevitable catastrophic failure at some point in the future.

From the brief "Open Decision Making"

Would we have been better off if the benefits of massive productivity growth over the last three decades had been shared with hundreds of millions of Americans? Of course. In fact, it is hard to see any other way, other than an open decision making process, which would be able to deal with the growing complexity of the modern world -- from globalization to technological change to growing instability.

Can this be error be corrected? Probably not. Most Americans have fallen deeply into debt (mirrored by the US government) in an attempt to maintain lifestyles (or an illusion of progress). They don't have the financial resources for any meaningful decision making power left and worse, there isn't any recognition that a concentration of decision making was even a problem in the first place. In fact, given that most of the last 30 years of American economic investment is now vapor, it's hard to imagine us avoiding economic catastrophe.

RC JOURNAL: The Lewes Pound

The town of Lewes, England has just launched a local currency (with an excellent Web presence to match the sharp design of the scrip). Congratulations.
NOTE: Local scrip (read more about it's history) is a platform that can/will quickly transition from a mere loyalty program into a real and vibrant currency as local production of energy, food, and products (via local fabrication) heats up. The current housing/debt/solvency crisis is likely an opportune moment to launch local scrip.

RC GRAPHIC: ReLocalization

(click to expand)

RESILIENT COMMUNITY: Duck and Cover

It isn't possible to build resilient communities through a reprise of 20th Century Civil Defense initiatives. That approach (depicted by this classic video, "Duck and Cover"), which relied on simplistic messaging, mass drills, and government sponsorship wouldn't work in today's environment . One reason is that, at least in developed countries, communities are generally too hollow (little primary loyalty is left) and fractious to even consider it. Another is that the economic strains on most communities are too severe to consider centrally mandated change, without first demonstrating the benefits. A better approach is to initiate an economic insurgency. Here's one potential pathway:

• Initiate. A small group of advocates builds a community platform: a microgrid, composting center, subscription farm, etc. This platform should include all of the necessary characteristics; from two-way interaction to simple expansibility.
  
• Grow. The group markets the initiative to others in the community with a focus on the economic benefits of participation. Savings. Income. Quality (of the product and the community). Build an ecosystem of participants. Encourage people to build businesses based on the platform.
  
• Leverage. Another group, which may or may not include the members of the first group, builds another (complimentary) community platform and repeats the evangelical effort. The process is repeated until the required platforms are in place.

As disruptions, shortages, instability, brown-outs, price spikes, credit crunches, etc. begin to sweep through the community, these platforms will gain greater adoption (and critical mass for rapid expansion). However, the best path to growth and success, isn't through forced participation and ubiquitous services. Instead, it is expansion through voluntary participation (which is nearly identical to how global guerrilla movements and organizations grow). This is important:

Membership in a resilient community will be less a function of geography and more the result of voluntary association. In this sense, it is a virtual economic/resilient overlay on existing geographical communities that over time will become dominant.

GG RADAR: Mid-September 2008

On the radar:

• The open source guerrilla group, MEND (the Movement for the Emancipation of the Niger Delta) has declared an "Oil War" against the government and it's corporate allies (Shell and Chevron, in particular). This new declaration coincides with a new set of attacks on Chevron. It's savvy PR on MEND's part.
  
• Biobricks. Registry of standard biological parts (DNA sequences) for rapid construction of biological organisms. This approach will radically expand the ability of small developers to rapidly construct organisms that do real work -- producing materials and products, from the exotic to the mundane. It's the natural compliment to hyper-local fabrication to enable small scale production of just about anything....
  
• The Taliban is using Skype (with its strong encryption) for secure communications over newly installed wireless IP networks. Likely that any benefit the US has in intercepting these communications (via coercion of eBay, which owns Skype) doesn't transfer to NATO partners.
  
• Russia continues to suffer financial problems, in large part due to its invasion of Georgia. Debt refinancing is tough, a stock market crash, and a liquidity crunch. However, Russia's invasion has almost halted plans for the critical Nabucco pipeline project (the objective of the effort).
  
• Flashmob competition between Muslim groups and Hells Angels (AK18) in Denmark.
  

JOURNAL: Truly Stateless Companies

Google has filed patents to create deep sea floating platforms to house its massive data centers. Not only would these "barges" be economical (lower cooling and energy costs), they would be outside tax and enforcement jurisdictions of all nation-states. If this effort is successful, it could result in an effort to rapidly construct offshore facilities (spread out for robustness and built by a multitude of companies). Interestingly, since the core of most multinationals is now software (people are replaceable and/or interchangeable via outsourcing), the shift to offshore locations would make companies nearly invulnerable to state coercion.