Quod me nutrit me destruit. A case for inflection point awareness.

Quod me nutrit me destruit. Or - what nourishes me may also destroy me. Apparently Angelina Jolie has this tattooed on her belly. I can see why. It’s as good a warning against dogma as any. I would argue that when it comes to progress of any kind, dogma, or unopposed discourse, is the long-term enemy, as too much of anything is never a good thing. Physics teaches us that everything in time-space reality is subject to duality and, as such, has an inflection point. The ability to recognise when you’ve entered the law of diminishing returns territory is crucial to good governance.?????????????????????????????????????????????????????

Investopedia says that “an inflection point is?an event that results in a significant change in the progress of a company, industry, sector, economy or geopolitical situation and can be considered a turning point after which a dramatic change, with either positive or negative results, is expected to result”. I first internalised the very real ramifications of this when I worked at an oil company, where I was in charge of commercial fuels for the CRT sector. When optimizing a fuel, you can add pretty much ‘anything’, up until 5% of the volume, with little to no impetus on performance - or disclosure. But after the 5% threshold, you not only have to disclose everything you add, but your choice of additives has a very real impact on the performance of the fuel. A cheap dilutant may be great to bring down costs while performance is not impacted. But past the point of critical mass, very delicate cost-benefit calculations apply. The wisdoms of fuel optimisation can yield some important lessons applicable elsewhere.???????????????????????????????????????????????????????????????????????????????????????????????????

What exactly is good governance? Is it always that which is geared towards normative ideals alone, or does some kind of calculable, practical end goal attainment also come into the picture? Is a strong political drive towards an ideal society, rammed down a population’s throat, only to generate a strong backlash that swings the pendulum too far in the other direction as a direct consequence, a desirable curvature of events? Or is a more gentle gradient of calculable goals aimed at a more stable rate of progress preferable? ???????????

Let’s keep it simple: Maximising upsides and minimising downsides for the largest possible amount of people must surely be the goal. People tend to agree on that much. It is the ‘road to Rome’ that tends to differ. But I think most people would agree that vast riches for one decade, and unrest and desolation the next, is not a desirable state of affairs. And so, if we keep inflection point awareness in mind, and a gentle gradient towards progress as preferable to wild pendulum swings, then perhaps we can agree that the Western world is off course.??????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????

Jacob Rothschild has said that we are currently living in the greatest monetary experiment in the history of humanity. And he should know, as the scion of the greatest international banking dynasty in modern history. With financialisation allegedly generating multiple times the sum of all production in all the world, calling today’s world economy the Mother of all Bubbles would be a massive understatement. This is clearly unsustainable and may account for the circus-like politics that are becoming ever-more creative distractions from the biggest story of our era, i.e. that Western capitalism is basically bankrupt. Our societies are unsustainably over-indebted; a few individuals own more than the majority of all humanity put together, our currencies are not backed up by anything even close to what is being printed and the middle class has been hollowed out to such an extent that our ‘sleepwalk’ into third-worldisation can be described as the biggest own goal in history. Another unsung aspect of all this is the impact on the moral legitimacy of the powers that have, at best, simply allowed things to get to this or, at worst, knowingly steered us here. Let’s just say that lecturing other leaders on good governance is bound to be less effective now. So where did we go wrong? ????????????????????????????????????????????????????????????????????????????????

Capitalism can be done well or less well. Likewise democracy. Even autocracy. It all comes down to the very generic issue of power and how it is distributed and wielded. Good governance can happen with or without democracy, as the ascent of the East has shown very clearly. This is a tough pill to swallow for those of us who thought democracy was an unassailable story of human progress. But in fact, governance done badly is what is now blighting the West. I would argue it’s about excessive power concentration among those who wield too much power badly; unopposed, having had no credible counter-force for some time. They have, quite simply, been ‘too successful for their own good’. Quod me nutrit me destruit. While it’s impacting ‘everyone else’; not them, this may not have sunk in yet. ?????

In the absence of optimal counter-power, the inherent seeds of one’s own degeneration expand. When a social media company, whose biggest contribution to our society is unopposed deliberate pandering to humanity’s worst aspects (solipsism, narcissism, group-think, bullying, polarisation; not to mention the surveillance aspect), is allowed to grow powerful enough to de-platform a democratically elected president, you know that democracy has lost out to oligarchy, whatever you may think of said president. Long-standing institutions, legitimized by democratic processes, should have triumphed over the billionaires who think they have the right to ‘disrupt’ them. What is ‘disruption’ but un-cooperative play that happens to achieve dominance over time, anyway? ??????????????????????????

If you take away all ‘labels’ and just look upon the interplay as the raw jousting of opposing powers, it becomes clear that one power posse has simply replaced another, and that most people have had absolutely no say in the matter. That should be the biggest story of the day! Democracy has been ‘disrupted’! No matter how intelligent these billionaires may be, nobody has given them the moral legitimacy to ‘disrupt’ democracy. I would argue that the same can be said for Jeff Bezos, who has decided that our cities are to be ‘disrupted’, in favour of his ‘fulfilment centres’ and the home delivery model. When urban areas suffer inadequate footfall because a critical mass of commercial needs are met elsewhere, that is a direct disruption of the way our society works and has worked - for centuries. Excessive capital concentration is what has allowed these men to foist this reality upon us. Had some restrictions been put upon them earlier, later excesses could have been avoided. Kind of like blocking the re-armament of the Rhineland in the 1930s. But no. Convenience was allowed to be king, reigning supreme above all else, with insufficient pushback. Quod me nutrit me destruit. And the chickens are coming home to roost. ???????????????????????????????????????????????????

When it comes to the power to determine how you live your life: you either have it or you don’t. You either have to navigate within oligarchic conditions or you don’t. Either the vast majority of people have the ability to live a life of their choosing, based on the fruits of their own labour, or they don’t. And so the growth of the precariat, asset bubbles on steroids (bereaving huge and growing sections of our capital cities of organic life), the burgeoning use of anti-depressants and opioids, etc. are only some of the symptoms of a society out of whack. Symptoms of absent checks and balances and of power distribution gone awry. It’s time we discuss this head on, without the customary labels, for which all rhetorical antidotes have already been invented and used to pummel voices of dissent, often with methods that are nothing but plain bullying, which is always the refuge of those who lack convincing rational arguments.??? ???????????????????????????????????????????????????????????????????????????????????????????????

Personally, I think the inflection point for the Western world came in 2000. Not just because Bush arguably wangled the election and thus drove the Democrats into the same frenzied ‘win at all costs’ mentality that they deplored in their opponents (hint: when everyone plays an un-cooperative game, everybody loses), but primarily because of the dot com bubble bursting, with the supposed ‘cure’ being worse than the disease itself. If the ‘dead wood’ had been allowed to be pruned away ‘naturally’, by market forces, at that time, and interest rates raised, it could have contained financialisation before it ballooned completely out of control. But no. Interest rates went down to near zero – and stayed there! When debt is that cheap, and those in the know realise that it will be kept that way at all costs, then those with access to a lot of credit can buy up everything in sight, before anyone else catches on, and thus the asset bubble race is on! Let’s just say that this is not a game that favours many winners over time. Local elites may participate for a while, but they, too, will be squeezed out when their time comes. This game, uninterrupted, has predictable outcomes.??????

Vast gluts of capital were freed to pursue ever more short-term projects whose main mission was simply to accrue ever more electronic money, increasingly untethered from real production on the ground. When this approach inevitably backfired spectacularly, as happened in 2008, what did the powers in charge do? They doubled down on it! And bailed out those responsible, whilst passing the bill on to everyone else. The middle class was doomed from that point onwards. Inflection point awareness entirely absent. Without the ability to borrow as much as those who were closest to the epicentres of power, it was only a matter of time before normal people would be priced out of all asset classes and stuck in indentured servitude again, with only their ever less valuable labour on offer. If access to high leverage is what determines the gradual ownership of everything, then the ‘game’ is predictably ‘set’. Only those who move first and move ruthlessly will come out on top. Financialisation yielding instruments unintelligible and inaccessible to most, added ‘steroids’ to this momentum.??????????????????????????????????????????????????????????????????????????????

Trickle-down theory proponents are arguably the last dogmatists to die hard, but in case there are any who end up reading this article, a short stab at explaining why the middle class is, in fact, the hallmark of any prosperous society, is worth undertaking. It might save a lot of repetitive discussions in comment fields with a restricted character count.

In a previous article I posted on LinkedIn, I wrote about a book titled ?Why the West Rules (For Now)? . It trawls through a great many theories about what it was that gave the West its ascendancy. The book’s overall conclusion was this: The reason the West, and not the more culturally advanced China, rose to its hegemonic status after the Middle Ages was the emergence of a big, wide and strong middle class. Perhaps not a surprising conclusion, when you think about it. The more people who can afford to think beyond subsistence, the more creativity can be unleashed. The more people who can think creatively, not defensively, the more marvels can be built. The more people who possess the ability to climb Maslow’s hierarchy of needs, the more invested they are in improving their circumstances. The sum of such collective climbing is more advanced societies.?And yes, my definition of an ?advanced society? is a society in which the highest possible percentage of a population has the ability to pursue a life they want. That means a certain degree of choice; enough wealth to escape scraping for subsistence, and enough freedom to tell an employer to get lost if one is mistreated, because there will always be another one. That is why oligarchic conditions and behemoths so large they are accountable to no government body are so scary. Any unopposed power is something to be feared!

At its most basic level, when power distribution goes off-the-cliff awry, real agency disappears for most people. And anyone who promises just a slightly better deal will meet open ears. Sometimes people will even settle for a rhetorical middle finger to those who messed up and brought them here. So, to say it plainly: the more power that goes to unaccountable, untouchable oligarchs, the less stable society becomes, and the more energy is expended on an unwinnable game for too many people, whose potential and creativity remain locked in by desperation and ever dwindling agency. It may not have hit you, the reader, yet, but it will.????????????????????????????????????????????????????????????????????????????????????????????????????

Steep social triangles are not stable structures, and this model sows the seeds of its own destruction, even as it may appear unassailable for those who are peering up from the bottom of the structure. I once teased a billionaire, whose ‘safe place’ in the event of a complete economic meltdown is his own mega-yacht: “You are only as safe as your chief of security is loyal!” Having inflection point awareness is a far more stable game. Nothing grows into the sky forever. In the final analysis, it’s about having a society in which most people do not feel powerless. That is why the dwindling of the middle class is so terrifying. Because 10.000 years of history is not wrong: when the middle-class falls, so do societies. When most people are denied a critical level of agency, there is little incentive to play by the rules. Rules only work when there is more to gain by following them than by breaking them - for most people. Some people can get away with breaking them. But when too many do, the system cannot hold. The parallels with fuel optimisation are obvious. ?????????????????????????

So how did we get here? Through the absence of inflection point awareness. If in denial about the existence of inflection points that exists in all aspects of space-time reality, it is only a matter of time before something or someone succumbs to the seeds of their own destruction. It is inherent in matter itself. Prolonging the optimal mix of aspects that demonstrably work must surely be the goal if excessive pendulum swings and strife are to be avoided. That means always having a finger on the pulse of potential excess. Let me give a few examples.

Imagine a world where interest rates had been raised after the dot com bubble burst, generating more bankruptcies in the short term, but preventing insane asset bubbles that allowed the first movers to hoover up our cities like monopoly boards. Imagine a world where billionaires are not able take the political system hostage, subjecting us all to their whims whilst having minimal oversight to keep their own excesses in check. Imagine a world where VC funding has at least a partial directive to it, so that a significant proportion is required to go toward building outcomes with measurable societal goals and a more equitable income distribution. (Yes, there is a huge middle ground between communism and unhinged capitalism; there is, in fact, an optimal amount of inequality, where the need for aspiration is balanced against the need for power containment. The key lies in equality of opportunity, not outcome.) Imagine a world where tax havens were cracked down upon before ‘everyone posh and his neighbours’ had collectively stashed away trillions that were no longer being recycled in the economies in which they were generated. Wait! Such a society actually exists! And, horror of horrors, it’s not in the West! ?????????????????????????????

Before anyone accuses me of being a trumpet blower for the Chinese Communist Party, let me state very clearly that I do not believe the Western world, reared for centuries on a diet of individualism, has the makings of a society that would thrive on a degree of collectivism that has much stronger historical and cultural ties in the East. We can’t outdo them on collectivism. Pretending we can is a fool’s errand. My point is that they have taken something seemingly incompatible with wealth creation and made it work for them! They seem to have realised the meaning behind Quod me nutrit me destruit, i.e. the limits to dogma, whereas the die-hard trickle-down theory defenders in the West have not. Like Deng Xiaoping said: “It doesn’t matter if the cat is black or white, as long as it catches mice.” Aspects of the old communist dogma that weren’t working have been discarded, and wealth creation became a goal. It was recognised that someone has to make the cake, before said cake can be divided. Economic might is dependent on having a strong and broad middle class, to harness the creative powers of the maximum number of people. A rhetorical question to those at the very top of the pyramid: What do you do with the human potential at your disposal? Do you repress it, ignore it - or harness it? ?????????????????????????????????????????

The CCP seems to have realized that capitalism is a means to and end. Or, as Winston Churchill said: “Some see private enterprise as a predatory target to be shot, others as a cow to be milked, but few are those who see it as a sturdy horse pulling the wagon.” China has allowed for the emergence of billionaires and consumerism and, most critically, an ever-widening middle class that is experiencing very tangible rises to their standard of living. ?That means they are creating ever more people invested in their model, whilst we are doing the opposite. Some might even say that this gives their political system more moral legitimacy than ours. Many, if asked, would probably surrender a lot of political freedom, just to have a real hope of rising living standards back. Maybe they care more about generic good governance than the labels used to represent it. ???????????????????????????????????????????????????????

I’ve actually devised a term for what I think is glaringly missing in the West: ‘Strata management’. A stratum of society where subsistence is the all-consuming goal will not generate as much abundance as a stratum where basic needs are not a source of worry. Compare the emergence of factory towns; human battery driven profit machines, versus cities like London and Paris! The latter would not have emerged in all their splendour, were it not for successful strata management. Enough people must have the desire and opportunity to create abundance! ???????????????????????????????????????????????????????????????????????????

As hedge fund supremo Ray Dalio has elucidated: The CCP’s cultivation of a burgeoning middle class seems to be working. A capitalism that eats its middle class is losing ground. That suggests that it’s not so much the political ‘labels’ that matter, but the very generic concepts of power distribution and effective governance, allowing for the maximum number of people to have a critical mass of perceived agency. Whichever system masters strata optimisation has the longest and most prosperous lease of life ahead of it. When more people benefit from the status quo than lose from it, it’s a winning formula. It will never cease to amaze me that we who had it, did not keep our eyes on the ball to prevent its loss. And that more was not done to halt the hijacking of the systems of governance that it took our ancestors hundreds of years to hone into a good working standard. How could we let those few who have sold our way of life down the river get away with it? Can anything be done with it or are we the ones who will now descend into sweatshops and ‘fulfilment centres’? And that handful of the financial class that are pulling the strings of all this, still, do they not see where all this is inexorably heading? Quite apart from the moral aspect of it all, do they really not see that this game is not sustainable? ?????????????????????????????????????????????????????????????

One of my favourite sayings: If you want to ruin someone, let them carry on unopposed. Having too much success, and too much uninterrupted adulation, will very likely lead someone to disregard inflection points altogether. And why shouldn’t they? It’s worked for them so far! Even if they don’t care a jot about the impoverishment of the city where they live (“they can always move to another”); even if they don’t care about the country where they live (“ditto”), do they imagine that they will never run out of flesh to feast on? If they were under any illusions about being able to place their money in the East and have the same kind of clout there that they’ve been able to enjoy in the West, then Xi Jinping’s latest billionaire power cull must have given them something to think about!

Even self-interest, it turns out, has an inflection point. When you become a wealthy investor from a C-league nation, you will be treated the way that such representatives were treated here in the past. Sooner or later the gangrene of decline will reach you, too. When the West’s slide to that league is complete, even current millionaires will lose influence. So the capitalist game currently being played is short-termist in every way. The key to turning this around lies in everyone but the richest billionaires realising that their interests are not aligned with those of the top billionaires. It is actually in their interest to replenish the strata just below them, to maintain their relative position in society, even if that means foregoing ever increasing absolute returns. Now, what does this mean in concrete terms? ????????????

The key is to always manage the degree to which poverty is allowed to spread in a society. If wealth dips below critical mass, the downward spiral towards poverty, instability and violence is hard to exit. Getting to a critical mass of wealth is far harder than losing it. So we must cultivate the expansion of the middle class as generators of collective wealth with great urgency. That does not mean more philanthropy on the part of those who have the most. Philanthropy can only do so much. Closing down tax havens and enforcing fair taxation across all levels of society is necessary, but even that would not do the trick on its own, as it is a reactive move, seeking to redistribute the results of ingrained structures that require structural change to yield different dynamics over time. The key is to disrupt the ‘disruptors’ of the last quarter century and back enterprises whose business models produce more winners. Only when they start to outcompete the disruptors of yesteryear on merit (as opposed to capital glut and first mover advantage), will the true imbalances that are blighting the West be rectified in a sustainable way. If ever-expanding money machine behemoths, whose cumulative privileges accrue with ever more momentum, are not challenged in a fundamental economic way soon, then peaceful measures of counter-power to an unsustainable set-up may become unviable. If those who have let it get this far see nothing morally wrong with their modus operandi, nor its inherently short-termist nature, then there is no reason to think that they will do so without meaningful interference. And by ‘meaningful’, I mean effective. Real competition. The kind that actually makes income streams move away from them, not toward them. Because yes, as ever, it really is all about income streams.???????????

Economics has been called ‘the dismal science’, and not without reason, but there are a few things it really got right. The first thing one learns is that monopolies are bad for consumers. Likewise oligopolies. Simply put: too much power concentrated in too few hands is bad. Whoever has it, will necessarily not wield it well, as that is not in the inherent nature of too much power. Quod me nutrit me destruit. The trick really is to find the optimal degree of power distribution, and power inexorably goes through money flows. So we must democratize money flows. And we must do so in a sequence and speed that does not attempt to leapfrog all hitherto known paths of evolution, as previous attempts at that have not ended well. A gradual turning away from behemoths and unicorns should do the trick. This involves very real actions for very concrete people.???????????

To any High Net Worth Individual (HNWI) or VC representative reading this, please know that the last few paragraphs are addressed to you. Yes, you. Because you are the ones who hold the keys to the gentler kind of turnaround for Western capitalism that is - hopefully - still possible. Key points to note:?????????????????????????????????????????????????????????????????????????????????

1. Abstracting from any notions of morality or charity, please recognise that the capitalist game as it is currently being played, is not sustainable. I’m not just talking about the environmental aspect. That realisation seems to have finally filtered through. I’m talking about social sustainability. It really is not in your interest that the middle class be totally winnowed out in the Western world, because the levels of either desperation, anger or apathy that produces will not allow your life to continue unencumbered as before either. The gangrene of impoverishment spreads ever upwards, until a backstop is reached and a societal structure topples over. Djaffar Shalchi calls this ‘pitchfork economics’. A more sustainable economic game is one where most people can live a reasonably contented life through the fruits of their own labour. Most people don’t need all that much. But sufficient perceived agency is key. Economic initiatives that target ever more automation or precariat creation is probably not where you should place your funds. Until labour replenishing initiatives catch up with automation and disenfranchisement, the overall direction of the economic game does not lend itself to eternal expansion. Please think about overall societal outcomes when placing your investments, i.e. social and environmental aspects. It is in all our interests to make sure desperation levels are kept to a minimum. People who have known agency are less inclined to accept its loss than those who have never known it, as history has shown. ??

2. Some of you are doing philanthropy, which is good. A good deal fewer of you are advocating tax raises for HNWIs, which would count for much more. But for fundamental structural changes that will produce a more sustainable game, vastly more capital has to be allocated to business models that produce more winners. John Nash won the Nobel prize in economics in 1994 for showing that (paraphrased) “Adam Smith was wrong”; the untramelled pursuit of self-interest does not yield optimal economic results, owing to the unsurpassable magic of ‘the invisible hand’. In fact, some degree of coordinated cooperation beats the individual pursuit of self-interest over time. Indisputably. Mathematically proved. That means that allocating at least some of your investment funds to socially sustainable enterprises should be seen as enlightened self-interest, not charity. Those who would write off these words with statements like “investors are motivated by fear and greed alone” must surely see that at least some investors should be able to look upon this game a few chess moves ahead and see that ‘everyone for himself’ is not a sustainable strategy over time. Not anymore! Quod me nutrit me destruit. ?????????????????????????????????????????????????????????????????

3. If Jeff Bezos had not had the patient investors he had, he would not have made the home delivery model that is blighting our urban fabric so dominant. What that financial backing made possible can also make the opposite possible. Ali Tamaseb spent 4 years analysing 65 criteria among start-ups, to see which ones actually rose through the ranks to become companies that shape our world. His book “Super Founders: What data reveals about billion dollar start-ups” showed very clearly that a small clique of ever more powerful investors decides what our society gets to look like through sheer financial clout and ever larger compound advantage. Compound advantage stakes its claim early on, as Malcolm Gladwell explained in “Outliers”. Likewise in the start-up world: how much one raises in the first round turns out to be crucial. It makes sense: the more money you have early on, the more room to iterate is available to you; the better people you can hire; the more time you have to perfect your offering before you can compete on merit alone. This makes it even clearer that participating in the capitalism game with any degree of real agency has now become a ‘by invitation’ game. Merit is highly subjective; it is what a select group of people say it is. That explains how unicorns like Uber can make losses for so long and still be in business. ????????

A small group of VCs have made spectacular amounts of money by playing uncooperatively, and it worked for them. Trouble ensues when too many follow suit, leaving out company builders that champion more positive externalities and more winners, but lower return rates for quick exits. Eventually, though, even VCs will run out of such projects. And by then it will be people you know whose labour has been replaced; who will have been pushed into the precariat; whose neighbours will be entirely empty flats owned by shell corporations in tax havens, with no organic community life as a result. Been to Mayfair recently? ???????

Do you believe that Bezos, Softbank and their ilk should have as much power to decide what our societies look like as they do? Do you think that they are best placed to do that? Or do you think that maybe, just maybe, that cadre of people has been ‘too successful for their own good’? Even these honchos must, on some level, realise that the game they are playing is finite. Unsustainable. I also wish to point out that since this group of gate keepers to society-changing enterprises is fairly limited, it can be influenced by other factors than those that guide them today.????????????????????????????????????????????????????????????????????????????????????????????????????????????

I am a huge believer in the concept of critical mass. When enough gate keepers of big capital decide to allocate enough capital to business models that create more winners, even at the expense of lower absolute returns in the short term, then we can turn this ship around. And thus prove that authoritarian state-sponsored capitalism is not superior to capitalism and democracy done well.?????????????????????????????????????????????????????

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