For my children and grandchildren.
So that they too can experience a future in liberty.
And for my wife so that I, too, will still have a future.
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Preface
My life as a spoilsport
Prologue
Introduction
1. The Currency Collapse
2. The future of the Firm I: Technogeddon, or The Quantum Computer Dilemma
The Private Key
Private-Public Key Encryption
Hash Encryption
The Quantum Computer
3. The End of Multiparty Democracy
The hostile takeover of parties by less able careerists and those seeking pensions
The poisoning of society by the legacy of the 1968 revolt, the Frankfurt School and the loss of cultural identity and purpose
The loss of personal autonomy
The erosion of property rights and the freedom to trade
The decline of the traditional family
The politics of the destruction of our identity
The HR capability (r)evolution and the rigidity of labor markets
The decoupling of decision-making authority and control by sovereign bodies in the EU
The death of the free press and the free media
The establishment of the surveillance state
The failure of political investment schemes
The loss of control over migration and borders
Economic policy making as the “science of pots”
The revolution of broken promises and the end of multiparty democracy
4. The Future of the Firm II – The new Creative Destruction and The End Of The Firm As We Know It
1. The drivers of entrepreneurship versus the drivers of corporate sclerosis
2. The detrimental impact of regulation
3. The impact of discontinuity and nonlinearity
The Parameters for the Integration of Value Chains
5. The Geostrategic Vacuum
The Western mindset in international politics
The global geopolitical map
The Turkish involvement in the Syrian war
The organized migration of people into Europe
A simulation exercise to project the population structure
The geopolitical plans of the neo-Ottoman Empire and the Muslim Brotherhood
6. The System of Liberty or the Death of Civilization
7. Epilogue: Looking back from 2035 – Two Scenarios
How could it all turn out differently?
A Republic of Liberty
Epilogue
The Hambach Speech, a call to defend Liberty
“There are more things in heaven and earth, Horatio,
than are dreamt of in your philosophy.”
Shakespeare, Hamlet, Act 1, Scene 5, Hamlet to Horatio
Since the publication (in German) of my book Der Draghi-Crash (The Draghi Crash) a gap has opened up between the professional title on my business card and the first sentence uttered by the hosts who introduce me when I give talks. Until June 12, 2017 I was a “consultant to banks,” a title as unremarkable as the grey suits that fill my wardrobe and compete for space in there with the outfits of my wife and daughters. Since June 13th, 2017 I have become a “critic of the ECB,” a “crash prophet” and, in order to build me up, a “best-selling author.” My interviewers ask me with brisk regularity: “Mr. Krall, why are you such a pessimist?” My readers prefer to ask me for advice on how they can safeguard their assets against robbery by the state. The diagnosis however is the same: “Mr. Krall ranks alongside Jehovah’s Witnesses when it comes to apocalyptic prose.” Oh well, I guess I asked for that.
And yet, those who have known me a while longer know that I am an extremely optimistic person at heart. When it comes to disasters I either follow the motto of Hildegard Knef (“If I’ve learned anything about life, it’s that it goes on”) or of John Wayne (“You must always get up one more time than you fall off a horse”).
But even John Wayne would not have intentionally thrown himself off a horse (even back then there were stuntmen for that). And that’s precisely the point. My recommendation is that our society should not throw itself off somewhere, against its better judgment, while it is clear that the height of the fall would be too great. Imagine the following scenario: An amateur mountain climber loses his bearings. Six feet above the ground he gets dizzy and he doesn’t dare to jump down because he’s afraid of ruining his hairstyle. His solution consists in climbing up the mountain face for another four feet. That way he does not have to look down. At ten feet he briefly turns around but then realizes that ten feet is more than six feet and the situation has not got any better. Now he’s started worrying about his gear, his nose and his ankle joints. Climb down slowly? Are you crazy? Do you want me to have to go to a doctor? Well then, keep going up. At 15 feet he turns around once more and looks and also at 25 and 40 feet.
He looks up and he cannot discern where the face of the mountain ends, but he reckons that if he just continues going up he’ll get to a ledge where he’ll be able to pull himself up on to a high plateau and catch his breath. He does indeed suspect that just before the high plateau, a quarter of a mile up, there will be an overhang which, with his climbing skills, he will be unable to surmount – although he has pushed this thought to the back of his mind. Standing below are the neoliberal professors and they are stretching out a jumping blanket because he has already struggled up 70 feet. He tries to persuade himself that he is not afraid: “The view up here is awesome. I’m awesome. Well, I’m hanging 70 feet above the ground just like Harold Lloyd once dangled from a clock face on a skyscraper, but I know better than those dudes down there."
It is also clear to him that jumping, even with the jumping blanket, would be a very daring undertaking. At any rate, he can already forget about his straightened teeth. The dentist visit will be lengthy and not very pleasant and will only be feasible once the swelling of his lips goes down again. He knows all this and he keeps climbing because now his dentist is also standing below and explaining to him that he must stop now if he wants to keep his jaws. “You damned pessimist,” he gasps at the dentist. “No,” the latter answers. “I’m only the dentist. And if you would, at long last, just come down then I would be full of optimism. We can put this right again.”
That’s exactly how I feel, too.
"To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm."
Friedrich August von Hayek
The future is not what it used to be. What sounds like an oxymoron is the consequence of cognitive dissonance. Yesterday’s future is the present. And because, yesterday, we were already not very well able to predict what it might look like, the present must differ from the forecasts made at that time. Developments that nobody had anticipated have rolled over us. Developments that were expected have not occurred. One statement characterized by disappointment that recently went viral (incidentally, a word that didn’t appear in any forecast of the future just 20 years ago) was “they promised us flying cars and all we got was an iPhone.” It is not without a certain irony that flying cars are, so to speak, just around the corner. Only, we don’t call them cars but rather passenger drones.
Now, the starting point for forecasting the future is of course a different one from 1970. Yet, while we believe that we now stand on a higher hill than in 1970 and, therefore, should be able to see farther and clearer ahead we simply don’t. We merely succumb to the illusion that we do.
When you open a newspaper these days, it seems to be totally clear where we are heading. Climate change is a reality, but our elites are managing this with wind turbines and solar panels. The banks are in dreadful shape, but our elites have regulated them into calmer waters. Digitization will change many things, but our politicians will make sure all goes smoothly by paying a universal basic income. We will fund this out of a machine tax. Quantum computers are rather esoteric, but they will keep the machine, which enhances our electronic toys every year, running for a while yet. Robots will soon be ubiquitous, but some of them will be sexy and provide a cure for all those lonely people who have become firmly attached to their electronic pacifiers and have swapped the real world for the virtual reality of social media. So, please don’t worry.
Terrorism is spreading, but we have global surveillance to keep it in check as we do with cybercrime. The only real military threat is posed by North Korea, but we hold the revolver that is nuclear deterrence to its temple. Immigration is not out of control, because we have decided to adopt it. All will be well.
Dream on.
Our perception has been drowned out by the illusion of linear trends, which do not allow us to recognize the force of the exponential trends that are driving key developments, especially in technology. Moreover, we do not possess the power of imagination to grasp the consequences of the mutual interference of trends. Furthermore, we would appear to be lacking in any sort of sensory apparatus that is able to detect imbalances lurking beneath the surface of the water like a crocodile in a swampy pool.
Because our political elites hate it when citizens worry about things (by definition, this makes the elites look stupid and inept) they try to smooth over anything that looks like trouble or volatility. No nasty images, please. The welfare state will take care of your problems from the cradle to the grave and even into the grave. A general aversion to risk is thus instilled into people. Risk is viewed as something archaic, a relic from the dark ages when humans were still exposed to hunger, war, diseases and plagues.
In our civilized technology-ruled societies the individual risks are in fact much smaller than they have ever been because the level of our prosperity and the resources available to us are infinitely greater when compared with any other generation in human history. Risk and volatility are more likely to find their expression in the question of whether economic growth will be 1% or 2% and, thus, whether we will be able to buy the latest 70-inch QLED monitor already in October, or if we will have to wait until Christmas.
All the same, politicians hate volatility of any kind and try to gloss over it, usually with borrowed money or – if that is not available – freshly printed money. However, you cannot get rid of volatility by spending money, at most, you can sweep it under the rug. You can shut it up in a repository from which it will eventually escape, like the slimy ghosts in the movie Ghost Busters.
History can provide numerous examples of attempts to suppress volatility that merely led to its accumulation and subsequent concentrated discharging. The biggest experiment of this type was the Soviet Union. It flaunted the supposed strength that it saw in the superiority of its planned economy because it didn’t generate business cycles or financial crises but merely consistent growth. This was driven in the engine room of Gosplan’s 5-year plans, which advanced the prosperity of the comrades from one great leap to the next.
We all know how this ended. The volatility that had accumulated over 70 years had created imbalances big enough to consign one of the biggest, nuclear-armed and seemingly invincible empires to the dust heap of history, in a matter of months, once the pent-up pressure had found its way out and had escaped. And yet, there are object lessons of a wholly practical nature that could have been used to study this.
In the great wilderness of North America wildfires were a common event for many thousands, indeed probably for millions of years. They occurred frequently, every year. They were triggered by strokes of lightning, hot weather and drought. They were normal events and nature was obviously able to cope with them. However, at some point, not too long ago, the nature of this phenomenon changed. Wildfires became large, very large. In fact, they became so large that they could be seen from space without optical instruments. Why? In the 1930s, increasing settlement and the related expensive infrastructure led to the view that wildfires were not a good thing, but rather an undesirable event that should be prevented.
With the introduction of planes that were able to detect fires at an early stage and extinguish them it became possible to suppress them while they were still small. The volatility had been managed and subdued – brought under control using the means of human technology. Or so it seemed at least.
Over the years, the dead wood and brushwood, which would normally have been burned in the periodic wildfires, started to accumulate at a rate that was faster than the natural decomposition rate because the climate is very dry. This accumulation of dry, easily combustible wood was the imbalance that piled up beneath the threshold of perception. At some point, this amount reached a critical mass and it just needed a lightning stroke or a littered bottle, acting as a magnifying glass, to spark off a wildfire of enormous proportions and force that ate its way through forests, villages and fields, leapt over rivers and roads, turning everything in its path to ash. The accumulated volatility was violently unleashed.
Our society has found countless ways and means to suppress volatility in the mistaken belief that it is possible to do so with impunity and that the volatility will then go away without taking its revenge. We apply Keynesian debt-financed spending policies to smooth out the business cycle in order to avoid unemployment and bankruptcies, we loosen the purse strings of the almighty central banks in order to stabilize financial markets and avoid crashes and the bursting of speculative bubbles. Over the course of the business cycle, we prevent companies from firing people that they had previously hired and thus protect their employees from the consequences of structural change. We have even regulated free speech and political ideas under the delusion that we have banned what we classify as hate speech or fake news and, in this way, provoke the very hatred that we purportedly wished to subdue.
All these measures work for a while. The imbalance grows. It reaches a critical point and critical pressure. Then suddenly the container ruptures and the volatility is released like the energy in an explosion. The impacts on the welfare of people are then more far-reaching and worse than the benefit, achieved over time, that was obtained by quashing the risks. The explosion, the discontinuity, is then amplified by two effects. Firstly, it creates huge disorientation as it is much more difficult for people to adapt to sudden extreme changes. Secondly, people who are no longer adept at dealing with the consequences of volatility because they have been shielded from it for years are no longer equipped to deal with it psychologically and in terms of their expertise and knowledge.
And there is an additional danger. As we have suppressed so many different types of volatility over so many decades, the risk of correlation has arisen, thus, the possibility that several big imbalances reach breaking point simultaneously. This could happen either accidentally or by mutual causal reinforcement. One big discontinuity would trigger the next. A chain reaction would be initiated that society could no longer circumvent. Its tried and tested instruments would break down and its internal functional processes would come to a grinding halt.
At this point revolutionary change would be easily possible.
In risk management, types of risk can be divided into categories according to their behaviors. One of the possible dimensions here is a scale between flat or granular and cluster risks. Flat risks have quantifiable daily volatility from which we can derive a distribution of the results and which we can manage using the classic methods of risk measurement and risk control. Examples of such behavior can be found, in particular, in highly efficient financial markets. That does not mean that the distributions describing their behaviors do not have any extreme tails and thus no extreme events are possible, even though unlikely. However, it means that market participants can by and large understand the risks they take. Derived from this they are able to determine how much buffer capital they require in order to survive if extreme events with a low probability materialize.
Types of flat volatilities are very often rooted in the evolutionary principle by which nature organizes its learning processes. It governs ecosystems, markets or systems in general with agents or participants who have to improve their capabilities for their survival over time. They do this through an evolutionary process with the heuristic method of trial and error. This method of learning is based on success and failure and occasionally sends agents down the wrong path. In nature this is then an evolutionary dead end and leads to the extinction of a species. This is the result of their inability to accomplish what Darwin had described as the “survival of the fittest,” but which in reality means the survival of those that can best adapt themselves to their environment. In an economic context, error means that wrong plans will be eliminated by the competition in the market. Best adapted means the most cost efficient, most capable businesses, which produce those things that customers want and for which they are prepared to pay, will prevail and survive. This is called economic success.
The fact that inefficient, unproductive businesses that do not produce what customers want go bankrupt is the source of all kinds of volatility that we are able to observe in economic life. Bankruptcy itself creates huge volatility for the income of the business owners and their employees that are affected by it. Varying degrees of economic success or also merely the perception of variances lead to the volatility of stock prices. Wrong perceptions of growth, market demand and trends can lead to overinvestments that can trigger waves of bankruptcies, defaults and business cycles. Overinvestments constitute a specific kind of wrong plan that are eliminated by evolutionary competition.
At the same time, trial and error are however the only way for market participants, the agents of the ecosystem – and therefore for the whole of society – to learn. Learning means progress, especially technical progress and thus leads to growth and future prosperity. The same mechanism that drives biological evolution, mankind and society forward also generates volatility that we observe as the flat form of risk.
Cluster risks, on the other hand, are very difficult to understand and measure. We see them in the natural world in the form of earthquakes and volcanic eruptions, in any case if you consider them on an individual level. By looking at many volcanoes and earthquake zones we can however derive a smoothed distribution of these events and draw conclusions about the probabilities within a defined period of time. That is, for example, what the reinsurance industry does with all types of disaster risk.
Between flat and cluster risks there is a sliding scale of intermediate states. The more efficient a market, the more frequent a natural event, the more data we are able to collect over time, the smoother our distribution of the risk will become and the better our ability to measure it. A volcano that erupts every day, for example, like Mount Stromboli does on the eponymous island north of Sicily, usually does not pose a real danger because it continually gives off energy at a low level. All that we should avoid doing in order to deal with this situation is to put in place on top of the volcano a concrete block that is 2x 2x2 miles in size because we don’t daily volcano eruptions.
Standing the argument on its head means that we can make the risks more clustered by taking away the market efficiency as well as the frequency of the transactions and impair the measurement of the resulting data. And that is precisely what we are doing all the time. This creates the huge imbalances and an urgency to correct them. And we then get these corrections in the form of discontinuity. We can therefore compare discontinuity with an event where a very large cluster risk materializes.
In this sense, not all discontinuity risks are man-made though, as we will establish in Chapter 2 of this book. It relates to the discontinuity caused by quantum computers. While they are of course man-made, discontinuity does not arise primarily through suppression of volatility. It is a cluster risk due to the particular nature of this technology. The ratio of the processing power of quantum computers to that of traditional computers powered by microchips with transistors is like the one of nuclear energy to chemical energy. To give you an idea of the proportions, the amount of matter that is transformed into energy in the course of a 20-kiloton nuclear explosion is just two grams; 20,000 tons of chemical explosives are 20 billion grams. The energy ratio is therefore one to ten billion. With quantum computers we have no idea where that stops. It will likely be much more.
If we consider that flat risks and cluster risk are interconnected and if we bear in mind that volatility suppression transforms flat risks into cluster risks and, by doing so, provoke existential threats we need to ask ourselves if, as a society, we manage risks correctly. The answer to this is no.
Society and politics must find a different approach to how we understand risks and deal with them. For our current generation of politicians, risk management is about micromanaging volatility, ideally suppressing it. There has to be a fundamental change to this in the future if we want to build a society that can survive and thrive in the coming upheaval. Stop turning risks into cluster risks, but rather do the opposite. And learn to identify very large discontinuity risks and how to deal with them in an intelligent way.
This book aims to build an intellectual bridge between the status quo of the suppression of flat, granular risks and that which we will need in the future if we want to avoid disastrous discontinuities. In doing so, we will take a closer look at several discontinuity risks in the areas of economics, technology, politics and geostrategy.
From these examples I will attempt to derive general insights that characterize the common mechanisms that underlie these discontinuities. This will include the common mechanism of trial and error as a source of volatility, its translation into perceived risk, the way society manages or mismanages this risk, the tools for and means of suppressing volatility and how this suppression leads to the accumulation of large imbalances. Ultimately, I ask questions about the trigger that could lead to the correction of an imbalance.
All social systems – an economy, technology, ecology, business, the systems of internal and external security – are cybernetic systems that are governed by evolution. They are likewise subsystems of a larger global ecosystem. As all these systems, including the limited subsystems, evolve over time using trial and error. The artificial stop that that we have forced on our own socioeconomic subsystem means we are collectively falling behind the global learning curve. Standing still thus means regression because all the others are moving ahead. The tension resulting from this creates the imbalances that require a correction and realignment. The magnitude of the accompanying crisis will depend on the extent and duration of the preceding intervention aimed at suppressing risk because this will have caused the suspension in the evolutionary development of our socioeconomic systems.
At the end of every chapter with an example, three perspectives will be highlighted: what does this means specifically for decision-makers in politics and in governments, for businesses and for citizens in their capacities as employees, taxpayers, consumers, savers and investors?
The policy options that are available to us to deal with the disruptive developments during a phase when we are adjusting to the global learning level of the larger ecosystems will vary in different ways for these individual stakeholders. Consumers and businesses will need to think about the microeconomic impact on their assets and their ability to compete and survive in the market in a post-crisis future. However, governments and policy makers will have to apply very different lessons and ask themselves: a) how do we manage the crisis? and b) how do we change our future policies in order to avoid the artificial accumulation of imbalances?
The second element is indeed the one of paramount importance as it is essentially about how we should organize our society. What should our economic system look like? What should our democratic policy formation process look like?
We will see that the really fundamental assumptions that form the basis of our constitutional set-up are at stake here. And these assumptions are now being challenged.
“It is not in the stars to hold our destiny but in ourselves.”
William Shakespeare, Julius Caesar, Act 1, Scene 2
“We live in an age of disruptive change.” That is a truism which has been applicable for many centuries, starting with the Renaissance, which liberated people from the intellectual confinement of the Middle Ages, moving through the Age of Discovery, the first scientific revolution preceding the first Industrial Revolution of mechanization, which accompanied us through several technological Kondratieff Cycles, namely, steam, chemistry, electricity, mobility, aerospace, telecommunications and, now, digitization, life sciences and space. Therefore, analyzing disruptive change can therefore be confidently called a no-brainer.
Describing the new industrial revolution though is not really what this book is about. There are zillions of books that deal with that topic with varying degrees of success.
The technological changes of today are however contributing to a new type of change that we are facing. In popular science, the technological impact is described as an “age of disruption,” “age of innovation” or the arrival of “Singularity,” the convergence of humans and machines.
These changes happen, but we miss important pieces in the puzzle of the overall picture if we believe that we only need to follow their trend lines to understand where we might be heading as a society, country, civilization or, in fact, humankind. In such a picture, technology does indeed contribute to the disruption, but it is only one of several factors.
What we really must deal with is rather the interplay of the technological, social, infrastructural, psychological, cultural, and political forces that, through their interactions, can create sudden leaps and disruptions of cataclysmic proportions. Developments break out of their observed trend lines, events behave like quantum leaps, changing their aggregate conditions within an extremely short space of time, seemingly unforeseeable and chaotic. Hidden undercurrents force their way to the surface creating moments of crisis and complete disorientation for decision-makers – “elites,” consumers, managers, academia and political leaders alike.
Don’t believe that the global financial crisis and the Euro crisis are perfect examples of this. As regards the types of sudden change, we “ain’t seen nothing yet,” We are facing an altogether new beast. One that will pull the rug from under our feet.
We are facing discontinuity.
Discontinuity will challenge our conventional wisdom. It does not fit into our well-established explanatory models. It switches off our ability to master problems and situations by the power of our intellect because we do not have a model in our mind making sense of it all while it is happening.
With discontinuity the equilibrium that defines the status quo ends and, frequently, several new equilibriums are possible. It then depends on actions or on sheer luck which new equilibrium materializes. Reality behaves like a sphere balancing on the peak of a mountain with several valleys surrounding it. We know it will roll down one of its slopes ending up in one of the valleys, but we cannot anticipate which one this will be.
One example will be presented in Chapter 2 – the current monetary policy will either lead to deflation, to hyperinflation or to both in varying sequence. We know that this will be the mathematical solution space once the accumulated imbalances have been released. However, we cannot say with any certainty which scenario will occur because this depends on the political actions and reactions of other participants, such as, consumers and the corporate sector. Although, both the outcome and the sequence of events will be critical for individual economic survival.
Discontinuity will thus put an end to our ability to cope and will throw us back to relying on the principle of trial and error in a brutal, rude and unforgiving way. And this will affect individuals as well as society as a whole.
Discontinuity combines a situation of maximum error rates with a situation where making errors entails maximum costs.
We can find examples of discontinuities in history as they are not fundamentally new. They range from the start of the First World War (most recently described as sleepwalking into disaster1), the sudden economic downturns of 1929 and 2007, the oil crises of 1973 and 1979 that triggered stagflation, or the collapse of the Soviet Union. What these events have in common is that they arose from situations where, like a rubber band, things had been stretched slowly over a long time with the stretch continuing despite reaching its structural limit. Then, all of sudden, the elastic snaps and flips back in a millisecond.
The difference between the above examples and our situation today is the concentration of discontinuities currently arising from imbalances that have accumulated and which are rooted in the coincidence of technological and social change and the inability of our governance to cope with those imbalances at an early stage.
The imbalances have two main root causes: long-term technological and social trends like Moore’s law and the demographic decline and economic imbalances resulting from macroeconomic mismanagement. As the imbalances interact and coincide their combined impact will be truly cataclysmic.
In some cases, the mismanagement results from the decline in the governance that we have given ourselves as a society. This ranges from our political system to our legal system as well as our economic rulebook. It also relates to our educational system that has continued to deteriorate and no longer provides the next generation with the opportunity to acquire the skills needed to cope with future challenges.
We are not well equipped to deal with them at a time when the number of “Black Swan” events are multiplying. The rarity of the Black Swan is being replaced by its ubiquity. The Black Swan is breeding like rabbits.
Some lessons that earlier generations had learned from historic events seem to have been forgotten as the memory of past failures and the consequences of bad governance has faded away. At the same time, the discontinuities in the making are piling up as a whole range of developments reach their nadir of instability. Moreover, several of the looming discontinuities are not the result of external forces, such as technological progress, but rather the result of large-scale political mismanagement that, frequently, attempts to suppress developments until the pressure of change is so great that it cannot be kept under control anymore. Decades of pent-up volatility then escapes in an instant.
So, are we once again becoming the helpless victims of forces beyond our control or even our understanding? Will the approaching Age of Discontinuity throw us back to a time when humans had to accept “fate,” “the hand of god(s)” or immeasurable uncertainty as the forces that ruled their lives?
I believe that the answer to that is no. However, we must arm ourselves with much more systematic know-how so that we are able to spot, identify, analyze and understand discontinuities. We need to re-learn civilizing techniques to allow imbalances to readjust on a more regular basis instead of saving them up for a big bang. Moreover, we need to understand that collective efforts to manage imbalances require collective instruments that are based on the interaction of individuals. Automated and self-stabilizing cybernetic feedback loops based on the wisdom of groups will be of greater help to us. We should not rely on the wisdom of self-appointed geniuses.
There is no shortage of people who lay claim to such ingenuity. Political “leaders” of various colors, advocates of the planned economy and adherents of bureaucratic wisdom are the false prophets claiming superior insight and ask people for a mandate they can never fulfill. They only make things worse, not better. In fact, their very influence has created several of the imbalances that will provide us with prime examples of discontinuity in the very near future.
This all means that we need stability through markets, rules-based governance and a willingness to discard central planning in nearly all matters. This is the recipe for a future in which we can reclaim our ability to be masters of our destinies.
On the following pages I will lead my valued readers through several examples of discontinuities and demonstrate how and why decentralized decision-making approaches are more promising and successful as a survival strategy for societies when compared with planning, bureaucracy and the assumed wisdom of politicians. I will also try to put impact of discontinuities into perspective in terms of decision relevance for political and management decision-makers because the coming discontinuities will profoundly change the structure of our three most important decision-making bodies: citizen-consumer-workers, businesses and governments.
In this book we will look at several examples in order to provide an overview of the multiplicity of discontinuity scenarios, their possible interaction and overlapping as well as how they could unfold. This will allow us to form some hypotheses in order to answer the following questions:
How should a society be organized to gain resilience? The answer is through markets.
Are all discontinuities the result of developments that we cannot avoid and which hit society like a curse? The answer to that is no.
Can we avoid some of the discontinuities already identified on the horizon? The answer is that this is unlikely, but we can prepare for them so that we are better able to survive.
The examples of potential discontinuities that I have selected are some of the ones that I believe are highly likely to happen soon. This list, of course, is not “MECE” ("mutually exclusive, completely exhaustive") but was put together from a personal perspective of an interdisciplinary view of the world that focuses on economics, politics and technology and how they interact. On the following pages we will take a closer look at those discontinuities that, in my view, will soon be affecting us directly. These include:
These examples will illustrate what the distribution of labor and duties between decentralized decision-making mechanisms (markets) and centralized decision-making mechanisms (states) will look like in the future. It will lead to a return to the old and proven concepts about their role and interactions. Moreover, these results will not come as a surprise to the supporters of the Austrian School.
Specifically, we will first investigate the currency discontinuity. Here, governance and elite failures in the form of misguided monetary policy will trigger an economic disruption and “regime change” not seen since 1929. (Chapter 1, The Currency Collapse). New blockchain technology and cryptocurrencies might then well fill the resulting vacuum, but the really critical element will be that politicians will have to give up the illusion that they can print money for political ends. If that happens we will see a paradigm shift with respect to what currency actually means.
The next perspective will focus on a specific technology (Chapter 2, Technogeddon, or Quantum Computing Dilemma). We will discuss what I like to call the quantum computing dilemma as the race for quantum computers will reduce the doubling time, according to Moore’s law, first to months, then to days, then to hours and provide a level of computing power that will render cryptography and IT-security useless for the complete conventional, i.e., non-quantum-computing based, global IT-infrastructure, for a transitional period of time. During this transition phase the first mover advantage of quantum computing technology will be such that there will be no system or database on the planet that will not be completely accessible, readable and open to manipulation, only the first mover will have access and access denial control. This will likely lead to the biggest redistribution of power in human history through the control of information. It will also redefine our knowledge of artificial intelligence.
In Chapter 3 (The End of Multiparty Democracy) we investigate the discontinuity of parliamentary party democracy as a colossal failure of political and legal elites that is likely to upset our predominant and seemingly invulnerable political system. We will see that this system is not yet the end of the story and certainly not without alternatives whose claim to legitimacy are at least as valid as the current system. Several scenarios of evolutionary and revolutionary development are presented that address the question of what will replace the current system. A reinvigorated system of liberty, or a slide towards authoritarianism, or a seemingly paradoxical blend of both?
Chapter 4 (The new Creative Destruction and The End Of The Firm As We Know It) is about social discontinuity that, as history has shown, inevitably accompanies industrial revolutions affects the ability of most people to adapt quickly enough to be able to maintain their place in the social order. One key question here relates to the pace of the change in the course of a creative destruction because “business discontinuity” is the unavoidable result of the parallel technological revolutions based on digitization, life sciences and integrated automation through the Internet of Things (IoT). However, these technological paradigm shifts will not force change, but rather the sheer speed of the environmental changes that will be triggered by this simultaneous explosion in performance.
We investigate how the various types of discontinuities and nonlinearities will set the stage for the future of a different kind of firm. This is intended to give managers an idea of how the forces of change will affect the ways companies operate, look like and provide opportunities for human welfare during and after the upheavals. It will truly be TEOTFAWKI: The end of the firm as we know it.
Chapter 5 (The Geostrategic Vacuum) investigates the impact of the power vacuum resulting from Europe’s geopolitical and military failures and the forces that will try to fill it. In this discontinuity we observe the results of demographic divergence between Europe and its periphery, moreover, the failure of the political elites to properly assess risk and read the intentions of political adversaries as well as the loss of a sense of purpose for a whole civilization. Indeed, our propensity to “manage conflicts” rather than looking for proper solutions that address the underlying causes is a typical example of suppressed volatility that can accumulate and, ultimately, become a discontinuity called war.
In Chapter 6 (The System of Liberty or the Death of Civilization) we discuss what will follow the hollowing of the values of Western societies and raise the question of whether a society without values rooted in the Judeo-Christian-inspired enlightenment is able to survive in a world of increasing complexity and discontinuity. It is the author’s hypothesis that the lack of belief in these values that is affecting Western society will not remain without consequences as it undermines the foundations of a stable civilization and thus diminishes resilience to the challenges of life. This is also about what Yuvolah Harari describes as society’s “narrative.”2 3
These challenges are all manifestations of volatility that result from trial and error thus the lifelong learning experience for the individual as well as for society. This propensity is one of the key drivers of doing away with our willingness to manage the short-term pain of volatility at the expense of threatening long-term stability and great discontinuities.
I will argue that only a system of liberty rooted in spiritual values will enable society to adapt to the revolutionary changes ahead. We must choose between a system of liberty rooted in values and the end of Western civilization.
Chapter 7 (Looking back from 2035 – Two Scenarios) hazards a guess at what the future will look like. Is it possible to formulate something from which it will be clear that, actually, this is something that you can’t know if you are aware of the tremendously complexity that is involved? No individual or bureaucratic institution would be able to understand it. This chapter provides a look into the future and a description of it as if we were looking back.
Yet, while we know that this is impossible, nevertheless, it is possible to sketch out two scenarios of an imaginable future. Whether or not these scenarios occur will largely depend on the one big decision that we as a society will have to make, namely, whether or not we want to place our trust into a decentralized market organization to provide the best collective decision-making system mankind has ever developed (and which was the result of evolutionary processes)? Or do we think that bureaucratic institutions that are run by a small number of people will be able to make better decisions as regards the allocation of resources? Will we explore, with the help of the market, the unknown territory that so far has always turned out to be the best place for people? Or are we going to head for the dystopia of bureaucratic tyranny that promises us a utopia but throughout history without exception has facilitated a hell on earth?
1 Christopher Clark: The Sleepwalkers – How Europe went into war in 1914 (September 2012)
2 Yuvolah Harari: Homo Sapiens (2016)
3 Yuvolah Harari: Homo Deus (2018)