Why Liberal-Capitalism beat Russia

Today is Memorial Day, a day to remedy those who died defending freedom. This year we should extend that to the Ukrainians, who have unfortunately been thrust into the current situation.

While the war continues, Russia has failed to take Kyiv and seems likely to lose entirely.

It is worth inspecting why because I think many of us have made a mistake. We wrongly assumed Russia would win. We assumed that liberal democracies were on the decline. Who could’ve anticipated that Ukraine would successfully defeat a great power like Russia?

Stop for a moment. Walk outside. Take a breath of air. The air tastes different these days. We are no longer in the milquetoast days of Trump, Merkel, Abe, post-truth, and austerity.

After these past few years, and months, I’ve been trying to come up with a consistent thesis to define the state of the world and where it will be leading. In this post I will try to sort out my reasoning and justifications. In summation, liberal-capitalism remains the most powerful and successful governance-economic model and will continue to be for the foreseeable future.

Democracy means parties lose

President Trump lost his re-election campaign, far from the first president to do so. Yet the fact that he did points to one of the big successes of democratic governments: the ability to lose and have new leadership.

When politicians or parties lose, it means that their policies are not having liked by the majority of voters and the country moves in a new direction. Voters can be wishy-washy and lack foresight, so we stumble back and forth, but it is better than political stagnation.

Term limits help to uproot this stagnation. It forces a broad set of politicians to serve as leaders rather than just one who consolidates too much power. It means that politicians do need to be more attuned to the needs of the moment.

It means that national priorities shift because of wide support rather than one leader protecting their self-interests. It’s hard to imagine five years ago that Germany would be re-arming, Japan would be rebuilding a navy, and that Finland would be planning to join NATO. Ukraine is finally beginning the process of joining the European Union.

As time moves on, national priorities need to change to meet the moment. In a democratic society, priorities not met mean shifts in government. Putin meanwhile has been president or prime minister since 2000.

It leads to cultural stagnation, where younger people are unable to have a voice in how society runs. By choosing power over profit, there is no reason for anything to change as the powerful can protect themselves despite the public.

Democracy by choice

When Ukrainian president Zelensky was offered a way out of Kyiv, he responded with a now iconic quote.

In a democratic society, you have agency. We choose our politicians. We choose the way we live our life. Zelensky actively is choosing to stay behind and has been able to maintain morale throughout the country.

The people of the country chose this too, and fought to defend what they have. This apparently was unanticipated by the Russian forces, and they are now paying the price for that mistake. Because they chose, they didn’t blindly accept defeat and surrender.

In a democratic society, there is not a singular voice. Dissent is necessary to rigorous scrutinize the direction the country is headed.

If your whole career is only dictated by one person, every individual is encouraged to suck up to them rather than present unpleasant facts. Too much power above you means that you only can get scraps. You’ll turn a blind eye to the truth just to survive.

With a democracy, you get people on-board not just because of what you order but because they genuinely believe it too. This allows power to be more distributed and creates greater resiliency while still being able to complete national objectives effectively.

No politician is a genius. Frankly, most people aren’t. What democracies do well is having a lot of people coming together, each with their own intelligence. By working together, we create a sort of collective knowledge smarter than any one person. As long as everyone comes together in good faith, rather than for individual political gain, we are capable of better things.

On the Russian side, the armies are made of young men forced into service. They don’t believe in what they’re doing, so how can you expect them to fight like their lives depended on it? They are sent to the front lines in a war they don’t understand because they’ve been fed nothing but lies.

A free press is an honest press

In the middle of 2020, with the death of George Floyd, there was a large outcry of people saying “Black Lives Matter”. This was not the policy of the president. Still, companies gave air time, made commercials, and donated money to support this message.

In an authoritarian government, it might’ve been impossible to say “Black Lives Matter” on television, in newspapers, or in marketing materials. But in a liberal society, ideas can be discussed in various mediums. Not every idea is good, and people can use these forums to spread repugnant ideas. At the same time, the government’s light hand to speech regulation means that politically oppositional views keep the government honest.

This extends to other institutions. I’ve recently watched The Dropout, about how the company Theranos scammed numerous investors and provided fake test results to many patients. The scandal was revealed by a journalist and he was allowed to pursue this story. If he didn’t, someone else could.

Having many independent news sources doesn’t mean fraud and corruption cannot exist. But when it does, it can be exposed by many individuals. It prevents any individual news source from being corrupted or silencing a story.

State-owned or controlled media outlets have no choice but to regurgitate what the state wants. This means op-eds which glorify government actions are the only narrative, ignoring the truth and facts on the ground.

The lack of a free press means these narratives aren’t challenged, which leads to a reinforcing cycle of politicians and the media becoming increasingly divorced from reality.

A free press asks questions.

Fighting misinformation with preinformation

When Russia first moved across the border into Ukraine, there was no room for propaganda. There was moral clarity that this was wrong. No amount of excuses about NATO, Nazis, or Russian-speaking Ukrainians could dissuade NATO against crippling sanctions.

Why? How did this happen in a country like the US that had been split apart by Russian-led misinformation just a few years ago?

The answer is preinformation. Rather than waiting for Russia to sow doubt, Biden publicly released US intelligence about the impending threat. Not everyone believed it would happen. Many might have seen it as the US crying wolf, especially with the intelligence failures of “weapons of mass destruction”.

Yet when Russia did invade, they lost the information war. They were left scrambling to control a narrative that increasingly was not in their favor. Greater transparency, aided by a network of journalists and witnesses, spread their message around the world rapidly and let us see exactly what was going on.

We’re also seeing the development of open-source intelligence (OSINT) as a new type of free press. Easy access to open-source tools and datasets including satellite images, combined with the convenient publishing platforms like a blog and Twitter, make it easy for anyone to independently verify or dispute official information.

We are generating tons of data all the time, to the point where we can’t always understand what’s happening. While this can be a problem in some contexts, it means that the way warfare is being conducted and reported is much different. War crimes can’t be covered up. Government lies can’t take hold, as we can’t ignore what we’re witnessing.

Public markets encourages transparency

For decades it seemed like Russia had a strong military. So what happened to it? Much of it never existed.

As it turns out, a lot of military spending appears to have been stolen. Russian military contractors were given plenty of money to deliver high-quality equipment, but evidently they had not known it would ever need to be used.

American contractors are subject to plenty of scrutiny from both government agencies and public investors and even a free press. This is not necessarily going to prevent fraud, but provides many more opportunities for it to be discovered before it’s actually needed.

Most people don’t want revolution

People might not like the government but will fight to defend it against an even worse threat. Keep in mind people don’t want revolution, just to life a pleasant life.

As GDP rises, our ability to have a pleasant life grows. It’s not a panacea, but countries with lower GDPs generally do have lower standards of living. Economic freedom allows us to live the life we want rather than the one we must.

How do we achieve a more liberal society? Through property rights. In “The Future of Freedom”, Fareed Zakaria examines how societies move from monarchy and dictatorships to free societies.

The answer comes from property rights. With the rule of law, rather than the rule of an autocrat, people can invest in their future with greater consistency and less risk. As people’s income rises, they will begin to have better education and more autonomy. This then leads governments to liberalize in response to public pressure.

A kleptocracy is the opposite, where a small group of oligarchs don’t have the same rules apply to them. The way to get ahead is not through building, but in playing politics. But politics is not the best way to put food on your table, as it means food that someone else doesn’t have.

Independent corporations lead to innovation

How do you follow news of the war? While the free world watched helplessly through Twitter, Russians were not able to load twitter.com as it was banned alongside Facebook.

There is a workaround taking advantage of the Tor onion service that was first created by the US military. Twitter now has a Tor service that can be accessed by any computer that generally has access to the Tor network.

Small companies start and fail all the time, but some of them are successful. To help operate, they can receive capital from investors with the aim to receive a greater return on their investment.

Corporations lead to abundance

Capitalism is all about information and taking advantage to win and profit. Corporations vie for power by creating products that are then sold. Individual companies in the same market will compete by making their products cheaper, more efficient, or in other ways. They know that it is through this innovation that they can win a greater share of profits. And through public markets we transparently understand that profit is how they gain power rather than shadowy machinations.

What is the largest profession in the world? It seems like everyone is learning to code these days, but actually it’s subsistence farming. About two billion people manage just enough land to feed themselves and that’s it.

There is no joy or morality in this back-breaking labor, the kind where a bad season or bad weather can cause your family to starve. Meanwhile, American grocery stores are orders of magnitude more abundant.

Increasing specialization and efficiency allow the rest of us to spend our lives in novel fields like software or biomedicine. Consider that even getting a high school-level of education is much better than what most people get even today.

Knowing just a bit more of how to grow your crops more efficiently grants greater yield, which in turn leads to greater profit. Everyone knows different things, and this diversity allows everyone to do what they know best. We don’t only get more efficient goods, but more of them.

World GDP has remained static until relatively recently

We often forget the lives of our recent ancestors were substantially different than ours today. GDP had been relatively flat for millennia until the Industrial Revolution improved productivity and allowed us to turn those savings into capital, which we then reinvested in even greater productivity, and so on.

This is actually capitalism’s superpower that we’ve seen deployed to great success against Russia.

Creative Destruction

In economic terms, creative destruction is the idea that companies will try to out-compete each other for the “next big then”. Lots of money gets poured into these ventures because whoever wins gets a lot of profit. From a risk/reward perspective, this is a constant attempt to maximize profit.

The best ideas, or at least the ones with the highest potential returns, get the most investment. It’s important to note the founders do not need to be of that nation. The best businesses can come from anyone, including immigrants. By limiting who can come to the country and become entrepreneurs, you limit the potential returns.

With the right levers, society can exploit this to our advantage. Consider climate change, where we need a rapid energy transition. Companies like Commonwealth Fusion Systems are raising billions of dollars to develop a working nuclear fusion reactor, which would provide us with an unprecedented amount of energy at a price that could be unprecedently cheap.

Roughly half of Russia’s exports are in oil or gas

Capitalism is decentralized. The state can earn through taxation but doesn’t get entrenched into any one technology. Externalities like carbon emissions are bad, and policies can encourage transitions as necessary. But Russia’s over-dependency on oil creates a serious vulnerability. A petro-state, particularly with state-owned enterprises, makes it hard to transition without harming the political class.

Clean energy is now the cheapest form of energy

Consider clean energy, which is encouraged by policy but not owned by the state. This creates a rush of enterprises devoted to exploiting the technology while also competing to take more profit.

This has led to clean energy adoption growing faster than anyone could’ve predicted. This Twitter thread has even more examples of how individual companies, competing with one another on the price of a commodity, leads directly to good things.

With this abundance, we are well-prepared for price shocks. Consider gasoline, whose price has been widely affected by the war. Russia’s GDP is estimated to fall 15% this year. Meanwhile, the blow to American wallets is smaller.

It’ll sting, and it’ll sting our allies too. But it’s much farther away from the massive bleeding of the Russian economy.

In the midst of the war, in an attempt to prop up their currency, Russia demanded that payments of gas be in rubles rather than euros. Germany called their bluff and Russia gave up. Russia cannot take the hit while Germany can.

This capitalist abundance can be exploited even further by allowing us to pursue national objectives. With a larger amount of value, it can be directed in many ways.

The US and NATO have been funneling tons of weapons into Ukraine to allow them to defend themselves. Military contracts, which we know are more effective through greater transparency, have provided us with more anti-tank weapons.

Meanwhile, economic sanctions have devastated Russia’s military capabilities. For every Ukrainian tank destroyed, there are three more we can send over from Poland. For every Russian tank destroyed, that’s it. They are fundamentally incapable of rebuilding. Their economic crash is going to make it impossible to do much.

From http://www.combinedfleet.com/economic.htm

This is just like what happened during World War II, when the US was able to throw their massive industrial base into manufacturing ships at a rapid pace. We ultimately outspent the axis powers.

Consider Theranos again. While the company itself was corrupt, they did hire many smart engineers and scientists. Some ran into political disputes with management. Some lost their jobs. One whistleblower, Erika Cheung, has a strong career as a co-founder of an ethics organization. There are still opportunities for her, whereas an authoritarian society might have silenced her in various ways.

What other national objectives can we complete today?

Operation Warp Speed is only possible because of capitalism

Operation Warp Speed was a complete success to a level we literally cannot appreciate yet. Being able to come out with a vaccine in an unprecedented amount of time has likely saved millions of lives around the world.

With mRNA vaccines showing they’re not just safe, but incredibly effective, the question is what’s next. Malaria? HIV? With the entire, gapless, human genome sequenced, and getting cheaper to do so, we’re in an exciting time for biotechnology to save lives. But keep in mind how much it took to get here from subsistence farming.

Let’s really consider what Operation Warp Speed was. It was a new virus. We needed vaccines right away. Rather than putting all our effort into one, which may have been through a state enterprise, we didn’t know which would be best. We funded eight different ones in parallel. Whichever one succeeded created a safe, effective vaccine first would profit.

Going back to the idea of abundance, all the effort we’ve made in creating strong capital markets with highly educated scientists with diverse ideas on how to solve problems has allowed us to have multiple effective vaccines.

The state has a role to play here too, as a key investor and distribution system. The government can be very good in many ways, and mixing the two together provides a system of society that maximizes our national objectives.

Meanwhile, state efforts like Sinovac have not proven to be nearly as effective and the Chinese government is flailing against a virus that they cannot easily contain. In any given system, one part can easily fail. Building a resilient system means allowing multiple avenues to a successful point.

If the Internet cables get cut in Ukraine, some entrepreneur like Elon Musk can take advantage of the situation by offering their own solution like Starlink.

Venture capitalists are putting lots of money into other kinds of distributed science research organizations in order to explore new ideas. Not all of these research endeavors will be successful, but we can’t always know if basic science will pan out. It’s only by exploring every path exhaustively that we can develop knowledge.

Building a better system

The Avengers!

“Surely you aren’t saying America is some sort of utopia! There’s X and Y and Z problems.”

No, I don’t want to falsely paint the United States or other democratic nations a places where everything is resolved and there is no conflict. But it’s a hell of a lot better than some authoritarian regime.

We can complain about our government and media and companies all we want. This is quite a luxury and we often forget that in order to tweet an angry message at a senator, we’re much better off than most.

We need to look at ways to go further. We need more democracy and more abundance in order to solve the problems of today and tomorrow, not less. Does anyone really think that Russia is going to be better for as a world power than the United States?

They fundamentally will not transition to clean energy because the government entrenches powerful figures in undemocratic ways, aided by an uncritical media. With state-owned businesses that hold monopolies in key sectors, individuals cannot compete to make goods cheaper or cleaner or better in any way.

This doesn’t mean that a liberal, capitalist society is inherently better, but we at least try.

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