The Digital Transformation of Power
The power of nation states is no longer limited by population size, now depends largely on the efficacy of knowledge workers.
Keith Dear is a very interesting guy. PhD from Oxford, MBA from Cambridge, startup founder, and military officer, he’s had an extensive career. Have a look at his LinkedIn here (he’s got 2000 followers).
He came to my attention through Cummings blog, dc said dear was one of the very few people who worked with him to fix the UK Ministry of Defence, especially procurement. He wrote about the UKs strategic military policy, which I am in the middle of reading and summarizing and will post about soon.
He gives a 45 minute speech here on how software has transformed power, titled “The Digital Transformation of Power”. I’ll summarize it below. You can find the full video on YouTube, or the audio on SoundCloud.
In a nutshell, knowledge is power. There are 4 main ways you can leverage knowledge, wealth, humans, machinery, or software. If you know the stock market is going to drop 10% you can leverage that with a combination of the 4 to make lots of money. The same goes with knowledge of how to build great cars, how to hunt a deer, how to dispose of nuclear waste, etc. Historically, the power of nation states has relied on their populations and the power of their industry, as these were the most dominant forms of leverage. Nowadays, software has become an incredibly powerful form of leverage, because it is permissionless and has almost 0 marginal cost and is thus almost infinitely scalable. This means that almost all nations, regardless of their size or geography, have access to almost unlimited leverage. What is most important now is access to information. This is the digital transformation Keith discusses and he gives some really cool examples, such as how hyper-realistic simulations of tank warfare is already a battleground of nation states and how this will only become more important in the metaverse.
Power is the ability to get stuff done. Power of nation-states in 1960, the last time the UK defense had an extensive strategic review, was based on economic might, which could be measured by steel and energy production and was limited by population.
Nations with smaller populations were forced to influence larger allies to achieve their goals.
The leverage that technology offered a population in terms of power was limited. A small nation with cutting edge technology would still lose to a large nation with average technology. [this wasn’t 100% true even in 1960. If the US had a population of 5 million they still could’ve forced Japan to surrender thanks to their nuclear bombs. There were hints of the change that Keith is about to talk about]
Software has transformed this, hence the title of the speech/presentation. As technology grows more powerful, nations depend less and less on the size of their population and more on technology. This is because software has almost 0 marginal cost, and thus offers almost unlimited leverage.
The biggest companies in the world before 1980 employed thousands of people, because human capital was the best form of leverage and often the limiting factor. General Motors workforce peaked at 600k in 1980, today its at 200k. Today the worlds biggest company’s (Apple, Microsoft) employ a fraction of this. Their leverage is not primarily human capital but software and (in the case of Berkshire Hathaway) money.
In 2004 blockbuster employed 84k people and made $6 billion. In 2020. Etílico employed 8k people and made $9.2 billion.
AI is the ultimate example of this as soon AI will be able to do much of what the workforce currently does. A powerful AI can beat millions of chess players simultaneously, and will soon be able to outperform truck drivers, receptionists, factory workers, software developers, CEOs, artists, and almost every other profession. Since the marginal cost of software is almost 0, it will be able to outperform millions of workers. The war of the future will be fought by AI.
Speed of decisions are much faster now. Decisions on stock market take microseconds and are made my computers. This technology will enter every part of life. We will have no choice but to allow AI to make crucial decisions if we want to compete in areas such as business, military, and government.
Those with access to technology will race ahead, exacerbating inequality. With gene editing and biotechnology all men will no longer be created equal (not that they are already, IQ is real folks and it makes a big difference). Intelligence is currently distributed roughly randomly across income levels, this will change.
Technology is a part of core national infrastructure (CNI). This means securing the supply chain to creating powerful AI is a core priority of nation states and involves everything from data to processors to rare earth materials and universities. Much of this is in the hands of the private sector in the West. These items are not currently treated as CNI in the West. China is much further ahead in this regard.
4 keys to UK becoming global scientific superpower by 2030: Commercialize, Operationalize, Exploit, and Manage.
Commercialize: UK is superb at R&D, universities are 3rd in the world. In contrast, in 2017 UK was ranked 26th out of 28 in commercializing innovations in EU.
Operationalize: Must integrate advancements in technology into operations in business, government, and military.
Exploit: if another nation makes a breakthrough in a technology domain, the UK must exploit that to catch up rapidly.
Manage: rapid improvements in technology will bring nee challenges which must be managed, some pf these were mentioned earlier such as inequality. These problems must be managed.
The winner of the next war won’t be, contrary to what this speech has so far suggested, who develops the most powerful technology. It will be the most agile bureaucracy.
The digital transformation means that improvements in the efficiency of use of land, labor, and capital will confer minimal advantages (5-100%), while efficiency in use of information will be the primary deciding factors conferring huge advantages (1,000-100,000%+).
This means starting with strategy (not technology), then following strategy with organizational design to ensure that incentives are aligned with desired outcomes. Then you start thinking about technologies to achieve those outcomes, where to invest, and where to take risk.
Management is the most important of the 4. [we are living in the era of the knowledge worker. I must read the effective executive, and maybe some leadership/management books].
Reasons for UKs indo-pacific tilt
Economic centre of gravity
Worlds largest middle class
Fastest growing economies
Not just China
Need somebody to export goods to
Japan has very similar goals.
Japan invests more in neighbors infrastructure than China ($250b vs $150b).
Understands that with aging/stagnating population, it must export and build power through allies.
Further ahead on understanding metaverse. ‘Everything will have a digital twin’ Japanese white paper on defense, 2020.
Metaverse and defense
People spend a significant amount of time in digital worlds, whether just YouTube or social media or Fortnite. People will be spending more and more time living in the digital world.
Metaverse isn’t really on the radar for militaries.
Axie Infinity: a game where you breed, collect, and battle dragons. In game currencies are NFTs, which can be sold for Ethereum. A guy in the Philippines lost his job so started grinding in the game to make money. He made $200 a month in old job, $500 a month in the game. He posted about it online, and the game became hugely popular, with over 900k people joining. There is now a very real economy where you can buy plots of land in the game for $1k, pay agencies for training, etc. just a glimpse of the future. Few other games like this ie decentraland.
Metaverse economy will be huge, with digital nations with national cryptocurrencies, entirely digital businesses such as fashion brands.
Public hyper realistic simulations can be used to market military technology but displaying superiority to rivals ie tanks, fighter planes. Can also be used for R&D. Could lead to competition between UK and Russian tanks on these hyper realistic simulation games, with real commanders managing tanks and learning from outcomes, and possibly applying learnings to real life.
This is happening today. War Thunder, popular hyper realistic tank war simulation, was founded in Moscow and receives funding from the Russian Ministry of Defence.
Brigadier Nami worked in the Iranian Information Systems Ministry in Iran, announced he was running for president. Declared that Iran would build “a virtual Iran, a virtual Islamic assembly, a virtual seminary, and a virtual university’ to generate revenue and expand influence.
The metaverse will have economies, laws, and citizens beyond the reach of governments.
Governments and businesses will develop metaverses to compete for users and citizens much like social media companies do now and religions have for centuries.