Happy Monday! I spent this weekend sailing around Santa Monica Bay. As always, I’m amazed by the power of nature. We were about 5 miles offshore when we noticed a squall blowing in from the ocean. These are storms that move fast and pass quickly. Within minutes we were in the middle of it; rain lashing sideways and waves crashing into the boat. The event lasted about 10 minutes and the scene afterwards was serene.
Being out on the water is a good reminder of how a little preparation can go a long way. We had checked the weather and knew there was a chance of rough conditions, so we took precautions to adjust our equipment. When the storm hit us we were able to ride it out and enjoy the experience. Afterwards, everything seemed just a little bit brighter. There’s a lesson in there somewhere.
This week, I’m continuing my deep dive into the possibility of new governments. My biggest takeaway from the research has been adjusting to the fact that most of the things we take for granted as permanent are actually recent developments. I like to call this effect the Magnifying Glass — situations that seem immovable from up close, but resolve themselves once you look at the broader trend shaping it. Taking a step back to see the big picture is important and helps to provide context. If you have an example of the Magnifying Glass effect in your life, I’d love to hear about it. You can respond by replying directly to this email.
As always, if you know of someone who would enjoy these newsletters, feel free to forward this email.
Democracy: The New Kid In Town
It’s easy to forget that nearly half of all countries in existence today were only created within the last 100 years or so. Since 1900, the number of sovereign countries has ballooned, largely driven by the end of colonization in Africa, global conflicts, and the dissolution of the USSR. These fledgling countries are choosing to shift from autocratic to democratic political systems.
Democracy is still a new experiment, but the trend is encouraging.
When I say that democracy is new, I mean it: the median age of democratic governments is 27 years old. That means that if you randomly select a democracy, there is a 50% chance it will have existed for less time than your average millennial.
Despite the newness of the phenomenon, over half of the world’s population lives in a democracy.
This is a good thing because, on average, we see that economic growth is highly correlated with political freedom. That is to say: if you live in a democratic country, you are likely to be wealthier and healthier. GDP per capita and health are not perfectly correlated, but it’s a good place to start.
The question remains: how to accelerate this transition so that more people can live in countries with tolerant political regimes and opportunities for economic growth?
Historically, there have been two ways to do this: convert an existing autocracy into a democracy, or secede and create a new country.
Converting to a democracy
Changing the political structure of a country is difficult. For oppressive governments, this is often an extended process that is not guaranteed to work. For example, Iraq underwent a political transformation in 2005 that has resulted in political instability and a growing bureaucracy. Look again at the map above; democracies tend to cluster together. It’s easier to become a democracy if your neighbors are democracies. Countries in conflict zones face troubles with this process, and often find themselves with higher levels of corruption after the transition. Using Iraq as our example, we find that the total number of employees on government payroll has increased by 600% since the displacement of Saddam Hussein. The current government is rated as one of the most corrupt, and remains in the top 10% of countries marked by political instability within the Fragile States Index. Changing culture is hard, and it is even more difficult if the surrounding region is in a state of perpetual conflict.
Seceding from an existing country
The alternative way to form a democracy is through secession. This poses problems, as governments do not respond well to factions that advocate for secession. There is very limited unclaimed land remaining on Earth, making secession a zero-sum game. For a new country to be created in this way, another country must relinquish territory. Relinquishing territory reduces the power of governments and the total area of land available to harvest natural resources. This trend has been shown in recent decades through slowing growth of country formation. The latest member of the UN, South Sudan, was formed in 2011 after seceding from Sudan. This conflict has displaced tens of thousands of people, and portions of the country remain contested.
An alternative approach
Despite these problems, I believe that increasing the number of people living in democracies is a positive trend that should be accelerated. I also believe that the two approaches to creating democracies (conversion, secession) are fundamentally limited due to legacy costs incurred by preexisting political systems. In addition, the success of a government is heavily influenced by the geographic location of its country, and countries without rich sources of natural resources find themselves at a significant disadvantage.
A new approach to government creation is analogous to creating a startup. Startups succeed by creating products that users love, and are characterized by rapid growth.
What is the product that governments offer, you may ask?
Governments provide public goods and redistribute resources through taxes. A good government efficiently uses money to create infrastructure, provide education, and ensure that public services are operational. Governments grow through expansion of their economies, which is typically measured by gross domestic product. A correlated metric, gross domestic product per capita, is a measure of how well a country utilizes its citizens to productively contribute to the economy. If citizens are provided with stable infrastructure, excellent schooling, and reliable public services, then they are free to spend their time productively. This is a virtuous cycle — an efficient government reaps the benefits of a productive workforce through increased revenue from taxes.
A new government should seek to use these principles to position itself for success. They are:
- Form countries outside of existing political regimes.
- Locate in an area that has access to an abundance of natural resources.
- Provide a minimum of services necessary to maximize productivity of your citizens.
- Reinvest revenue from taxation into public goods that improve productivity.
The best part of this is: a new government won’t start out looking like one. Like a startup, it will offer the bare minimum of services necessary to keep the population happy and healthy. Over time, this system will grow, but because the early users are people that opt-in to join, it will have an outsized GDP-per-capita as compared to other countries. Individuals who are willing to forgo the support of a state are likely to be those who are subsidizing the cost for others. These types of people are highly productive and willing to put up with the discomfort of a small government for the autonomy it offers. By the time that the world realizes what is happening, this type of government will have established itself as a serious contender for desirability of living.
If it sounds far-fetched, then just remember the Magnifying Glass effect. Up close, this seems impossible, but from far away, it’s inevitable. Most countries are new anyway; this type just happens to be on a steeper growth trajectory.
📚 Things I’m Reading
The author, Robert Pirosh, was a copywriter that quit his job in New York and moved to Los Angeles to become a screenwriter. From the description:
When he arrived, he gathered the names and addresses of as many directors, producers and studio executives as he could find, and sent them what is surely one of the greatest, most effective cover letters ever to be written; a letter which secured him three interviews, one of which led to his job as a junior writer at MGM.
“Leadership is the activity of influencing people by providing purpose, direction, and motivation to accomplish the mission and improve the organization.”
Exploding Topics is a website that displays trending topics on Google across a variety of categories.
This is helpful to answer questions like “What stories are breaking in my field that haven’t reached the mainstream news yet?”
📺 Videos I’m Watching
This video by Ray Dalio is the best educational video on the internet for understanding the economy. It explains:
- Why we have cycles in the economy and what causes recessions
- How credit works and why it is different than money
- What the government’s role is in the economy and how it influences these trends
The video is 30 minutes long, but the mental model it provides is extremely intuitive. Watching this will pay dividends that make this a worthwhile investment of your time.
💎 Quotes I’m Loving
“If anyone says that the best life of all is to sail the sea, and then adds that I must not sail upon a sea where shipwrecks are a common occurrence and there are often sudden storms that sweep the helmsman in an adverse direction, I conclude that this man, although he lauds navigation, really forbids me to launch my ship.”
Sunday Scaries is a newsletter that summarizes my findings from the week in technology. It's part soapbox, part informative. It's free, you’re reading it right now, and you can subscribe by clicking the link below 👇