Eastern European Security & Implications for Russia

The Crime in Crimea

At least Hitler waited three years after hosting the Berlin games of 1936 before invading Poland; Putin couldn’t even wait a week before invading Ukraine. This captures that sad lunacy of what Putin’s administration has resorted two in the wake of popular upheaval that lead to the ousting of former President Yanukovich, in support of an anti-Kremlin administration. In this article, we will explore the causes for the severe miscalculation by President Putin; why Ukraine matters to the West (and East); what should be done in response to the destabilizing actions of the Kremlin; and how this crisis gives the U.S., and Europe a big opportunity to contain a constant source of frustration that is The Kremlin.

I. The Crime

First, we will argue that a crime has occurred in Crimea. While Russia maintains the right to safeguard its naval & intelligence presence at its naval base in Sebastopol (strategic access to the deep water port on the Black Sea and the Straight of Dardanelles), it does not have the right to move armed forces off its base without the appropriate clearance by administering Ukrainian officials that host the Russian base. By moving over 6,000 unmarked Russian troops off their bases and into Ukrainian territory, Russia has violated Ukrainian territorial sovereignty, leading to a violation of international law.

Plenty of nations, including the U.S., have seemingly violated best practices of international law in the pursuit of national strategic interests (think of Operation Just Cause and the invasion of Panama in 1989 to depose Manuel Noriega based on charges of drug trafficking and potential seizure/closure of the Panama Canal), or to safeguard their citizens (think of the invasion of Granada in 1986 when American medical students were put at risk by an anti-US government that took power in a coup). But the present Russian invasion of the Crimea is akin to the U.S. moving thousands of troops from its base in Guantanamo, Cuba and into the rest of the country on the pretext that newly minted American citizens are under threat, and in an effort to destabilize and overthrow the anti-Washington government Cuba; convenient but illegal and deplorable by the neighboring community.

While former President Yanukovich claims a coup d’état took place in Kiev ten days ago, it was in-fact a popular revolt that lead to him fleeing to Russia. While Russia claims to safeguard the interest of other ethnic Russians in the Crimea, these are Ukrainian nationals (although cheekily Russian agents are issuing new passports and identify cards to these locals, granting them rights as Russian citizens). And while Russia claims its national interests are under security or economic threat by the new provisional government in Kiev, it does not have a right to violate Ukrainian sovereignty in an un-provoked manner.

Simply put, Ukraine matters more to Russia than Russia matters to Ukraine. Ukraine buffers Russia’s southwest flank, it serves as a passageway for Russian oil & gas lines to EU markets, and it gives Russia access to a deep-water port on the Black Sea (note, Russia already has access to the Black Sea). Ukraine on the other hand sees more downside than upside in its relationship with Russia. While oil & gas transit fees are nice, they are insignificant relative to the wealth that could be generated given access to the European common market.

II. The Cause

But why would Putin & The Kremlin make this irrational calculation that could lead to an all-out war with Ukraine and possibly NATO? The saddest part is that Putin and the Kremlin are caught in a zero-sum game mentality of the past; they are attempting to acquire strategic choke points that would, in the future, grant them bargaining chips to protect themselves in the event the going gets tough; unfortunately for Russia, these acts simply isolate it further, and turn it into a pariah state, accelerating its eventual collapse.

Putin calculates that geographically crucial choke points are crucial for Russia’s long-term survivability (think of Kaliningrad between Poland & Lithuania, access to the Arctic, the Caucuses Mountains, and so on). Russia needs former Commonwealth of Independent States (CIS) states it controls by proxy, and any state that steps out-of-line becomes an agent of the West (or East) and a target of the Kremlin. From the Kremlin’s point of view, capturing and protecting these choke points (be it illegally and temporarily) is a way of buying more time. Unfortunately, time is not on Russia’s side.

With over half of its economy dependent on oil & gas, and another quarter on metals & mining, Russia’s economy (at 15% the size of the U.S. and the E.U. respectively) is a falling behind at an increasing rate relative to bordering states like China. Without massive improvements to de-regulation, education, and integration into the world economy (namely WTO membership), it’s only a matter of time before Russia’s economy and society shrink to such a point that it is neither a top ten economy, nor has a population exceeding 100M. With nearly 20% of the world’s landmass under its control, the eventual collapse of the Russian state will lead to many resources starved states to chip away at Russia’s borders.

With these risks in mind, Putin & The Kremlin think with very tactful short-term interest in mind. They are, however, erratically gambling their long-term interests away. In the next section we will discuss why Ukraine matters to the West, and what can be done to capitalize on the opportunity at hand.

III. The Punishment

Presently, Putin has a strategic upper hand against his adversaries, namely Ukraine, NATO & The U.S. in that order. Putin reckons that: (1) Russia can take control of Crimea without firing a shot; (2) Russia can turn the economic screws on Kiev and destabilize the provisional government before May election; (3) Russia can re-install Yanukovich (or similar) with the backing of heavy firepower rolling through Kiev but with highly orchestrated fanfare to ensure good media coverage; (4) lastly, be forewarned all you others including: Georgia, Estonia, Belarus, Azerbaijan, Kazakhstan, Latvia, Finland and Poland (note, there are three NATO members on that list).

The West, in response, has ruled out options instead of indicating that all options are on the table; namely, (1) no military presence in Ukraine in support of the provisional government; (2) no economic sanctions against Russia; (3) and no application of pressure against other Russian geographic interests. Without a Bush/Condi or Thatcher/Reagan presence in Washington, London or Berlin, the West will have to devise cleverer way of responding to the Russian aggression (think, calling a blockade a quarantine, and trading Jupiter missiles for Cuban ones).

Dean Acheson reminded Kennedy that the ‘Soviet respects only force,” and we need to place the same reminder onto Obama, Merkel, Cameron, Hollande, Harper, Tusk and yes, even Renzi. Make no mistake, there is no ‘handling’ of Putin to be done here (as Roosevelt so famously hypothesized about Stalin); Putin knows your number and has called your bluffs, President Obama and Prime Minister Merkel. The best course of action is to clearly remind your citizens why Ukraine matters to the West (and East), and what needs to be done to stop this blatant violation of international law and aggression in Europe, and implement a coherent response.

First, Ukraine’s sovereignty matters; if we allow Russia to invade Ukraine in violation of international law and treatise that Ukraine is party to, what does that say about the respect of national sovereignty elsewhere in Europe or Asia? Second, we (the U.S., and by proxy NATO), have a contractual obligation to safeguard Ukraine’s sovereignty as part of the agreement for having Ukraine get rid of its nuclear arsenal in the 1990’s. Third, an invasion of Ukraine by Russian forces would have a destabilizing political and economic impact on the region, including The E.U., Turkey, and the Caucuses. Fourth, these acts of aggression by the Russian administration put into question its reliability as a trade partner or even a regional source of a peace and stability; leading to greater militarization and risks of miscalculation throughout Eurasia. In short, Ukraine matters in the same way the any other state that fell to communism mattered during the Cold War; it raises the costs of democratic political freedom, economic liberty, and communal peace.

Now that we’ve established that Ukraine matters, lets identify what can be done to ensure that we diffuse the threat by Russia, and further, capitalize on the opportunity to bring about positive change in Russia.

First, let’s consider military options (the threat of use of force) to deter Russian aggression. The U.S. already has at least two naval ships in the Black Sea (preparing to evacuate American citizens from Sochi in the event of a terrorist attack), moving a greater naval presence to The Black Sea would send a clear signal to Kremlin that The U.S. and its allies are prepared to enforce its contractual obligations to safeguard Ukrainian sovereignty. In addition, NATO can request its members consider alert-ready status in the event that Russian forces threaten the sovereignty and economic interests of its member states. Note, the cost of these deterrent actions pale in comparison to the cost of aiding Ukrainian forces in the event of an all-shoot-out conflict in the streets of Kiev should Russian and proxy Russian troops take their fight all the way to the provisional government.

Politically, we have a wealth of options. Not only can the G8 summit in Russia be canceled, but Russia (by virtue of the Kremlin government) can also be deemed a pariah state; justifying its removal from the G8, no admission into the WTO, removal from the Artic Council and possibly it’s removal from the U.N. Security Council. These actions hit The Kremlin where it hurts (their perceived political clout). Pariah state status place Russia on par with North Korea and Iran. The most outraged and incensed the rest of the global community can be to Putin’s actions, the more ashamed of their actions the Kremlin will feel.

Lastly, the West has creative economic responses from which to rely on. The U.S. can extend application of the so-called Magnitsky Law to over 20,000 Russian citizens (Kremlin administrators and their relatives), and ask that Canada and its European partners do the same. The U.S. and Canada can communicate clearly their objective to be the leading, safe, secure and economical source of oil and gas to the world markets by 2020; removing European dependence on Russian gas within ten years. Lastly, the U.S. and a broad coalition of partners, including Japan, The E.U., Canada, South Korea and others can implement a targeted quarantine of Russian commercial vessels – seizing and diverting cargo that originates from elements within the Russian economy that are deemed too close to the Kremlin, and ask to enforce a financial embargo preventing trade in the Russian rubble, and letters of credit to select Russian enterprises. In short, raising the economic costs of global business for Russia accelerates the collapse of the rubble, capital flight from Russia, and the eventual regime change needed to make Russia over.

III. The Conclusion

The present political and economic system that has lead to more democracy presiding over the lives of more people, in addition to better economic conditions than ever before, is a result of our efforts to establish military deterrence, political governance and economic liberalization. These are political and economic systems that we, in the West, have a monopoly over. We’ve set up the political administering bodies to grant the right to use of force. We’ve set up the terms for every form of trade and transaction, from GATT/WTO, to SWIFT/BASEL, to GAAP. Lastly, we’ve set up the best practices for democratically elected, representative, and just forms of laws and governance. We benefit collectively from this ecosystem because we are prepared to enforce its use by raising the costs of non-compliance to states that refuse to play by the rules, and lowering them for states that play by the rules.

President Putin and his Kremlin allies have made a severe miscalculation that can result in the acceleration of their own demise (provided Western governments capitalize on the opportunity). By ensuring a uniform stance in response to the invasion of Ukraine, we can apply military, political, and economic pressure to get Russian military to back down, and the Russian public to recognize how worse they are under the boot of President Putin.

George Washington’s most memorable quote is ‘the administration of justice is the firmest pillar of government.’ We have the opportunity to apply justice in face of a violation of sovereignty & freedom – let us live up to the standards set forth by every man and woman who has stood before us to defend the rights of free peoples worldwide.

Global Evolution: An Assessment of the Next 10 Years

Global Evolution: An Assessment of the Next 10 Years

In downtown Montreal rests an idiosyncratic relief sculpture by Raymond Mason, titled The Illuminated Crowd. The narrative tells the story of man’s emotions through space – from illumination, illumination, hope, involvement, hilarity, irritation, fear, illness, violence, murder and death. The line separating societal progress and regression is indeed fine.

As is often the case at year’s end, futurists, philosophers, and economists put forth a series of alerts on the risks and rewards that await nations in the year to come. Having the fortune of making it past the Mayan apocalyptic augury of December 21, 2012, I would agree the worst is behind us.

When we consider the biggest macro factors affecting the world, a few notable themes come to mind. This article serves to remind us of some of the larger priorities for the global citizenry to ensure societal progress.

Security

The past decade has been dominated by the U.S. lead War on Terror, an ill-defined, open-ended commitment to eradicate non-state and state-backed terrorist groups. While this war has had limited strategic success for the U.S. and its allies, it has had the primary destabilizing effect of expediting the transition of Middle Eastern countries: Iraq, Syria, and to a certain extent, the Arab Spring. These security investments have not been essential for the maintenance of American hegemony and its monopoly on hard power. While they have allowed for American ‘fire power’ testing, diplomatic innovation, and nation building; they have not necessarily guaranteed American preparedness to face challenges in South Asia, South East Asia, and East Asia.

In the coming decade, the major security threats to the world will continue to be regional in scope. These will be dominated by countries undergoing a massive transition from authoritarian regimes to socialist or democratic ones; namely North Africa, Sub-Saharan Africa, Middle East, Iran, and Central Asia. These conflicts will seem like déjà vu, think: Libya and Syria. Alternatively, these conflicts may arise from internal migrations, or rebellion by sub-state actors, think: Sudan, Mali, Chad, and Iraq. While strategic stalemates will remain, think: Korean Peninsula, Taiwan, Kashmir, and Gaza/West Bank; there are broader transitions in place that may impact massive amounts of territory and populations, namely, the continued demise of Russia, and its inability to control its vast stretches of territory from competing powers like China. An awareness of these risks by policy makers is essential to ensure reduced risk of global conflict.

Nonetheless, we should recognize humanity’s achievement in reaching an all-time low in inter and intra-state armed conflict. Global defense spending remains at an all-time low. Not only are we at an all-time low of armed conflict, we are at an all-time low of genocide, and crimes against humanity. This is no small feat. For the past 3,000 years, civilizations have been in a constant state of war. Their destructive capability climaxed in World War II, and the subsequent Cold War conflicts, placed the world on a trajectory of self-annihilation for three generations. However, under the conditions of a unipolar world, and the prevalence of the democratic governance system (democracies don’t go to war with one another), the risk of conflict continues to decline.

Risk Factors

– Countries in transition from authoritarian to democratic rule will continue to be at highest risk of internal conflict. The primary geographies are Sub-Saharan and North Africa, Middle East, Central Asia and South Asia.

– While the likelihood of a cold war between the U.S. and China is very low, it is important to keep these risks in mind over the coming twenty years.

– Strategic stalemates like the Taiwan Straits, North Korea, Straits of Hormuz, and the South China Sea are critical components of regional power balances; upsetting those stalemates risks destabilizing their respective regions.

– The guarantor of trade routes and flow of commerce remains the U.S. America’s inability to serve as a defender of last resort for free markets and democracy would certainly expedite the unraveling of global security.

Society

The past decade has seen the most massive transition of humanity in history. Not only have two billion people migrated from abject poverty to some form of middle-income, they have also gained access to formal education and information technology. At no time before, did such a large percentage of the human population experience such a massive change in living and working conditions. While China and India account for the majority of the causation, we must recognize a few highlights.

These include, first and foremost, the advancement of women. Gender equality is the single-most important factor in societal evolution. Not only does the advancement of women (educationally and professionally) lead to a reduction in fertility rates, and an ‘economic dividend,’ but it also leads to growth in per capita GDP, greater secular governance, and less armed conflict. The significance of this single factor cannot be understated. Over the coming decade, we will observe the greatest advancement of gender equality as an additional two billion women move from abject poverty into some form of middle income; bringing massive societal transitions to Africa and South Asia.

In addition, the second most significant factor in societal progress is urbanization. The past decade has seen the largest shift in humanity from rural to urban ever known to man. While approximately four billion humans live in an urban setting today, we are expected to cram an additional three billion humans into cities within the next decade, for an approximate total of seven billion out of nine billion humans living within some form of urban sprawl. The significance of these changes should not be taken lightly. While obvious benefits include greater access to education, information, markets, financial services, and materials, they also signify increased risk of mental disorders, pandemic diseases, and other health risks.

Lastly, we should commend humanity for reaching an all-time high in literacy, access to education, and possession of passports. These factors all facilitate the flow of ideas and labor across borders, ensuring greater progress. Over the coming decade, nearly 90% of humanity will have access to education, information technology, and will have the means to travel to urban centers within our outside the home nation. The societal implications of these shifts are simply massive; not only will societal evolution accelerate at an increased rate, but, the potential spillover effects could mean huge economic and educational gains for billions of humans.

Risk Factors

– What I call ‘Hub Theory,’ implies that innovation advances fastest when there exists a global hub to facilitate the flow of ideas, commerce, and peoples. Ensuring the unobstructed flow of all three is essential for maintaining progress. As the moment, the U.S. remains the most attractive geography for the flow of all three. However, this is not guaranteed. Leaders like Canada, Australia, New Zealand and Singapore have demonstrated that incentives can successfully challenge historical hubs like the U.S. Presently countries like the U.S., Japan, the E.U, Russia and South Korea are failing to do more to attract the worlds brightest minds and equipping them to produce best-in-class scholarship.

– Deliberate control of information, namely by state-actors, remains a key impediment to the free flow of opinions, ideas, and people. Censorship of internet, manufactured propaganda, and public/private surveillance of individuals all risk disrupting societal progress.

Economics

The state of the global economy has dominated Internet keyword search and the blogosphere over the past four years. Understandably so, deteriorating economic conditions in the fall of 2008, threatened economic depression in the U.S., the collapse of currency unions like the EU, recession in China, and a complete rollback of economic gains in Eastern Europe, Latin America and South Asia.

Despite the threats of global economic collapse, the past four years have proven less destructive than forecasted. In fact, while global trade suffered a decline of nearly 13%, it has quickly recovered to a near pre-recession high. Threats of a Eurozone collapse have subsided (despite counter productive political negotiations), and the largest free trade zones known to man are in the midst of being finalized: the Trans Pacific Partnership (TPP), and the EU-US Free Trade Zone. Expansion of NAFTA and Russia/CIS duty-free zone all point towards deeper global economic integration.

These achievements should not be undervalued. In June in 1998, global trade reached an all-time high (as a percentage of global GDP), not seen since 1914 (the start of World War I). A decade later, central bankers were staring directly into the potential unraveling of the entire global financial system with the collapse of Lehman Brothers.

Despite the inability for political apparatus in the U.S., EU, and Japan to reduce macro risks and stimulate domestic demand, central bankers have bravely stood at the economic helm to ensure that quantitative easing and inflation targeting (within a bearable range), lead to higher investment and domestic consumption. Had central bankers not acted in a concerted effort, we would have entered into a period of competitive devaluation not seen since the intra-war period, which lead to the economic collapse of Germany, flight from the British Sterling to the U.S. Dollar, and the rise of Fascism and Totalitarian Communism.

Aside from successfully navigating the global economy out of depression, we should emphasize that the past decade has seen the greatest poverty alleviation ever known to man. Since 2000, two billion humans have come out of abject poverty (on $2.00 a day), and entered some form of low or middle-income status. China’s ability to move 400 million citizens into the middle-income bracket is the most impressive economic empowerment to the masses ever witnessed on earth. Along with the entry of another two billion people into the global market place (namely India, Indonesia, Vietnam, Turkey, Brazil, Malaysia, Philippines, and to a less extent Nigeria), we are witnessing a massive shift in global labor rates and wealth creation.

In 1998, only two out of over five billion humans were connected to the global marketplace on a daily basis. Fourteen years later, over five billion out of seven billion are directly connected. The side effects are incredible. Global GDP has nearly tripled in size from $29 trillion to over $70 trillion in 2012 (adjusting for inflation). The vast amounts of value creation in Asia have completely revolutionized the word; leading to decreased borrowing costs and suppression of labor rates in the Wet, rising global commodity prices, and increased labor rates in the East.

Looking ahead to the next ten years, an additional three billion people will enter the global marketplace, for a total of eight billion, out of an estimated nine billion humans. The implications of that shift will be even more dramatic. Global GDP will probably triple over the same period, while consumption, construction, energy use, investment, and trade will be at all-time highs. The compounding economic effects of an additional two billion humans moving from low income to middle income (namely in South and South East Asia), will be mind blowing.

Risk Factors

– The global economic system remains fragile. We have seen over half a dozen examples of contagion over the past fifteen years: Asian Financial Crisis, Russian Financial Crisis, Brazil, Mexico, Turkey, Pakistan, Eurozone Disintegration, and America’s Financial Crisis of 1998. Despite all these warning signs, the financial and monetary systems serving as the backbone of economic integration remain susceptible to a sudden collapse. Greater regulation of financial products, though not a panacea, would limit value creation in financial services industry, but could also potentially negate the adverse effects of economic contagion.

– While the risk of Chinese political and economic turmoil subsided after a peaceful transition of power in fall of 2012, there remains a growing need for China to move towards greater individual political and economic rights so as to not create reactionary imbalance of rebellion among the 400 million Chinese who remain rural and poor.

– With the boom in global oil and natural gas production, the threat of conflict in the Middle East disrupting energy flows continues to subside with every passing year, making energy markets less prone to political shocks.

– Lastly, a combination of moderate inflation, low energy costs, low technology costs, high access to information technology and financial services all excellent point to excellent economic conditions for the empowerment of an additional three billion humans entering the marketplace.

Health

With over seven billion humans going about their day-to-day, we should wonder, what is the expected median longevity of man today? The good news is that humanity has achieved an all-time high for longevity, an all-time low for infant mortality, and an all-time high for access to healthcare. Never before has a greater percentage of the human population been able to seek and receive the medical attention they need.

More dramatically, global health scourges like the spread of AIDS have receded to near 1980’s lows. We are within a decade of eradicating major killers like malaria, malnutrition (dehydration and diarrhea), and polio. In addition, advancements in life science (namely genomics), healthcare data science, and the reduction in the cost of healthcare, all make accessibility, affordability, and speed of delivery more efficient and effective than ever before.

Risk Factors

– Great challenges to global healthcare systems remain ahead. Ironically, it’s not malnutrition or dehydration. Diabetes, obesity, and heart disease will affect an estimated 40% of the global population, or over 3.3 billion humans. Unfortunately, these health risks are more expensive to service than say, malnutrition or dehydration. Without the ability to service these healthcare risks at a low cost, hundreds of millions of humans will live less productive lives due to these illnesses.

– With nearly 80% of the human population migrating to cities, the risk of stress and mental disorders compounds for billions of humans. Finding low cost, and accessible solutions to address mental health are critical in maintaining social cohesion.

– Lastly, with decreasing costs of healthcare data, and increased access to patient conditions, we are quickly moving into a world where there will be less patient privacy, potentially higher insurance rates, and lower rates of subsidized care. Simply put, there is too much demand for affordable healthcare by too many humans. Managing these risks is critical for the progress of society.

Environment

Lastly, environmental risks will dominate our attention over the coming decade and beyond. While security, economic, societal and healthcare risks can be quantified, studied, and explained; changing weather patterns have proven more challenging. Despite unambiguous evidence of global warming, and rising sea levels, we still don’t know exactly how these effects will manifest themselves in ocean currents, and weather patterns. Would the yearly melting of the artic ice release such an abundance of fresh water into the north Atlantic shutting down arctic oscillation, and casting Europe into a mini ice age, while North America warms up? Would rising sea levels lead to greater coastal flooding? Would El Nino appear in greater frequency? And lastly, does all this imply desertification of landmasses within the tropic of Cancer and Capricorn?

With over five billion humans living at or near sea level, rising waters threaten our entire way of life. In addition, desertification of once abundant agricultural zones, like the Mississippi basin, the Volga basin, the Indus Valley, and Nile Valleys, threaten global food supplies. Lastly, greater frequency of coastal flooding threatens water supplies, destruction of major electrical generation and oil pipelines, not to mention ports, transportation hubs, and infrastructure arteries.

Worst of all, we do not even know what the lag factor is in climate change. We could be paying the consequences of increased release of carbon into the atmosphere from 2000. The compounding effects of greater release of carbon on an already heating planet could simply be catastrophic; temperatures rising exponentially, and fresh water resources vanishing.

In regards to environmental risks, humanity simply cannot move fast enough. Even though it may already be too late, there remains time for citizens to collective employ innovation in power generation and consumption to reduce carbon emissions. These include the elimination of the incandescent light bulb, more efficient cold storage, carbon capture technologies, and artificial greenhouses to stimulate rainforest growth in places like the Amazon. Sadly, with eight billion humans connected to the global marketplace in urban centers, the Earth may simply be unable to sustain such a massive growth in energy, water, food and lifestyle demand over such a short period of time. Perhaps we could all sit around and pray for a massive volcanic eruption in a remote location of the Earth that would provide an atmospheric shield against the greenhouse effect. Sadly, not even the Mayans could predict such events.

Risk Factors

– Preparing for rising sea levels means planning for the migration of billion of humans from sea level dwellings, to dwelling several meters above sea level. This massive undertaking has never been accomplished by man, and may simply lead to greater intra or intra-state conflict as nations compete for natural resources.

– Elimination of incandescent light bulb use, along with carbon capture, and investments in renewable or clean energy are all essential for global societal and economic security.

Conclusion

The last decade has seen, to a certain extent, the triumph of industry and markets. Never before has market access and technological innovation allowed for such a massive reduction in costs of consumer products, information, education, and services. This success of the markets has brought billions of humans out of poverty and into healthier, longer lives.

However, it is important to note that while much of the 20th century has been dominated by a male-centric view of market theory as being ‘pro-business,’ the coming 80 years will increasingly have to be dominated by a less chauvinistic mindset and a more cooperative one; that of being ‘pro-industry.’ Being pro-business simply protects the interests and economic advantages of the incumbent. This leads of low technology transfer, and dead weight losses for society. Being pro-industry, on the other hand, disseminates economic advantages over new entrants; leading to the creative destructive power of capitalism and the ability to replace old technologies with new, lower cost, and more innovative ones.

We should take stock of our gains over the past decade, and not take it for granted. In 1914, at the start of World War I, global economic integration reached an all-time high. That rate was not achieved for another 85 years until 1998, a year prior to the admission of China into the WTO. Ten years later, we were at risk of seeing the entire system unravel in a matter of weeks during the financial crisis of 2008.

The challenges facing humanity in the coming decade are as severe if not more so than ever before. But they are very different. With the risk of global conflict subsiding, our attention is increasingly turning towards building a long-term sustainable form of high-quality living for every human soul.

Jesse R. Sandoval, Commentator and Futurist

December 2012

Citizens United & the United Citizens of America

Alexis de Tocqueville made the observation 200 years ago that Americans have bad tendency of  forgetting lessons from the recent past.  Indeed, old habits are hard to break.  This is similarly true to campaign finance reform and Citizens United vs The FEC.Despite all the hoopla around Citizens United, it does not change much in the grand scheme of political fundraising.  Yes, it is true, it is a watershed that may very well be the straw the broke the camel’s back, but unfortunately for Americans, there aren’t too many camels out there in the great plains.What Citizens United achieved was an elimination on previously enshrined restrictions on freedom of speech, in effect, allowing greater breadth of access to political fundraising by corporations and unions to 501C3’s, and ‘Super PACs.’  Unfortunately, provisions administering proper identification and collection of contribution sources did not come along with the new legal mandate.  Something akin to giving everyone the right to drive a vehicle, but eliminating the requirement of a drivers license for the newly minted drivers.

Yet, we’ve seen this movie before.  The Watergate Scandals of 1974 lead to the passage of the Federal Election Campaign Act (FECA) requiring broad disclosure of campaign finance and the establishment of the Federal Election Committee.  At the time, political fundraising across Federal, State, and Municipal governments was an estimated $1 billion.   Twenty seven years later, the industry grew to over $3 billion in annual contributions, and the passage of yet another campaign finance reform: The Bipartisan Campaign Reform Act (BCRA), also known as the McCain-Feingold bill, limiting soft money contributions but raising hard money limitations.  This piece of legislature came as a result of a less acute crisis than Watergate, but a recognition in Congress that the 1994 and 1998 presidential elections witnessed an unprecedented use of 24/7 television and internet advertisements.

Today, the industry is estimated to bring in $10 billion  in 2012.  Adjusting for inflation, it still represents a nearly 3X growth in size.  While we are not certain what the dollar figure implications of Citizens United will be, it is estimated that $700 million in political fundraising inflows will be as a direct result of its passage.

Yet, Citizens United detracts from the central theme: the issue of money influencing politics (be it through political fundraising or lobbying), has been a central tenant of our democratic system since the election of the populist Andrew Jackson.

Even if the Supreme Court reverses its ruling on Citizens United within the short-term, the impact on political fundraising would be negligible.  This industry is deeply ingrained in Federal, State and Municipal government.
The solution to realigning the role of political contributions in government must stem from greater transparency in campaign contributions.  And by greater transparency, I do not refer to an arbitrary list of demographic information collected from the donor, but rather, a living, breathing profile that the donor maintains in the clouds in perpetuity.

As Co-founder at AngelPolitics, I have had the pleasure of helping drive this vision: the creation of America’s Donor Genome.  By giving every individual, super donors down to sub $200 donors the ability to activate their own piece of virtual donor real estate, they can begin discovering candidates across America, and across federal, state, and municipal government that share geographic, demographic, or issue-based affinities.   Similarly, a platform like this would be open to PACs, 527s, Labor Unions, Parties and other political groups.  By helping create a personal link among every voter and donor in America through a virtual social network, we as a society can for the first time ever, be empowered to access greater intelligence about the rationale for campaign contributions, and their impacts.

Fundamentally, money is a means to an end.  The flow of funds into political campaigns can be justified in a variety of weights (enshrined in our constitutional rights, or otherwise).  That they are spent in a constructive manner is another issue.  Most political analysts would agree that the majority of campaign dollars go to fund negative advertisements.  Yet, the purpose of negative advertising is to capitalize on an asymmetry of information between candidates and voters/donors.  Technology is one resource available, to us, as citizens, for building awareness of the political issues at hand and their implications for society.

 

By Jesse R. Sandoval

What happened to the <1%?

Working at the intersection of politics and technology, I am asked, and in greater daily frequency, what the hell is going on with political contributions these days?  The good news, we have robust tools to collect and analyze the data. The bad news is, it’s still challenging to elicit meaningful conclusions from this data.  In this discussion, I will present an overview of campaign finance today, outline present misgivings, and future opportunities for solutions.First, it’s important to review the state of the market.  Political contributions are expected to reach $10 billion dollars in 2012 (across Federal, State and Municipal levels of government).  This represents a threefold increase in the past twelve years.  Few industries have managed to triple in size in the past decade; this is certainly one of them.  It is however, important, to keep in mind the context of this growth.  For one, improvements in the distribution and delivery of information (i.e. technology) have reduced barriers to entry, and therefore increased the rate of competition within the space of ‘political marketing.’  To keep up with increased competition, both parties, and their respective machines, have had to dig further and further into barrell for more cash.  For all intents and purposes, this trend will continue over the short term.Second, we must analyze the source of these contributions.  This $10 billion industry collects money from a variety of sources: individuals, Political Action Committees (PACs), Super PACs, 527 Independent Expenditure Committees, 501C3’s (to a limited extent), labor unions, corporations, state and federal party committees.  It’s a cross-section of America.  Simply put, anyone with a vested economic or ideological interest will invest in the process.   However, we often times focus exclusively on the 300,000 super donors (and place even greater scrutiny on the 200 very super donors who have contributed nearly 80% to Presidential PACs, and Super PACs in 2012), and not as much on the remaining donors.  The reality is that 9.7 million americans, or nearly 10% of American households make hard money contributions between $200 and $2,500 per year.  Furthermore, an estimated 20 million Americans make contributions under $200, though identifying them becomes more challenging as donor contribution records are not required for small donations (much to the frustration of data miners like myself); though a good place to start might be the Obama email list – supposedly the largest in the galaxy.

Yet the argument remains: is it ‘fair’ or ‘democratic’ for wealthy donors to have greater freedom of speech vis a vis their contributions?  Does this imply a shift towards a plutocratic form of democracy? And how much longer till the masses arise and simply throw the yoke (think Tea Party & Occupy Wall Street on steroids)?

My belief is that the masses have already arisen, yet it is difficult to see and challenging to comprehend.

Let’s first look at the noise.  When considering influencers in the online skies, we will invariably come across top influencers in wide-distribution media platforms (i.e. Twitter).  Whereas the top 10 influencers in twitter command the following of nearly 20% of U.S. households, the top 10 political donors carry less than 0.002% of U.S. household interests.  Money doesn’t seem to buy too many Twitter friends.  But still, it’s more likely the the ideologies and agendas of the top 10 political donors will have a much larger impact on the lives of those same 20% of U.S. households than would the tweets of the most popular noisemakers.  But yet, we’ve stumbled upon an interesting notion: can social media empower political donors to be greater influencers (e.g. can greater spend also grant you greater clout in the online skies)?

The answer is yes.  The beauty of search and social media is the ability to create links based on affinities.  As individuals, organizations, and companies construct a political genome for American politics, the costs  associated with finding like-minded voters and donors decrease, allowing for greater education and engagement.  We see this with every passing month.  Innovative startups like Votizen, NationBuilder, PopVox, NationalField, AmicusHQ and AngelPolitics, are enhancing the ability to identify supporters for campaigns, and reduce the infrastructure costs of fundraising; in effect, marrying the breadth of crowdsourcing/crowdfunding with the efficiency of marketplaces.

What we will see in the coming years is the opportunity for influencers to also become large donors, and donors to become large influencers.  While risks remain that small donors (e.g. the 20 million Americans who make contributions under $200), will be unable to present large collective interests without the branding of a movement (e.g. MoveOn.org), a PAC, or a celebrity, the reality is that never before have we as a society had the tools to build affinity-based communities around issues, candidates and campaigns.  These opportunities exist as a function of improvements in technology, and the current misgivings of our campaign finance system.

Sources: The Center for Responsive Politics, OpenSecrets.org.

 

By Jesse R. Sandoval

Political Fundraising: Out from the Shadows into the Social

Two years ago, the conversation at social gatherings frequented by 40- and 50- somethings included the question “why on earth would you share your life on Facebook?!” Yet only a year later, this same demographic was sharing its latest family vacation pictures on Mr. Zuckerberg’s network. Not too long after, the conversation evolved into “why on earth would you join Twitter when you’re not interested in what Lady Gaga had for breakfast?” This year, the same group is tweeting with CNN’s Anderson Cooper, the judges of Dancing with the Stars and, of course, tweeting what they had for breakfast.

This example not only reveals the extent to which we are initially resistant to change, but also demonstrates how quickly our society is adopting social networks and unleashing the power of sharing. Social networking has changed our world in its entirety.

Aside from the 800 pound gorillas in the room (Facebook & Twitter), there are plenty of social networks that have brought great positive disruption to a number of very important fields. One of my favorite examples is Angellist.com, founded in 2008, which serves to match startups with investors. Initially, most investors were hesitant to disclose the investment profile of the type of technology startups they were backing. They were in the “it’s none of your business” camp. Today, investors have realized that sharing their portfolio criteria on Angellist can offer greater opportunities to identify and invest in startups than if this information remained concealed. Furthermore, any respectable angel investor or VC today cannot afford to be absent from this platform, since there could be hundreds of lucrative deals they would miss out on.

Political Fundraising: Ripe for a Social Ecosystem

Political Fundraising is a space mired with inefficiencies. First, it’s not easy to fundraise as a candidate. Second, as a donor, it’s equally cumbersome to make a smart contribution. Additionally, since less than 1% of Americans are active participants in political fundraising, the entire process is a mystery for most citizens.

To get a better sense of things, let’s review the current state of American elections. Currently there are 12,000 candidates that run for office every year in the US raising an estimated $2.9B. The majority of candidates does not understand, nor can hardly afford the arsenal of tools available at their disposal. The result is money left on the table. Nearly all of those 12,000 candidates fail to achieve their full fundraising potential, leaving on the table an estimated $0.60 of every dollar they could have fundraised – a startling figure. Had those been armed with the right and affordable analytical tools, they could have dramatically improved their yields.

Now, why would anyone want the world to see who they support politically? First of all, this information is already public. All political contributions are aggregated by the Federal Election Committee and available for the world to see. Additionally, it is precisely the power of knowing that can help turn a donor into an influencer. Just like those family vacation pictures on Facebook motivated you to take a trip to a far-off destination, so too will seeing the political contributions of your broader professional network influence your own thinking.

Beyond Financial Contributions: A Social Currency for Political Donors

As inefficient as the current process is for candidates and donors, the most dramatic inefficiency is that millions of political donations are conducted in a vacuum. Every contribution has zero influence over other contributions.

A political fundraising social network can turn each contribution into a call-to-action from other donors. A single contribution from a well-respected donor can trigger thousands of contributions from like-minded donors. Contributions made through a political fundraising social network dramatically increase the donor’s influence beyond the amount of his/her financial contribution through his/her social currency.

This year a new technological ecosystem comprised of a handful of technology startups has sprung and is turning political fundraising into a social phenomenon. Next year, the early signs of the political fundraising revolution will be manifested by a tiny checkbox on the donation page of candidates’ websites where donors will not be given the opportunity to opt in to sharing their contribution, but rather to opt-out of sharing.

Present in this revolution is an online political fundraising social network that provides the tools and intelligence to turn candidates into successful fundraisers, and donors into smart and influential forces. It is also the ultimate transparency tool – something worth tweeting about.


By Ricardo Garcia-Amaya and Jesse R. Sandoval,

Cofounders of AngelPolitics, the Political Fundraising Social Network.