Is America’s Military Losing Its Edge?

By Vikram Mansharamani

The United States spends more money on its military than any other country in the world. The American defense budget of almost $600 billion is more than four times that of China’s. In fact, the International Institute for Strategic Studies (IISS) notes the US spends almost as much as the next fourteen countries – combined.

But rather than simply leave the interpretation of this data to readers, IISS warns this large budget does not necessarily buy sustainable US military superiority.  In February of this year, John Chipman, director general of IISS, noted that the proliferation of military-relevant technologies has large strategic consequences that appear to be undermining Western might.

This point was driven home during a recent talk at the Harvard Kennedy School by former Under Secretary of Defense for Policy Michèle Flournoy. She explicitly stated “our military technological edge…is no longer a given, because many of the technologies we rely on are becoming ubiquitous.”

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The Best Advice From 2016 Commencement Speeches

By Vikram Mansharamani

Graduates

Graduation season is a wonderful time for celebration. Teachers applaud students, and parents praise their children. All eyes focus on the graduates, and rightfully so. After all, for many college graduates, commencement is well, just that: a beginning. And like most beginnings, graduation ceremonies are filled with a contagious optimism and energy.

I love graduations and am a commencement speech junkie. As a parent and educator, I am keenly interested in how best to advise young people. I also find the ceremonies inspiring, energizing, and renewing. So each spring I get my fix by reading or listening to dozens of commencement speeches.

We can all learn from the nuggets of wisdom shared during the proceedings. Here are five of the most valuable tidbits I’ve taken from some of the best addresses delivered to the class of 2016:

1. Get in the Way
Speaking at Washington University in St. Louis, legendary Georgia congressman and civil rights activist John Lewis urged seniors to be proactive—even if it means ruffling feathers. Noting inspiration from Rosa Parks and Martin Luther King, Lewis said, “I got in the way…I got in trouble…Good trouble, necessary trouble.” This lesson is as important today as it was in the 1950s and 1960s. As Lewis continued, “When you see something that is not right, not fair, not just, you must have the courage to stand up, to speak up, and find a way to get in the way.” The advice Lewis offers is as valid for working professionals as it is for ambitious and idealistic graduates. Convention and inertia are often impediments to progress. Get in the way to force change. The world may be better off because of it.


“When you see something that is not right, not fair, not just, you must have the courage to stand up, to speak up, and find a way to get in the way.”


2. Cherish “Uh-Oh” Moments

Supreme Court Justice Sonia Sotomayor recounted to University of Rhode Island students an embarrassing story in which she choked during one of her first job interviews. These “‘uh-oh’ moments are worth cherishing just as much as ‘ah-ha’ moments,” she said. “Mistakes, failures, embarrassments and disappointments are a necessary component of growing wise.” The logic of learning from failure is not new, but Sotomayor’s reminder to embrace the “uh-oh” moments is refreshing in an era in which every corner of life has grown competitive and perfection is a ubiquitous expectation. When navigating the crosscurrents of global economic uncertainties, failure is almost certain at some point. Reframing setbacks as wisdom acquisition will empower and energize— precisely at the point when a boost is most needed.


Reframing setbacks as wisdom acquisition will empower and energize— precisely at the point when a boost is most needed.


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Is The Sharing Economy About To Stop Sharing?

By Vikram Mansharamani

Today’s sharing economy has a cutting edge feel to it. It screams “innovation” and disruption. It’s seems futuristic.  We’re living in a world where the most valuable media company — Facebook — produces no content; the world’s biggest taxi company — Uber — owns no vehicles, and the world’s most valuable hospitality company — Airbnb — owns no hotels.

Network

Networks, it seems, are more valuable than the services they facilitate. And in some ways, this makes sense. They are enabling stranded assets liked parked cars or empty beds to be economically productive. The networks are valuable precisely because they connect those with needs and those who can help fulfill them.

There’s reason to believe, though, that the so-called “sharing economy” is a fleeting moment in economic history. Digital giants and upstarts alike are realizing that networks can be fickle, while ownership of and control over the services they facilitate hold the key to a sustainable advantage and long term profits.

Take transportation, for example. Uber is famous for being a giant, car-less taxi company, preferring to let its drivers supply the vehicles. In doing so, though, it has to give them a significant cut. What if it didn’t have to pay for drivers at all? That’s the promise of driverless cars.

As Uber founder and CEO Travis Kalanick told a tech conference in 2014, the service is more expensive than it should be “because you’re not just paying for the car — you’re paying for the other dude in the car. When there’s no other dude in the car, the cost of taking an Uber anywhere becomes cheaper than owning a vehicle.”

What happens to car demand in a world where it’s cheaper to take an Uber than own a car? Sure, it might shrink a bit as cars are more heavily utilized and meet more driving needs. But the more interesting fact may be that the network suddenly owns all the cars.

Last year, Uber launched a lab in Pittsburgh to facilitate the development of autonomous car technology. While Uber may be a car-less taxi company today, it has its sights on owning all the cars in the future.

It’s no surprise, then, that GM recently announced a $500 million investment in Uber’s main rival Lyft, building a network-manufacturer partnership that could compete with the prospect of a vertically integrated Uber. As NPR reported, “In the short-term, GM will rent cars to drivers. In the long-term, GM will build a self-driving fleet in which cars are owned by a company — not bought by individual consumers.” Meanwhile, Google plans on spinning off its driverless car unit into a standalone business later this year.

Uber

The “sharing economy” may eventually morph into the “platform owns everything” economy. Just consider what’s going on in the entertainment sector. Netflix, which has grown rapidly by connecting other people’s content to end users, is now focused on producing its own original content. In 2016, the company plans to produce 600 hours of original programming. Amazon is now producing original shows as well, and doing so quite well. Amazon’s “Mozart in the Jungle” recently won two Golden Globe Awards. At one point in early January, the top 5 TV shows, according to ratings on Rotten Tomatoes, were produced by either Netflix or Amazon.

While Facebook has not announced plans to produce news (which is not particularly lucrative anyway), it is getting publishers to host their content with them. Much more consequential, however, is its approach to virtual reality. Facebook bought Oculus in 2014…and drum roll please… Oculus has a studio of its own—Oculus Story Studio—which is funding original content. If the future of visual media is in VR, then Facebook will be one of its earliest producers.

Might Airbnb someday find itself wanting to scoop up some property of its own? It’s too soon to tell, but I wouldn’t be shocked if they did. One thing seems clear: we can’t assume that network owners will be content until they have control.

16 Predictions

by Vikram Mansharamani

2015 was a roller coaster of a year for analysts of global economics and politics. Terrorist tragedies from the US and France to Nigeria and Iraq shocked us, Nepal suffered a devastating earthquake, and Volkswagen’s massive fraud surfaced.  A million migrants flowed into Europe, and a nuclear deal was reached with Iran.  The US and Cuba made progress in restoring relations, and Donald Trump grabbed global headlines.  Nations reached a new set of climate accords in Paris, and the Islamic State persisted.  China’s slowdown continued, it ended its one-child policy, and energy and industrial commodity prices stayed lower than expected.  And of course, the Fed began its effort to normalize interest rates.

How can we possibly navigate the radical uncertainty presented by this chaotic tangle of events and trends? Some use a Magic 8 ball, while others turn to Ouija boards. I’m more conventional. Rather than try to predict what will happen in the coming year—to me, a fool’s errand, due to the short time-horizon—I try to look through the noise by analyzing structural signals and making predictions over a five-year window.  Last year, I made 15 Predictions for 2015-2020. But as noted by the late Yogi Berra, “The future ain’t what it used to be!” So I’ve incorporated feedback from last year into my predictions for the next five years.

2016-2021 Predictions

  1. China posts a GDP growth rate below 5% before a consumption boom re-accelerates the economy. Animal protein demand skyrockets. In the meantime, saber rattling in the South China Sea and towards Taiwan and Japan aim to distract popular attention away from domestic economic matters, but rising unrest and economic insecurity call the long-term viability of the Chinese Communist Party’s rule into question.
  2. In Australia, low prices for industrial commodities drive budget deficits, generating additional volatility in economic growth and the Australian dollar. Exports ultimately rebound thanks to growing Chinese demand for consumer goods and services, but housing prices in Melbourne and Sydney correct amidst slower inbound immigration.
  3. Low oil prices spur a transition to consumption-led growth in many emerging nations.  Formerly hedged North American producers find themselves losing money and (temporarily) shut down. OPEC eventually curtails production, and tensions escalate in the Arctic over seemingly large resources. Coal markets suffer but don’t disappear. Oil ultimately rebounds as rising Middle Eastern instability combines with aggressive investment cutbacks.Fusion emerges as a viable long-term alternative energy source.
  4. In Canada, the combination of high household debt, high home prices, and anemic job growth due to low oil prices leads to stubbornly persistent economic stagnation.  An emerging market consumer boom eventually drives Saskatchewan real estate prices as potash prices rise dramatically.
  5. In Africa, a growing middle class booms, boosting consumption and driving higher food prices worldwide.  Low oil prices force Nigeria’s economy to diversify away from commodities and towards services. High unemployment and domestic unrest continue in South Africa, leading the once dominant ANC to lose ground, power, and legitimacy.Ethiopia’s Grand Renaissance Dam spurs a water war.
  6. The current technology bubble deflates even as a few champions of the sharing economy enter the Fortune 500.  The biggest casualty proves to be employees ofnaked unicorns as venture capitalists and institutional investors utilize ratchets to limit their losses.  The Internet of Things takes off, generating concerns from privacy and security experts alike. Calico becomes the world’s hottest company.
  7. A Robolution in Manufacturing massively increases productivity and also decreases employment. Robotsprove deflationary as the labor component of goods drops and the fall in aggregate workers’ income reduces demand for the very goods the robots make.  The markets for drones, driverless vehicles, and industrial robots boom.
  8. Saudi Arabia faces rising domestic unrest and regime-threatening instability. Regional tensions escalate, distracting the regime from addressing domestic concerns. Due to oil price pressures, the government cuts budgets for social services, giving momentum to demands for increased freedoms.
  9. Despite initial success, Prime Minister Modi’s “Make in India” campaign proves ill-timed, as productivity gains in automated manufacturing make the Chinese development model obsolete. Speculation arises thatIndia may never emerge as the economic powerhouse it was once generally assumed it would become. Leaders discuss the possibility of demographic controls.
  10. Cyber risks continue to rise as a top concern for global boardrooms. Financial regulators begin mandating independent information audits comparable to today’s financial audits. National governments create military-like cyber teams to hunt down and bring cyber-terrorists to justice, but they are not able to avert a destabilizing attack on critical infrastructure.  Ted Koppel’s Lights Out proves prophetic.
  11. Japan acknowledges its demographic problem and opens the doors to immigrants. It begins allowing Southeast Asian healthcare workers (nurses from the Philippines?) to care for the elderly. Economists come to understand that the older Japanese population, living on fixed incomes, actually prefers deflation.
  12. The United States of Europe fails to congeal as expected. The refugee crisis hastens the disintegration of the attempt at political and monetary union. Even as some countries see refugees as demographic saviors, nationalism rises in others. Separate currencies emerge.
  13. Central bankers struggle to unwind quantitative easing without generating massive instability. Equities suffer, credit markets tremble, and gold surges as investors lose confidence in responsible central banking. Martin Wolf’s “chronic demand deficiency syndrome” worsens leading economists to question the usefulness of productivity. The Fed finds it can’t raise rates as much as it has planned and eventually reverses course.
  14. In the wake of 2014’s successful containment of the Ebola virus, a new epidemic (MERS?) rears its ugly head. The global public health community again scrambles (and again succeeds) to avert a disaster that might have threatened millions of lives. Despite more health-conscious border control efforts, healthcare continues to globalizeCuba’s economy accelerates on the back of strong medical tourism from the United States.
  15. The Pacific Alliance, a trading bloc centered on Colombia, Chile, Mexico, and Peru, grows its profile and emerges as Asia’s preferred economic entry point into Latin America.  Mexico tries to deal with its corruption problem and makes progress towards establishing rule of law. The Colombia peace talksare ultimately successful, resulting in the end of the 50+ year civil war.
  16. Whoever wins the 2016 US presidential election, the American people are sorely disappointed and vote with their feet in the 2018 midterm elections, resulting in a rapid and unexpected swing of control in Congress.

As I mentioned in last year’s predictions, it’s worth recalling the prescient words of John Kenneth Galbraith: “There are two types of forecasters: those who don’t know and those who don’t know they don’t know.” I’ll let you decide which I am, but I do hope these 16 ideas provoke thought!