‘Whatever form a new war may take, whatever part is taken in it by aviation, by gas, by the different destructive processes of modern warfare, there is one imperious necessity, and that is to prevent the violation of our territory by enemy armies. We all know the cost of invasion, with its sad procession of material ruin and moral desolation’.

In an age where we watch on the violation of Ukraine, wait to be annihilated by AI powered robots or sit patiently for the South China Sea war to kick off, the above quote strikes a chord. It comes from a speech in January 1930 by André Maginot, then French Minister for War, who at this stage had been lobbying actively for the barrier that bore his name.

Maginot had fought in the first world war (effectively losing a knee), where heavily fortified structures and defensive lines had slowed the Germans, and the conception of the Maginot line relied largely on history – in the previous thousand years the Germans has predictably charged across the space that the line occupied. In May 1940 Rommel sped through Belgium and the Netherlands, around the Maginot line, and by June German troops were on the outskirts of Paris.

Today, the Maginot line might be the large navies of China and the US, or the web of artificial island bases that China has constructed. What is sure is that we are now in a multi-threat age (of total war) where single use Maginot lines can be rendered useless by multi-domain attacks.

One important and complex element here is that Europe is beginning to build its defences for the consequences of a multi-polar world. Last week it announced the skeleton of its EU Economic Security Strategy, whose aim is to protect key EU technologies, identify and pre-empt economic security threats to cyber, intellectual property, and economic coercion against Europe. The framework is designed to allow states to ‘risk manage’ their diverse exposures to these risks, with a steer from the EU. In effect the initiative builds on a number of more specific Acts – such as the EU Chips Act and 5G Security framework.

In practice the initiative has been motivated by cyber warfare from Russia, the implications of the invasion of Ukraine (and financial flows in and out of Europe to Russia) in addition to the threats to EU intellectual property from foreign states (namely China). We can now expect to see more intensive screening of the export of key technologies from Europe, financial inflows and of inward investment. Watch out next week for the announced risk framework to be debated at an EU leader’s summit on 29/30^th June.

The initial implementation of the framework will be interesting, and my sense is that it will initially be used to bring expertise from ‘strong’ states, through the EU, to shore up weak points – from Chinese data centres (i.e. TikTok) in Ireland to foreign ownership of EU infrastructure to the allocation of research funding, to financial flows through Austria’s trust system.

As readers will know I am inordinately focused on the Irish case, and it is a country with multiple ‘Maginot weak points’. The changing world order has uncovered multiple vulnerabilities in Ireland’s security framework – the susceptibility of large technology facilities to espionage, unguarded trans-Atlantic cable lines and a wide-open airspace to name a few. There is now a public consultation process on security ongoing in Ireland, and a suspicion that its defensive frailties are already being filled by NATO countries.

In the EU, one practical implication of the new economic security framework will be the extent to which practices by ‘strong’ states (for example the Netherlands has been very aggressive on protecting the semiconductors industry and on screening Chinese students) will be carried across to other countries, and to the extent that the ‘weakest link’ states have their security and economic infrastructure fortified.

What is not yet absolutely clear (even though institutions like the WTO are mentioned in the announcement) is the extent to which the EU will work with international partners like the US in terms of collaborating more closely on disrupting questionable financial flows for instance. This has been an area of technical weakness across the EU and embarrassingly many of flows of ‘bad money’ in and around the EU have been detected by the US.

In typical European style, this initiative is just a start. It is porous and easily circumnavigated, to stick with the Maginot analogy, but in the longer term points to even greater coordination across states, greater scrutiny of investment flows and I hope, greater collaboration across countries.

Have a great week ahead,

Mike

A couple of interesting events happened in the venture capital industry last week, that tell us much about how capital flows, and the impact it will have on our society.

In Paris the Sista Fund investment conference took place, the aim of which is to focus attention on the need for the venture industry to provide capital to female founders, and additionally to support female investors. Some of the statistics flagged at the conference are startling –across Europe just 7% of start-up funding goes to female-founded start-ups, and for larger growth companies, less than 1% of large funding tickets (Eur 50mn and more) went to all-female founders in 2022.

Then, in the UK, the Black Seeds fund – a VC fund designed to raise capital for black business founders in the UK raised a total of GBP 5mn. Sadly, this is a miniscule amount of money compared to the size of funds across the industry, not to mention the amount that is wasted on projects of pure fantasy (for a more informed view on this please see the excellent Sinéad O’Sullivan’s recent articles on space and crypto funding in the FT).

At the same time, four French ‘AI bros’ whose new venture Mistral.AI has only been up and running for four weeks received some Eur 105 mn in funding for their venture at a valuation of Eur 240mn. Given the difficulty of raising funds at the moment this is an impressive raise, reflecting both the background of the team and the eco-system of state, business, media and entrepreneurs they have backing them, most of whom are French, highlighting the highly ‘networked’ side of French business.

However, that Mistral.AI can raise Eur 105mn in a few weeks, and Black Seeds takes in only USD 5mn, and no-one is willing to give have the ‘better’ half of the population investment capital, is not a good thing. On one hand it shows how capital gravitates faddishly to the prospect of financial return rather than economic return, and it also shows that while the majority of VC funds and investors wrap themselves in the banners of sustainability/equality and ESG, they are shy of committing real capital to these causes.

In an age where developed countries want to attract qualified migrant workers, and where productivity gains are in short supply, ‘diverse’ (by which I mean ‘not AI bros’) founders need to be able to access investment capital.

A cynical response to the above development is for female entrepreneurs for instance, to cloak their projects in AI, and I suspect that this is already happening such that mind-numbingly, every pitchdeck contains multiple mentions of the word ‘intelligent’. A better piece of advice for VC funds and entrepreneurs is to follow the example of Mistral. AI and build an eco-system of government, corporate and entrepreneur supporters. The best VC’s that I know have done this.

Another angle of attack is AI itself, and specifically the data that various AI applications run on. Some years ago, I wrote about Joy Buolamwini’s Algorithmic Justice League that seeks to adjust algorithms for the biases they are programmed with. To be very speculative here, a corrective approach to AI could be taken a step further and have algorithms programmed exclusively by women, for application in female specific cases in industries like insurance and health, and to have guardrails also programmed by women. Such an approach might make the AI craze more responsive to different segments of society.

The impact of AI has already become an area of intense focus and last week the EU Parliament signed off the EU AI Act, whose main contribution is to divide the application into four pillars from harmless to very harmful (akin to China’s use of AI for social credit scoring). There has been some backlash against this already from businesses across multiple sectors that apply AI and who may find themselves being classified as AI companies (and hence liable to the regulation).

The other group to protest is unsurprisingly, the French AI bros, who fear the Act will crimp their creative flair. With a growing number of Emmanuel Macron’s former ministers joining VC firms and start-ups, I fear the AI bros might win again.

A quote I often like to deploy comes from Jagdeesh Bhagwati, one of the leading policy ‘lights’ and advocates of free trade at the start of this period of globalization who said that American multinationals were the ‘B-52’s of globalization’. It was a fitting image for an economist who counselled the likes of the GATT and other world institutions to let free trade flourish, unrestricted by concerns over labour laws and whose main works were titled ‘Free Trade Today’ (2002) and ‘In Defense of Globalization’ (2004).

To his credit, Bhagwati’s view prefigured the domination of world commerce by US multinationals, that is until China’s own corporate giants rose. Today, the world’s largest companies are still mostly American, with a number of Chinese like Tencent, and a handful of Europeans. 

However, a new trend is occurring, which will involve many of those ‘B-52’s’ turning for home, or even changing their spots.

I had often wondered whether the end of globalisation and the fracturing of the world economy into a multipolar order would produce a similar rupture in global corporate business models. That such a rupture didn’t happen is testament to the agility of these companies, the digitisation of economies and the power of international brands.

Since Donald Trump took power, multinationals have had to deal with a trade war, the supply chain disruptions of COVID and the resulting rise of both the digital economy and working from home in the West. As if that were not enough, the introduction of robotics and machine learning to production processes, national security concerns and then the Inflation Reduction Act have pushed and pulled American companies closer to ‘home’ (with some friend shoring), and even drawn a few Europeans with it.

If the American corporate empire is well, then the British corporate scene is withering (recall that the East India Company was perhaps the first company to become involved in geopolitics – with horrendous consequences for India, please see William Dalrymple’s The Anarchy) as the consequences of Brexit push large companies to delist from London and move to New York or the euro-zone (one of the notable movers is CRH which with a business in nearly every European country and American state is not unsuited to a US listing). HSBC is of course another example where realpolitik has led it to move its centre of gravity to Asia. 

So to summarise, the international corporate response to a changing world has been to either change what is under the bonnet (supply chains, work and technology practices) or change ‘home’. Few of them have changed their ‘shop front’ or brand – which is the canary in the coal mine I have been looking out for.

In that respect, imagine my glee to hear that the giant venture fund Sequoia is to split itself in three – a US/European business, an Indian one and a Chinese firm called Redwood in the English re-translation from Chinese of Sequoia. While differences in local markets and investment styles may have contributed to this, the fact that American companies prefer Western capital than Chinese – and vice versa, will have been a factor, as will the growing scrutiny of service providers like investment firms and consultancies in China by the Chinese authorities. Sequoia is interesting as it has in the past shifted structure in response to a changing environment (nearly two years ago it effectively merged its individual pots of capital into a large pool).

The question now is whether Sequoia is the first of many brands to be hit by the geopolitical bug, and other brands splinter into regional varieties, or rather what industries specifically might be vulnerable. 

If I were a management consultant, I am sure I could make a great deal of money consulting firms on the geo-political transformation of brands, should this become a trend. For the time being I think we can differentiate between brands at three levels.

First, those where the brand is integral to the product and its allure and quality transcend geopolitics (LVMH, Rolls Royce and potentially Apple). Second, there are brands that identify with country brands (TikTok, US car manufacturers, many Japanese companies and some German car companies) and these may be vulnerable. 

Thirdly are companies that involve transfers of data, money and services (capital flows rather than trade flows) and I think the interesting disruptive factor here will not so much be that brands will need to change, but that underlying modes of corporate governance and regulation will increasingly diverge between the large regions. Whereas the initial effect of the ‘B-52’s of globalization’ was to promote an Americanised approach to finance, accounting and regulation across many emerging markets, this may change, to the detriment of Western service companies. 

Sequoia’s job is to spot new trends, let’s see if they are now going to lead one.

Have a great week ahead, Mike

The front page of the latest edition of Time magazine carries a warning that we are at the ‘End of humAnIty’ in the sense that AI will take over the world and potentially exterminate the human race. The good news is that Time magazine covers tend to be contraindications, and I am closely watching the share price of AI mania stock Nvidia to see if its share price is going to peak on the publication of the Time cover story.

Regular readers will know that we have treated the dangers of AI on a number of occasions (The Final Problem, Talos, and LevAIlling), and I suspect that the ultimate effect of AI could ultimately be to lengthen human longevity. However, while we sit and worry about AI led drone strikes on our cities and being chased by drone swarms, we underestimate the effect of machines on our bodies and importantly, on our sociability. I had two reminders of this last week.

The first was hearing social historian Miriam Nyhan (formerly of NYU) describe the transition in the economy of Cork from one dominated by Ford to Apple (6000 employees).

While Ford’s initial contribution was to change the way we worked (I have had the benefit of a tour of the Dearborn factory, the most impressive element of which was to see robots making cars), the automobile industry has also changed the way we live – notably in terms of how cities are structured and the amount of exercise we get. Then, Apple and social media in general have changed commerce and entertainment but have also left us with physical contortions (the hunched phone user) and even worse, social deformities in the sense that for the first time ever, humans no longer interact with each other in a solely human way.

The second insight was from Prof. Rose Anne Kenny (author of the excellent ‘Age Proof’) the founder of  TILDA (The Irish Longitudinal Study on Aging) that has tracked nearly 9,000 adults aged fifty and older, and covers all aspects of life — from sex to food, to physical and brain health, genetics, childhood experiences, friendships, finance and much more — to fathom how and why we age, and to resolve how we can live longer and better.

When we combine the changes to our lives from technology, with changes to identity and acts such as drug taking, we are on the cusp of the most dramatic change in human behaviour ever. We can live for longer, but in many instances, we are not living better. What is clear is the degree of flux around our bodies and minds – from longevity to the atomization of societies, the diffusion of identity, and radical changes in average body shapes.

I don’t have a clever name for this epochal transformation – perhaps  ‘The Great Regression’ – but we might date it as having crystalised in the post COVID period when the combined results of all of these factors came together.

This is characterized by a number of factors – generalized longevity across the world with worrying regressions in life expectancy in specific economies owing to a combination of obesity, cardiovascular diseases, drug dependencies and depression. The US stands out here where life expectancy has dropped (see America’s periphery problem) precipitously to 76 years, its lowest level in over two decades (for reference Canada is 82 years and Japan 85).

In the future, these changes will be complicated by a range of factors, notably where morality and money are concerned. Wealthy people will try to access longevity (but perhaps not happiness) and advances in genetic engineering may open up an entirely new vista for the rich to grow and transplant organs or to design their ‘next generation’.

Then, AI broadly has the ability to help diagnose many illnesses depending on countries’ ability to collect good data, but where it is introduced into social welfare systems, may act in a cruel way to exclude people with say cardiovascular complications from getting insurance or social welfare.

As a final point, the striking aspect of Rose Anne Kenny’s work is that healthier and happier, long lives are essentially a function of good design – of cities and towns, healthcare provision, social education and diet (note that the journal Public Health Nutrition shows that ultra-processed food makes up over 45% of household purchases in Ireland, the UK and Germany as opposed to less than 14% in France, Italy and Portugal).

For that reason, I have a lot more confidence in the future of European democracies than autocracies or the Anglo-Saxon socio-economic model to successfully manage the enormous changes taking place in our bodies and minds.

Have a great week ahead,

Mike