Fred Wilson, one of the most influential and well-known venture capitalists, recently wrote in an article called “Jurisdictional Competition”:
We have watched the blockchain companies in our portfolio struggle to adapt their business models, financing approaches, and more to US laws. We have been working with them to come up with creative ways that they can continue to operate in the US while executing the crypto playbook. It has been quite challenging. We are for whatever is best for the founder and the business they create and have no preference for US domiciled companies. We have invested in Canadian companies, Estonian companies, French companies, Dutch companies, German companies, and likely a lot more. Investing in a Swiss-domiciled company or foundation would not be a big deal for us.
Fred Wilson is referring to the maze of confusing legal and financial rules one must navigate in order to invest in cryptocurrencies in the US. Meanwhile, other countries such as Switzerland are stealing America’s thunder by creating special jurisdictions where the laws are the laws are easy to understanding, thus fostering innovation and growth.
In 1990, when my family and I immigrated to America from the Soviet Union, it was as though we had just won the lottery. At the time, the Communist experiment was spectacularly imploding from the inside; in less than a year, what once a unified and powerful country would break up into 15 smaller pieces (republics).
The collapse didn’t happen overnight. For several decades leading to it, Soviet Union was an economically-troubled nation. It was a common sight to see shelves in the supermarkets void of almost everything but the absolute essentials (sometimes even the essentials were missing). During the collapse and the crisis that followed, things would only go from bad to worse. People’s entire life savings would be erased overnight and unimaginable poverty would sweep throughout the nation.
Across the ocean, America was prospering. Although the narrative of the Cold War explained it as the triumph of capitalism over communism, one trip to America from inside the Iron Curtain, and you’d wonder why the war even lasted as long as it did. America had everything. It made everything. It sold everything. It was thriving. Its supermarkets were always stocked with any kind of products imaginable and, best of all, you’d never need to wait half of the day standing in line to buy a loaf of bread.
America’s triumph was far from an overnight success. Here are some things that contributed to its special place in the world:
Free market economy/private ownership of property
In America, anyone was free to make, buy and sell whatever they wanted as a result of a market-driven economy. If someone out there wanted what you might be building, you now had a great incentive to make this stuff because it would guarantee profits.
That may sound obvious to most of you reading this, but many countries certainly didn’t function this way; it was the government that controlled what and how much of it got produced. For example, in the Soviet Union, you couldn’t open a business, import goods from abroad and sell them to customers. Not only was importing stuff from abroad not allowed, but you couldn’t even start a business in the first place — it was against the law.
Not being able to start a business had much bigger implications: it meant that you couldn’t participate in the economy and chart your own path to success. People naturally felt helpless and were at the mercy of the all mighty state who was responsible for their economic well-being.
Freedom of speech
Right now, you can go on the Internet and read news sites, magazines and blogs dissecting pretty much any topic, whether it’s about government, politics, religion, celebrities or anything else. That’s why you can bitch at your next-door neighbor, have a war of words with some anonymous guy on Twitter, and even complain to the President of the United States all before lunchtime and never get arrested or worse: sent to the gulag.
This is something that Americans take very much for granted (witnessed by the amount of controversy about this very topic), but the fact of the matter is that the rest of the world doesn’t operate this way. Obviously, this didn’t exist in places like Soviet Union or other authoritarian states. But, even now, many other democratic countries have forms of censorship in place that limit what you can say in a public discourse.
Rule of law
Last, but not least, none of the above matters if there are no laws — and people adhering to them — protecting you and the fruits of your labor. For instance, open a business in Russia, become moderately successful, and, there’s a good chance a couple of burly guys in black leather jackets will knock on your door tomorrow. They’ll demand you pay them for “protection.” The more successful you are, the higher in the hierarchy you’re “protected.” Big businesses are “protected” by security forces inside the government.
In America, work as hard you want, make as much money as you want or can, pay your taxes on the profits and everyone is happy. It’s that simple. That’s called the rule of law.
America’s organic democracy
America conquered other ideologies and won the race for the world’s hearts and minds chiefly because it was able to build a functioning society where people did what they wanted. The fact that I could open my own business, make money my way, and then bitch and moan at the government about anything that pisses me off without any repercussions against me or my family is a fairly novel concept.
That wasn’t a straightforward accomplishment. For most of the 19th and 20th century, the rest of the world (except for a few European democracies such as England) experimented with lots of different government systems from Monarchism to various collectivist ideologies such as Nazism, Communism and Socialism. What they all had in common was that they sacrificed the individual for the well-being of the state. That’s why in the Soviet Union, the government could send a random guy who disagreed with the state to a forced labor camp in Siberia (gulag), and nobody would see it as a big deal. Things like private property and human rights were mostly philosophical terms instead of real, tangible rights protected by the state.
Can you imagine the outrage that would take place if this happened in the modern world? In England? In America?
What made America’s democratic system unique and powerful is that it wasn’t created overnight as the response to something specific, but developed organically all the way from the time America gained independence from Britain.
But America wasn’t stupid. Those who were in power perfectly understood that American way of life was the envy of the people living in more repressive regimes. In a way, America itself became an image, a brand that sought to influence people around the world either directly (by stimulating immigration) or indirectly (by pressuring foreign governments to align with America’s ideals). People wanted to be free, or at least feel free, but if that wasn’t possible in the society they lived in, they yearned to immigrate to one where it was possible.
After the collapse of Soviet Union, countries which were previously supporters of Communism copied America’s political system to the best of their abilities. They had no choice. Embracing anything else, like some unproven ideology without true believers, was politically suicidal. In 1970, half of Europe was free-market with private property rights while the other half was Communist with none individual rights whatsoever. Today, almost all of Europe is democratic, with strong support for private property rights and free market capitalism.
As more and more countries embraced democratic ideals, democracy became more or less a commodity that any country with a president and parliament can claim to be their own. For instance, while the democratic system in Ukraine is far from the established democracy in America (the former was only established in 1991), it’s really hard to argue that Ukraine isn’t a democratic nation in the same way that Spain or Italy. As someone who’s living in Ukraine now, I certainly have the same freedoms that I enjoy in America.
Internet and the democratization of ideas
There was something else around the corner that would greatly change the way the world would forever function: the Internet.
Unlike democratic institutions which made people feel free, the Internet helped people in two main ways: it connected them to each other, fostering real-time communication via instant messaging tools and, second, it democratized data and information, making it available to everyone in the world.
So, with just a click of a mouse, a guy in Bangladesh suddenly had access to the same information that a venture capitalist in Palo Alto. A girl in Argentina could learn about programming or politics via an online classroom sponsored by a prestigious American university, something that was previously limited to Americans who could physically attend that university.
The result was meritocracy on the grand scale. When you have collaboration spanning countries and borders on a scale never before imaginable, you can build things on a scale never before possible. When the entire globe is interconnected and everyone understands each other (by speaking English), a person’s country of origin starts to mean very little.
The new struggle
That last part about a person’s country of origin not meaning much is crucial. There’s a new war brewing, but this isn’t the typical war with tanks, planes and the Marines. This is not a war where armies of one nation fight armies of another nation. It’s a war of ideas. The recent major events such as the Brexit, Trump’s election, Catalonia’s push for independence, the rise of the far-right parties in European countries are all symptoms of this new war. It’s important to understand that each event didn’t happen in isolation. Everything is part of an interconnected system.
The ultimate prize is a new world order. It’s pitting those who’ve successfully been able to build new wealth via the Internet and globalization against those who’ve been left behind in the dust. It’s a war of people and multinational corporations who’ve harnessed the power of globalization to reach economies of scale versus those that have not.
For the vanquished, the toughest part was the realization that the country they’ve come to love, the country where they paid taxes all their lives is simply yet another nation-state on this planet that instead of looking after the interest of its citizens, is a tool controlled by the elites for the supremacy of the global economic pie. After all, it’s tough to be a nation-state at a time when nation-states are desperately fighting for existence. The Internet and, its partner in crime, globalization are essentially making the nation-state an extinct species.
If I’m moving too fast for you and you’re not quite sure what’s going on, just follow the money. As always, big businesses and the wealthy understood this better than almost anyone else. Some years ago, The Wall Street Journal published an article where it wondered whether “the rich really need the rest of America.” Just last month, IBM reported that it now employees more people in India than in the US. The world’s most valuable company — Apple — is increasingly eyeing the high growth market of China than the more mature markets in America and Europe. America’s big businesses don’t really care about Americans. They’re going to places with cheap labor and/or consumers who’ll buy their products.
And, one of the world’s premier venture capitalists, Fred Wilson, who’s an American based in New York City, doesn’t have much of a preference in investing in companies in his own country; he’s willing to invest in great cryptocurrency companies regardless where they’re on the planet.
While big businesses and high net worth venture capitalists were one of the first to understand how this new wealth is created, it has also impacted regular people in crucial ways.
When my family and I immigrated to America, we were escaping a repressive regime that severely limited the individual’s rights, making the individual subservient to the state. Every single citizen was just a cog in the machine. No matter how much you wanted to carve your own path in life, you couldn’t just start a business and make money your way, you had to live by the rules of the state.
Those days are long gone. A few years ago, I’ve returned back to my homeland to discover a completely different society that’s getting more and more vibrant with each passing day. Knowledge and technology that may have originated in America or elsewhere in the West are quickly picked up by the rest of the world. There’s absolutely nothing that a Harvard grad living in New York City has over an ambitious young man in Kiev, Ukraine or Vilnius, Lithuania. There’s nothing that a programmer working at a startup in Palo Alto, California has that someone living in Barcelona, Spain or Lagos, Nigeria can’t learn via few Google searches.
Every co-working place I visited while I lived all over Eastern Europe is brewing with young and ambitious guys coding away and planning world domination.
The collapse of communism resulted in the commoditization and spread of democracy across the globe. This resulted in open societies where individuals are free to run their lives they way they want. As I sit here in my cozy apartment in Kiev, Ukraine, I feel exactly as free as I did in my old apartment in New York City, my loft in Medellin, Colombia, my beach apartment in Rio de Janeiro, or my apartment in the historic part of Vilnius, Lithuania.
The psychological feeling of freedom is only one part of the puzzle. Not only do I need to actually feel free, but I also need to be able to control my economic destiny. I need to be able to build stuff that I want and have an impeded access to markets where I can sell my goods and services.
That’s the democratizing effects of the Internet. No matter where in the world I am, all I need is a laptop, an Internet connection, and my ingenuity. I don’t need anything else. My addressable market isn’t limited to a city, a state, a country — it’s the entire world. It’s the entire fucking planet. Borders are becoming meaningless. It really doesn’t get better than this.
The specific country from where I operate doesn’t matter. Today I’m in Ukraine; next week I could be in Bali, and next year I could be relaxing in an apartment in Rio de Janeiro, Brazil. In fact, often times, what I find more important isn’t the language that’s being spoken on the street, but whether I have a comfortable table and chair for deep, meaningful work. Oh, and, of course, the speed of the Internet connection matters a lot (Eastern Europe has spoiled me with 50Mbps).
For many years, there was a rush of people trying to immigrate from poorer countries to richer ones. Ukraine recently got a visa-free access to the entire European Union after trying for many years to be accepted into the big boys club. There are also many Ukrainians who’re itching to immigrate to America.
This is a different type of immigration than my own. America is no longer much of haven for those running away from a repressive regime because there aren’t many repressive regimes left. New economic opportunities have created an entire class of self-made entrepreneurs in places like Ukraine and Lithuania who would never give up their own culture, friends and food for a new life in some foreign land.
Those who want to immigrate have very different motivations. Their motivations are more psychological than life or death. The majority of people that are thinking about immigrating are mostly those who’ve failed to build anything worthwhile in their home country and want a new beginning somewhere else. And America isn’t on top of their list anyway; most other countries are fine as long as they have a nice passport and hard currency, whether it’s Germany, Australia, Denmark or even Lithuania. These people are looking to reset their lives and not to escape a totalitarian government that’s one step from imprisoning them for a random joke against a dictator that was overheard by someone sitting next to them in the cafe.
An average Ukrainian, Lithuanian or Bulgarian man or woman doesn’t wake up in the morning and say, “My country is infringing my human rights, I must find a way to escape to America.” This may have been true 30 years ago. Not today.
Many people mistakenly think that America is a place where infinite money grows on trees. They think that the moment they’ll at New York’s John F. Kennedy airport, they’ll immediately get a job and make a lot of money. What no one tells them is that America is just another country. And that they’ll have to adjust to this brand new country with its own unique ways of doing things, a country made up of atomic individuals with little to no shared values, a country where everyone is fighting for a slice of a rapidly diminishing pie. Where I lived in Brooklyn, NY — a hotbed of immigrants — I’ve met Eastern European immigrants who worked 14 hours per day, making a little above the minimum wage. Half of that covered their rent with a big chunk of whatever remained going to the tax man. The myth that you’ll become famously rich in America just for being in America is just that — a myth. In fact, it could be one of the greatest myths ever invented.
In fact, the immigration that I’ve been noticing lately has been mostly in the other direction. When I lived in Brazil, I’ve met a handful of people who moved to America many years ago, went to school there, built a business or two and, then, for one reason or another returned back to their home country. I’ve been noticing this trend all over Eastern Europe as well; a good friend whom I met in Denmark where he was living and working at that time, has returned back home to Lithuania, a former USSR republic, a modern European state that has absolutely nothing in common with its Communist past.
To be sure, this isn’t all America’s fault. The world is changing to the point where the individual country matters less and less. Let’s say you’re thirsty and need water. You enter a store, but the only water they have on the shelves is the expensive Evian brand. Being thirsty and not having other options, you have no choice but to purchase that. But what if you entered the store and saw lots of different brands, both cheap and expensive. There was also the store’s own brand that was cheaper than the rest. Which one would you buy? Water is water. It’s just a commodity, so it doesn’t really matter what fancy label is on the bottle. America is that expensive Evian water that people no longer need to buy.
America’s main challenge is being nimble enough to quickly react to the rapidly changing world. Being at the top of the economic food chain for so long, it lost some of that competitiveness that it now imports more than it exports and funds budget shortfalls by printing money. The fact that it’s home to so many successful companies means it doesn’t need to try as hard as other places to keep them there. It’s like an enormous ship, and once it assumes a certain cruising speed, it’s really hard for it to turn around and go somewhere else. Other more nimble countries or cities are free to swoop in and steal some of its thunder (and business) which they’re effortlessly doing.
Once the beacon of the free world, America has been reduced to just another nation-state, one with its own advantages and disadvantages, its own rules and laws, and its own freedoms and limitations. If guys like Fred Wilson with access to seemingly unlimited capital see it this way, there should be absolutely no reason that a mere mortal like you or me who wants to carve out his own piece of the global economic pie should see it any other way.