Chokepoints
Book Author: Edward Fishman
Multi-layered pun intended. The world has become both a satire akin to Onion Network, but also in the words good ol’ Shrek: “Ogres are more like onions, layers upon layers”.
Today’s world is building on top of geopolitics with geo-economics and geo-technology. For the last century or two, the prevailing mental model of globalization was one of a "flat world"—a borderless, decentralized meritocracy of trade. With larger and larger ships creating marginal cost of the extra tonne ever so closer to zero, trade was the great equaliser. But the problem isn't just that the world is more connected; it’s that the architecture of that connection is fundamentally asymmetrical. Now, you’d not be wrong to think Fishman positions "chokepoint" as a geographic terminology, but in reality geography (although still very important) is now a lesser(lower?) layer. Technological chokepoints are the 21st century (and probably beyond) concentration of power.
The topology of leverage distills the power from geography (political borders are less important today, ironically…) to the next layer through a concentration of Network Effects. Power no longer resides solely in territory, but in the "hubs" —the clearing banks, the insurance markets (Lloyd’s), and the digital protocols (SWIFT). If you control the node through which all traffic must flow, you don't need to win a kinetic war. You simply perform a "systemic audit" and revoke the target’s license to operate in the modern world.
As much as, I’d enjoy holding the world metaphor as an onion. In reality it is closer to a fractal, and whether it is a geographic chokepoint or technological one; society’s ingenuity typically prevails. As it did during the peak of the Silk Road, European sailors looked for alternative paths to India and China, rent-seeking behavior and in Fishman’s world increased “weaponisation” leads to forks in the road. SWIFT’s global dominance is being challenged by stablecoin rails, alternative currencies and pathways.
We can observe how this has led to a certain fragility of the monoculture, centralizing global finance and tech around US led chokepoints, which ironically may have created a single point of failure. As a colleague of mine kept reminding me on our tram rides home in Hong Kong: Capital Asset Pricing Model (CAPM) has critical feature the “risk-free” rate; which is quoted in US Dollar. The lynchpin of every analysts model is the US Government’s treasuries yield (risk free rate), when this no longer becomes the case due to other “systemic audits” creating systemic risks, reviewing new investments becomes drastically more complex.
Maybe in an AI powered world we can finally handle more complexity? Or maybe not…
Why I Recommend This Book
“The onion-isation of the world.”
It’s a helpful analysis of how the current “operating system” of the world is working. Fishman does a good job to strip away the emotional abstraction of "international relations" and replace it with a more cold and structural analysis of how leverage is actually applied in the 21st century. It helps add a new wrinkle in investments - not just balance sheet, but “connectivity” sheet?
