People are conflating independence with isolationism, and that is a zero-sum approach to a win-win situation. Decentralization is where real freedom is found.
March 7, 2022
By: Bobby Casey, Managing Director GWP
I’ll bet your financial adviser is the same way, only they probably use the word “diversification” when speaking about your investments. The concept is similar in that it instructs us to avoid putting all our eggs in a single basket. But it’s not to say don’t put anything in any baskets at all.
What I’m hearing is a chant. It’s the same chant, but in different tones… yet the tones don’t change the net outcome.
In an angry tone, I hear many saying: Level sanctions on Russia so that they will be cut off from suppliers around the world and will be forced to procure those resources themselves!
The theory is, this measure would be punitive by blocking Russia’s access to goods they typically have imported, thereby compelling them to either go without or find another source, be it another country or within their own country.
In an excited tone, I hear many of the same people saying: We need to become independent and procure all our resources at home!
The theory is, this measure would be rewarding, by building each respective country’s economies while reducing our interdependence upon other countries.
Which one is it? Is it punitive or rewarding? They are the same thing. The reality is, it’s ultimately punitive. If you think about it on a much smaller scale, each of us to some degree relies on others outside our immediate circle of influence to provide services.
If I tried to apply that same principle to myself, I’d be a scene out of the movie Cast Away! We live in a market economy. Free markets don’t recognize government or political borders. We are interconnected and therefore, to some degree, interdependent on one another.
Two of the greatest concepts to ever hit humanity was the distribution of labor and the assembly line. The idea that each family didn’t have to do everything for themselves, but could specialize in something and trade that good or service for others they needed led to a revolution in production and quality of life.
And we are all better for it today. Our freedom is measured by how much choice we have, so some corners of the world are freer than others. While I might depend on others to procure food, it’s not one source of food, but rather I can get it from any number of proprietors.
Choice is what gives us independence, not isolation. That I can go to purveyors of commercial goods or artisan goods, and then have more choices within those two categories, allows me to remain independent.
Look at a bakery. They don’t mill their own flour, grow their own sugar, milk their own cows to churn their own butter. Nor do they construct the pastry cases or manufacture the boxes and bags in which to package their goods. They indeed rely on other businesses that specialize in those things. They have a wide range of businesses to choose from, too.
They are an independent bakery and business entity, with an interdependence on other businesses. And those other businesses likewise rely on businesses like the bakery and others to remain in business.
A market has interdependence, but decentralization of resources in fact defines their independence.
If you think about situations where there are no choices, and the quality of those goods and services, you understand rather quickly that competition and choice likewise tend to provide a better quality service or product as well.
Look at government funded education, healthcare, roads, and even currency. Bitcoin and other cryptocurrencies are proving to be much more viable options in more economically volatile countries. Why? Because it’s decentralized so its not relying on political whims to decide its fate.
Having a choice nets out better results on the whole. Decentralization allows for the fluidity of freedom. Choosing where you work. Choosing to start a business. Choosing to relocate to where there are more opportunities.
It’s simple to see how on an individual level, decentralization, diversification, and choice can have a rewarding outcome. The removal of any of those features can likewise have a detrimental outcome.
There is no reason to believe the same won’t hold true for institutions and governments.
Should countries be trying to produce everything themselves? They can certainly try, but it would make more sense to keep their options open and avoid exclusivity.
I remember a friend of mine telling me about a time when she went shopping back in 2020 when the shelves were nearly barren. All the flour was gone, but the pancake mixes were still stocked up. All the bottles of bleach were gone, but the toilet bowl cleaners made with bleach were fully stocked. Paper towels were out, but shop rags were still available.
People didn’t understand they could still get variations of what they were looking for if they simply knew how to use them. Pancake mix only differs from flour in that it has some baking soda and salt already incorporated. Toilet bowl cleaner uses the same bleach as that sold in a bottle labeled “bleach”, just a thicker consistency. Shop rags can do the same thing as paper towels if you’re willing to run them through the wash.
So when I hear people talk about “energy independence”, I get concerned. It’s not that any given country shouldn’t try to procure energy in their given geography. But rather that they should leave every option on the table.
Collaborating with other countries is fine. Trading with them is fine. But also exploring your own space to see what you can do to offset the costs with further supply is fine too. If one country falls through, you still have others to work with, as well as your own stores.
The “Net Zero”, “only-buy-from-your-own-country” rhetoric is not a path to economic freedom or prosperity. It’s placing sanctions on your own country by limiting your streams of resources.
The ecological goal for many countries right now is to eliminate the use of fossil fuels. Why? It’s cheap and readily available nearly all over the planet. Being a proponent of fossil fuels doesn’t mean I’m opposed to any other source of energy where it makes sense. Do it all!
The economic goal for many countries seems to be buy and source within each country. Don’t buy things like energy or staples or labor from other countries. Why? It’s cheap and readily available nearly all over the planet. Being a proponent of sourcing goods and services elsewhere doesn’t mean I’m opposed to sourcing them within the country when it makes sense. Do it all!
I understand the inclination to withdraw when someone does you wrong. While I know every country has their demons, China and Russia aren’t great. But that doesn’t western countries curl up in their corners and end international trade or stop collaborating on energy. People don’t stop having relationships because someone betrayed them. Why should countries behave that way?
Absolutely open up markets in every country across every industry to see what can be done. Diversify imports and exports. Have what you need to weather a storm or political dust up. But it isn’t a free market principle to become an isolationist. It is punitive and contrived.
Decentralization is an exercise in free markets. And sourcing new ways to meet your needs, leaving all options on the table, leads to a more stable economy. Isolation is a zero-sum solution to a win-win problem. It’s not sustainable.
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