Meinung

Freedom and the Five Bs

If there is Cold War II or World War III, there will be brain drain too. This creates room for optimism: freedom will win. It is a magnet for the Five Bs: bucks, businesses, brains, bodies, and blueprints.

Alexander M. Ineichen
Drucken

Deutsche Version

There are many definitions for freedom. Here are just two:

Freedom, def.: Exemption or release from slavery or imprisonment; personal liberty.
— Oxford Dictionary, Bloomberg

I’m single because I was born that way.
— Mae West (1893-1980), American actress

Freedom can also be defined as «wriggle room» for the smallest entity of society. From a social perspective, it is the individual that is the smallest minority in society, while from a business perspective, it is the enterprise that is the smallest entity. What matters most to investors is economic freedom.

Based on the Heritage Foundation’s latest Economic Freedom report, Singapore is the most free and North Korea is the least free from a list of 177 countries. Switzerland, sometimes dubbed the Singapore of Europe, because Singapore is known as the Switzerland of Asia, is second, Germany is 16th, UK is 24th, USA is 25th, UAE is 33rd, Japan is 35th, Italy is 57th, pre-war Russia was 113th, and China is 158th.

Russia’s current invasion attempt is a disappointment for all who thought the freedom vs its opposite, collectivism and totalitarianism, was over. The Cold War, which now is called Cold War I, ended with the fall of the Berlin Wall in 1989 and «everyone» agreed with Alan Greenspan’s life-long friend:

Fascism, Nazism, Communism, and Socialism are only superficial variations of the same monstrous theme – collectivism. 1
— Ayn Rand (1905-1982), Russian-American novelist and philosopher

The anti-freedom, collectivist ideas didn’t disappear, unfortunately, they were — in an act that is best described as putting lipstick on a pig — rebranded as «green.» In 2019 The Economist, a weekly newspaper magazine, called the pig «millennial socialism», as the climate alarmist propaganda works better with young people. (FUD – fear, uncertainty, and doubt – is a propaganda technique. Many grown-ups become somewhat immune to FUD over the years, as there is so much of it.)

There is some good news though. One result from the Ukraine invasion was an immediate reality kick as to what really matters. We could call what really matters the Four Fs: food, freedom, fun (a proxy for the pursuit of happiness), and fossil energy, a proxy for energy. All four are essentials for people who, how shall I phrase this appropriately, regard in higher esteem politicians such as Winston Churchill, Ronald Reagan, Margaret Thatcher, Lee Kuan Yew, and Deng Xiaoping when compared to the Five Cs of economic folly: Castro, Chernenko, Chavez, Corbyn, and Che.

The invasion might have marked the peak of wokeness, cancel culture, black lives matter (funded by the far left), QAnon (funded by the far right), ESG, an investment fad partially responsible for the underinvestment in reliable energy and the current malaise of energy import dependency. Not just German green social democrats, but Joe Biden and Victor Orbán instantly started to apply reason, rather than ideology, albeit coming from opposite directions.

Some argue that Cold War II has started some time ago. Others argue the probability of World War III has risen. It’s always quite easy to articulate a horrid scenario for the future. (The IPCC, Greenpeace and Extinction Rebellion do it full time). However, the resolve and cooperation of the pro 4F’s West was a positive surprise for many, including — most probably — the two neo imperialist friends, Vladimir Putin and Xi Jinping.

Room for optimism

If there is Cold War II or World War III there is room for optimism: freedom will win. It is «the West» (North America, Europe, Japan, Australia, Singapore, the Emirates – Dubai was modelled after Singapore –, South Korea, Taiwan, etc.) that is a magnet for the Five Bs: bucks, businesses, brains, bodies, and blueprints. Freedom is nothing else than a series of options. The American Dream, for example, is an option, an option for the savvy and industrious to improve their lives. And the Five Bs migrate to where the options are. The Iron Law of Capital applies:

Capital will always go where it’s welcome and stay where it’s well treated…Capital is not just money. It’s also talent and ideas. They, too, will go where they’re welcome and stay where they are well treated. 2
— Walter Bigelow Wriston (1919–2005), American banker

Allegedly, the exodus of entrepreneurs and programmers from Russia started almost instantly after 24 February 2022, this century’s Day of Infamy. Hong Kong now has brain drain too, as the options are being reduced, i.e., Hong Kong becoming «more China» and «less Singapore». China too has problems keeping talent. No one, other than North Koreans, ever risked his or her life to get to China. People risk their lives to go where the options are, i.e., away from collectivism and towards freedom.

Industrious people tend to leave a sinking ship, taking their capital with them. The former prime minister of New Zealand, Robert Muldoon (1921–1992), was certainly wrong when he said that it would lift the IQ of both countries, when commenting on the exodus of New Zealanders to Australia. The Five Bs are mobile.

The Manhattan Project is one example of brain drain having a significant impact on world history, i.e., is an example of the «good guys» winning. Imagine for a moment how the twentieth century would have evolved if Germany had not been a Semitic anti-magnet but, like the US, a magnet. The brains would have stayed. The bomb would have gone off elsewhere, and London’s architecture would be, how shall I put this, newer.

If there is Cold War II or World War III, there will be brain drain too. As it was in Cold War I and World War II, the migration of the Five Bs will only be in one direction: towards freedom. The West’s Five Cs (cash, car, credit card, condominium, and country club membership) work like a magnet for talent. George Orwell, not collectivism’s biggest fan, summarised it well:

[E]ven stupidity is better than totalitarianism. 3
— George Orwell (1903-1950), British novelist

The practical investment relevance is that while uncertainty has risen, the agreement on what is important for Western civilisation is a positive. This benefits cooperation, a key ingredient for prosperity and peace. The case for a free capitalist society, i.e., the values of freedom for the Five Bs, has gotten stronger with the case for self-mutilating ideology, and primitive, anti-humanist autocracies has gotten weaker.

Alexander Ineichen

Alexander Ineichen is founder of Ineichen Research and Management AG, an independent research firm focusing on investment themes related to nowcasting and risk management. He started his financial career in the origination of risk management products at Swiss Bank Corporation in 1988. Before founding IR&M in 2009, he had various research functions in Zurich and London related to derivatives, indices, capital flows and alternative investments. Ineichen has written extensively on investment topics. He is the author of the two popular UBS research publications, «In Search of Alpha-Investing in Hedge Funds» (October 2000) and «The Search for Alpha Continues-Do Fund of Hedge Funds Add Value?» (September 2001). He is also author of three books, «Absolute Returns» (2002) and «Asymmetric Returns» (2006), the two books being his manifesto for active risk management, and «Applied Wisdom» (2021). He is also the author of AIMA’s «Roadmap to Hedge Funds» that has been published in 2008 and updated in 2012. Ineichen holds the Chartered Financial Analyst (CFA) and Chartered Alternative Investment Analyst (CAIA) designations and is a certified Financial Risk Manager (FRM).
Alexander Ineichen is founder of Ineichen Research and Management AG, an independent research firm focusing on investment themes related to nowcasting and risk management. He started his financial career in the origination of risk management products at Swiss Bank Corporation in 1988. Before founding IR&M in 2009, he had various research functions in Zurich and London related to derivatives, indices, capital flows and alternative investments. Ineichen has written extensively on investment topics. He is the author of the two popular UBS research publications, «In Search of Alpha-Investing in Hedge Funds» (October 2000) and «The Search for Alpha Continues-Do Fund of Hedge Funds Add Value?» (September 2001). He is also author of three books, «Absolute Returns» (2002) and «Asymmetric Returns» (2006), the two books being his manifesto for active risk management, and «Applied Wisdom» (2021). He is also the author of AIMA’s «Roadmap to Hedge Funds» that has been published in 2008 and updated in 2012. Ineichen holds the Chartered Financial Analyst (CFA) and Chartered Alternative Investment Analyst (CAIA) designations and is a certified Financial Risk Manager (FRM).

1 Ayn Rand, in a letter written on 19 March 1944.

2 Rich Karlgaard, «Predicting the Future: Part II,» Forbes Magazine, February 13, 2006. The origin of the idea goes much further back than Wriston. Some call it the «iron law of capitalism». In my latest book, Applied Wisdom, I called the (old) idea of capital being mobile «the iron law of capital.»

3 George Orwell, «As I Please,» Tribune, 10 March 1944.