A modest proposal

Brief: the US could designate the West Coast states as a Special Economic Zone. That would allow the region to maintain specific taxes, customs, laws, etc., more aligned with global economic practices, providing safe haven for international commerce shielded from nationalist ideologues, while helping resolve political tensions — overall for improved economic resilience and global competitiveness. Both “sides” win.

Special Economic Zones. Glowing descriptions leap from the pages of Parag Khanna’s Connectography. One barely recognizes China’s economy without its SEZs. Even tiny Dubai features dozens, specially crafted to attract nuanced areas of commerce, having “special tax, customs, and imports regime… governed by their own framework of regulations.”

A first glimpse of Connectography shows its stunning data visualization maps — a guilty pleasure. The text itself performs intellectual acrobatics, vivid insights drawn from a wide range of disciplines and locales, painting a lush, global utopia as our future. Imagine if Wm Gibson had written Neuromancer while dosing on Ecstacy at a Kirtan in Boulder?

About those vivid insights: a few points of direct knowledge (e.g., Machine Learning, Silicon Valley) were terrible generalizations. And probably not outliers. Much of the book borders on hagiography, making sense as long as extreme air and water pollution, gender discrimination, mass consumption of fossil fuels, etc., are not of any particular consequence. However, these are only trappings. The title “Connectography” references the contemporary phenomena of supply chains. Looking beyond the cautions, the book’s thesis about the changing nature of supply chains and economic zones is quite good. Worth reading.

Few major business undertakings prosper without serious attention given to supply chain. The mysterious ebbs and flows of materials across our planet account for mind-numbingly complex corporate tax evasions. Even so, they make possible incredible products and services. The iPhone next to my elbow could not exist without Apple’s far-flung suppliers. One wonders whether our grandchildren will look back on our days, furrowing their brows at so much petrol-based shipping, perhaps not unlike how many today look back at commercial whaling as a moral quagmire.

When I’m out teaching about Data Science, Machine Learning, Big Data, etc., and people asked about how to apply advanced math in mainstream business use cases, an immediate response is “Optimize supply chains.” Opportunities are everywhere, as the better part of Khanna’s text documented. Increasingly, the interface to markets is a network topology. Amazon, which famously commands market share over both online retail and cloud services, launched an ambitious AI effort in the Bay Area that’s flying somewhat under the radar. The firm also launched a new effort in B2B supply chain optimization. Doubtless how those four elements will blend in our ’topian near future. Hopefully to optimize for less fossil fuel required by global shipping.

The allure of competing in business amidst complex global supply chains is strong enough to drive even the most ideological enclaves to chill, where SEZs allow others commercial entrepôt and safe haven from nationalist ideologues — even in North Korea. Just as Team America taught that “You got have a montage”, the realities of global politics and business compel: you’ve got to have SEZs.

Great for the rest of the world, but how about in the US? Sure, yeah, America has special economic zones. Very special places, like Compton, Detroit, Stockton. #blessed. Places you probably wouldn’t want to be after dark. Not exactly open to the rest of the world, nor granting any notable haven.

The US needs special economic zones, specifically as safe havens from nationalist ideologues. We could resolve many political deadlocks, contain areas of dispute, and amplify our economic resilience overall. Both “sides” win.

The leadership of the State of California has begun groundwork for what arguably resembles a large SEZ. Leadership in the State of Washington has taken a similar tact. Likewise for Oregon and Hawai’i. Each as responses to POTUS exec orders banning Muslim immigration, though perhaps that tragedy could have a silver lining? Regional governments of the Western US, joined by regional tech giants, are currently suing the federal government for the right to conduct trade and immigration policies compatible with global best practices and needs, which have proven to be incompatible with the contemporary nationalism of the country. Wouldn’t it be ironic for some of this litigation to escalate up to the WTO, to resolve violations of international trade agreements by the US.

So this situation seems like a textbook case for leveraging SEZs. Regional political movements such as CascadiaNow! and Yes California argue passionately for portions of the West Coast to secede. Daily trending headlines on Google News in 2017Q1 read like chapter summaries from Ernest Callenbach’s Ecotopia — another guilty pleasure. Perhaps there’s an effective middle ground?

The fact is that “Cascadia” has teeth as a political force. In 2016, California ranked as the #6 economy in the world — larger than India or Brazil. Let’s imagine California joined by neighboring states, at least the relatively like-minded states that have mutual economic interests: Oregon, Washington, Hawaii, Nevada. These five had combined GDP of $3.02 trillion in 2016. That was 16% of the US total, ranking halfway between Germany (#4) and the UK (#5). From a different perspective, a rough approximation of “Cascadia” had twice the economic power of Canada … to the extent that you accept GDP statistics as indicators of economic vitality.

Late in October 2011, Professor Mark Jacobson gave a lecture for alumni visiting Stanford. “How to Power the World for All Purposes with Wind, Water, and Sunlight Alone by 2030" presented detailed research that the world’s entire energy needs could be met through renewable means: wind turbines (50%), waves, and solar. Jacobson and research partner Prof. Mark Delucchi at UC Davis conducted a full year’s simulation, minute by minute in detail, of California’s energy consumption, modeling both the supply of renewable energy and peak demands for 2005. Their results showed that wind, water, and sun could have covered statewide needs, augmented with a mere 0.2% energy from natural gas as buffer for peak loads, with no significant technological advances required. Their modeling used 5MW turbines of the period, even though much more effective generators were in development. The major impediment precluding a shift to renewables, over a decade ago, was mostly a matter of political will.

Speaking of which, at that point in the lecture it became patently obvious that many alumni in the audience were openly hostile to Professor J. Generally fitting a demographic of highly educated, wealthy, conservative, caucasian, fifty-something Baby Boomers— in other words, the proverbial 1% — some identified themselves as executives or other stakeholders in petroleum, automotive, transportation, etc.

After heckling and veiled threats subsided, and the retrograde Boomers had left the auditorium, the rest of us gave Jacobson a standing ovation. Updated findings are available in this lecture from November 2016. Seriously, do the math. The data and equations are published.

Which leads to an underlying motivation for what going on lately… Arguably, mechanisms have been put into place by the world’s largest oil cartels to ensure that the dying Oil Economy can hold on just a wee bit longer.

Early in 2016, after giving a guest lecture at UC Berkeley, I talked with a post-doc who was modeling the upcoming Marijuana Economy. Projections showed that high-quality products from the West Coast could dwarf the Oil Economy with exports of the former potentially offsetting the imports of the latter. Enabling political changes in California happened mere months later. Similar changes had already occurred throughout most of the rest of the “Cascadia” constituent states: Washington, Oregon, and Hawaii.

Walking along a beach with my relatives in Lanikai last December, we ran into old friends — rather, we ran into children of old friends, one of whom had returned to Hawaii to help build out the legal marijuana industry. Business was booming. Even stodgy old trade unions were flocking to professional conferences for the nascent industry. Growth projections and licensing indicated that the state was well aware that demand for legal recreational uses would soon eclipse legal medical uses, augmenting the crucial travel industry there. If financial outcomes after two years of legalization in Colorado are any indication, the $3T annual GDP figure above for “Cascadia” may be a low estimate of what’s to come.

West Coast has tech industry, entertainment, renewables, the bulk of agricultural production in the US — including higher margin segments such as wine. Enterprise transformations based on AI find their epicenter on the West Coast, along with sweeping changes across automotive manufacturing and transportation. Nonetheless, the West has been plagued over past decades by living several years into our unevenly distributed future, while enduring the perpetual ignorance and intolerance of oh-so-many Mhuricans as a consequence. For example, Gov. Brown once earned the moniker of “Moonbeam” in 1976 for anticipating the State’s needs for satellite telemetry. Given the scale of our agriculture, let alone our long coastline, struggles with enormous forest fires, etc., the state government not using satellite data would seem hugely irresponsible by today’s standards.

Political events of the past week, pitting state leadership throughout the West in direct conflict against the federal government, are not new. Impedance from the nationalists ideologues in the rest of the US — that’s been a persistent theme for decades. The West Coast has been saddled by the “majority” of America, not merely for recognizing the paths that are needed for all of us ahead, but also by a perpetual imbalance of tax flows. While some point to a $2 billion state deficit as rationale for DC to reign in Sacramento, let’s do the math… Take a $2B deficit on $2.4T annual GDP, and compare it with the finances of a family in California with median annual income of $64K. The state deficit compares with a middle income family running a $53 balance on their credit cards. Which would probably qualify for an award these days. Perhaps a reality TV show.

Another point, often overlooked, is about the military. San Diego, Honolulu, Puget Sound — the boundaries of “Cascadia” host an large portion of large, strategic military bases for the US. Moreover, for the advanced weapons currently in vogue for US military operations, so much of the crucial technology (read: drones and other tech) source from the West Coast. For a long while most of the US drones were being produced in one small coastal town in California.

Why mess with the West? Why risk all that federal revenue, those differentiating technologies, the renewable energy windfall once the current Carbon Bubble pops, close trade with Asian countries, the military advantage, etc.? Let alone the fine wines, craft beers and ciders that we produce here in Sonoma County! Seriously, the rest of the US has much to gain and little to lose by negotiating toward a middle ground resolution with the West.

Designating the West Coast states as an SEZ is an effective course for times ahead. That move resolves political and economic impasse, and provides better guarantees for civility. It may become a stepping stone toward secession. Or it may obviate the need it — that’s a matter for another day.