Technical superiority is a milestone to hegemony

One of my business mentors, Matt Dyer, told me something that he said most people won't admit. "The goal of a business is to be a monopoly."

He had sold EatNow to Menulog in early 2015, and watched the combined group sell to Just Eat for $855 million later that year. Then he did it again with Bookwell (where I met him), an aggregator for booking beauty and wellness appointments.

The customers were salons, with the biggest ones on Chapel Street in Prahran, the most leftist street in the most leftist city. He was a hardcore capitalist selling infrastructure to people who were as left as left could get.

Still, every one of those salon owners wanted the same thing Matt wanted: to be the only place people book when they want that service in that suburb. Nobody objects to monopoly for themselves. They object to it in others.

Thiel agrees

Peter Thiel makes the same case in Zero to One, in Chapter 3.

Capitalism and competition are opposites. Capital accumulation requires margin, and margin requires that someone cannot easily copy you. Under textbook perfect competition, economic profit tends to zero. Every business school teaches perfect competition as the ideal and then teaches strategy as the discipline of escaping it.

Everyone lies about their market, and you can tell who is who by the direction of the lie. Monopolies describe themselves as small players in enormous markets, because they are afraid of attention. Non-monopolies describe themselves as dominant in markets defined so narrowly that the definition is the product. The restaurant that is the only place of its kind on its street is telling you it has no pricing power.

The ideal monopoly is earned by making something for which there is no substitute, but it is temporary, because new markets get created and old positions get taken.

Enter geopolitics

Like a business, the goal of a country is to be a hegemon. Control resources, set the terms of exchange, and hold decisive force.

This is the hegemonic stability theory, developed out of Charles Kindleberger's reading of the 1930s and formalised by Robert Gilpin. Kindleberger's claim was that the Great Depression was as deep and as long as it was because Britain could no longer stabilise the system and the United States was not yet able to. Someone has to hold the currency, absorb distressed goods, and lend when nobody else will. Absent that, the system does not find its own level.

Hegemony is reliably good for the hegemon.

Partnerships are instruments

Partnerships are temporary tools through which both parties should be trying to become hegemonic.

In 2019, Henry Farrell and Abraham Newman described what they called weaponised interdependence. Global networks for money, goods, and information do not grow evenly, they grow around hubs, and the state with legal jurisdiction over a hub converts structural position into coercive power.

They described two mechanisms:

1. The panopticon effect, where the hub is a vantage point and whoever holds it sees everything moving through. And;

2. The chokepoint effect, where the hub is a valve and whoever holds it can shut a rival out.

That is the version of "those who become reliant become subordinate." Dependence is a lien held by whoever sits at the node.

The failure mode

Two things degrade a dominant position.

The first is overuse. Every time a chokepoint is fired, the parties on the wrong end start building an alternative. Farrell has made the point against the United States. A hub is only a hub while everybody still routes through it voluntarily.

The second is inattention to what the position is for. Monopoly rents that fund the next position are compounding. Monopoly rents that fund nothing are a target. This is why Thiel's advice is to build quietly and avoid the language of disruption. Loud dominance draws regulators, imitators, and rivals with nothing to lose.

Superiority is a pitstop to dominance

Superiority should be sought where leverage sits.

In semiconductors it turned out to be the machines that print them. In defence it is increasingly sensors, autonomy stacks, and the industrial capacity to build a hundred thousand of something cheap. In health it is the substrate, the manufacturing line, the reference dataset, the trial infrastructure, and the regulatory precedent, because whoever sets the first approved pathway defines the shape of every product that follows it through the door.

A country that imports every implant, every sequencer, every reagent, and every model is a customer.

Customers are submissive.