01 / 05
Iranians Could Have Internet Freedom—If the U.N. Got Out of the Way

Blog Post | Human Freedom

Iranians Could Have Internet Freedom—If the U.N. Got Out of the Way

The biggest obstacle to bringing internet freedom to Iran is not the practical but rather the arbitrary.

Summary: Iran’s authoritarian regime severely restricts internet freedom. However, many Iranians rely on the internet to express their dissent and demand their rights. This article argues that the U.N. should stop giving Iran a seat at the table of internet governance and instead support private sector initiatives that can bypass censorship and surveillance.

On September 16, 2022, Mahsa Amini, a 22-year-old woman, was arrested by members of the Iranian Morality Police as she exited a Tehran Metro station. Her alleged crime: allowing a few strands of her thick black hair to slip through her hijab. After three days in a detention center, Ms. Amini was transferred to a hospital and subsequently pronounced dead. While the exact circumstances of her death remain unclear, many believe she was murdered by Iranian authorities.

In a country where extrajudicial killings are the norm and government abuse of citizens is widespread, Amini’s death touched a nerve. Since then, the Iranian government has been brutal in its crackdown against protestors. Given that independent media is severely limited in Iran, exact death tolls are not available. Nevertheless, the human cost has been significant, with Amnesty International reporting that at least 82 protesters and bystanders were killed on September 30 alone in clashes with state police. Some commentators have downplayed the role of the internet in anti-authoritarian protest movements, stating that the role of social media has been overstated. Such analysis ignores the various uses of the internet, as well as changes in Iranian society. The story of internet access in Iran is not a story of the network’s failures. Rather, it is the story of arbitrary regulations hampering the progress of the private sector—and it should serve as a stark warning to Americans. 

In the summer of 2009, mass protests broke out across Iran in response to allegations that the presidential elections were rigged in favor of the hard-liner Mahmoud Ahmadinejad. Millions mobilized in what became known as the Green Movement. While the protests were eventually suppressed by the supreme leader Ayatollah Khamenei, the internet played an important role in amassing support for the movement. Images of the shooting of 26-year-old protestor Neda Agha-Soltan circulated heavily on Twitter, inspiring others to join the protests. Protestors’ mutilated bodies served not to dissuade participants but instead compelled others to join, fueling a cycle of protest that Agha-Soltan’s killing had started. At the time, fewer than one million Iranians had access to smartphones. Thus, while the internet was important to the protest movements, its full potentially was hardly tapped. Yet the government sensed the power of the internet and instated a number of measures to disrupt internet freedom, including imposing severe content restrictions, hacking dissident websites, and abducting the operators of said websites.

Today, the role of the internet cannot be ignored. As of 2020, the share of Iranians who used the internet was estimated to be 84 percent—a dramatic increase from 2009, when internet penetration there stood at 14 percent. As the protests have evolved, the Iranian government has transitioned from a policy of intermittent internet stoppages to a complete shutdown. A common tactic of the regime is to leverage the ethnic and regional diversity of Iran. For example, in the 2011 anti-government protests, rural youths were brought to urban centers to savage protestors. The internet has served to disrupt that pattern and enable connections between the Baloch minority, the Kurdish minority, and ethnic Persians. Despite the significant economic and social impacts of the internet shutdown, the regime’s actions should come as no surprise to observers of Iran. Faced with the alternatives of ceding power or attempting to improve the lives of Iranians, Ali Khamenei and his sycophants have instead chosen to do neither. 

On September 23, 2022, the U.S government eased sanctions on Iran’s import of communication technologies, which theoretically would aid Iranian internet access. The effect has been minimal because these devices cannot operate without support infrastructure, such as the cellular towers that dot the United States. 

As is often the case, the private sector has stepped into the void. In September, Elon Musk, founder of Tesla Motors, offered to send his Starlink system to Iran. Starlink allows users to connect to the global internet through the use of a transmission system between low-flying satellites and a receiver. Because Starlink satellites orbit at a lower altitude than other communications satellites, the infrastructure required to receive their transmissions (and by extension to connect to the global internet) is much less extensive. Unlike conventional receivers, these receivers are highly mobile, weighing only around 15 pounds. Although the receivers must be placed in an open space to receive transmissions, this would present a relatively small challenge in a country as vast as Iran (compared with, say, North Korea). Although thousands of receivers would need to be smuggled into Iran for Starlink to be operational, the cost would be relatively minor, and Musk has signaled that he is open to financing the operation. 

Unfortunately, the biggest obstacle to bringing internet freedom to Iran is not the practical but rather the arbitrary. If Starlink were to be imported to Iran, Musk could face punishment from the International Telecommunication Union (ITU), a regulatory body of the United Nations. The ITU has strong backing from the Chinese Communist Party and other repressive states. According to ITU policy, if a private company provides internet to a country independent of regulations established by that country, the company exposes itself to punitive action from the ITU. Thus, the fact that the U.S. government has eased its own sanctions on Iranian telecommunications equipment has no effect on ITU regulations. 

This is a stinging indictment of the United Nations. Going forward, the United States should reconsider whether the United Nations serves to “reaffirm faith in fundamental human rights,” as is stated in its charter, or is simply another bureaucracy that works to separate people from their inalienable rights. I know what my answer is.

Blog Post | Financial Market Development

The Democratization of Investment | Podcast Highlights

Chelsea Follett interviews Jennifer Schulp about how technology and regulation are shaping the future of investment.

Listen to the podcast or read the full transcript here.

Tell me about some hopeful trends or progress we are seeing in the financial industry.

One of the most hopeful trends in the financial industry is broader access to financial investment. Traditionally, investment in the stock market has been limited to the wealthy. Investing in the stock market is really important because, over the past decades, the S&P 500 has returned approximately 8 percent per year, which is way more than other non-equity investments.

Financial access has improved tremendously over the last 50 years. In the mid-70s, to make a stock trade, you had to call your broker on the phone and tell them what you wanted to trade, and they would charge you something like $50. So, you didn’t want to place a trade unless you were placing a large trade because otherwise, the fee would overwhelm the trade. And you didn’t want to trade very often. All of it made it very difficult for regular people to invest in the stock market. Over the course of decades, those fees came down as there was additional competition brought into the brokerage space.

In the 1990s, we saw the rise of internet trading, which allowed you to place trades on your own. In 2015, Robinhood started offering no-commission trading on a phone app, which allows people to trade regularly without worrying about fees eating into their profits or adding to their losses. People can now take some money from each paycheck and put it in the stock market. That’s been huge. The entire brokerage industry is now moving towards phone access for easy, cheap trading, and that’s made a huge difference in the number and type of people accessing investment in the stock market.

In 2020, during the pandemic, we saw a massive rise in retail trading that many wrote off to people being bored while they were stuck in their homes. However, a lot of those investors have remained in the market, so what might have started as a pandemic-induced interest in the stock market has become part of a long-term trend towards additional retail trading that has brought in more racial minorities, more low-income people, and more young people.

Easy and cheap trading has also allowed people to experiment with the stock market and learn by doing. There was a study that came out not too long ago by FINRA and NORC at the University of Chicago that looked at the investors who opened accounts in 2020. And they found that those who stayed in the market showed an increase in their financial literacy. Having this access helped them allocate their capital better. So, we have more people invested in the larger economy, and they are getting smarter about it. The benefits will compound over time.

What are some of those potential benefits?

Certainly better personal financial outcomes. Of course, some people are going to make poor decisions. You can’t say, “Because you put money in the market, you’ll be better off.” But for people looking for long-term investment options, the stock market is the greatest wealth generator we’ve ever seen.

I think this could also drive economic growth for a couple of reasons. One, investment gives people a stake in society and the economy, and that itself can drive growth. Two, having retail investors put money that might otherwise be under the mattress or in a low-interest savings account into businesses allows those businesses to flourish.

Are there any benefits for those who are trying to start businesses?

That brings up a new set of questions. What we’ve been talking about so far has been retail investment in public equities markets. But the stock market doesn’t generally provide startup capital. You have to be a mature company to want to bring an initial public offering that gets you listed on the stock exchange. Private market investing is where startup investing happens. And in the United States, far more money is raised in private markets than in public markets. The average person is not allowed to partake in private investment in the United States, as well as in most economies across the world. In the US, you need to be what’s known as an accredited investor, which essentially means you make more than $200,000 a year or you have a net worth of over a million dollars.

This is a very arbitrary standard. You could win the lottery tomorrow and suddenly become an accredited investor, and that doesn’t make you any smarter at investing than you were the day before. It doesn’t make you any more of a capable investor than someone who, say, studied startup investing in their MBA program but isn’t yet making enough money to be allowed to invest themselves. And all of this is a problem because it means the government is standing in the investor’s shoes and making decisions for them. Are they smart enough? Are they rich enough? Is this a good idea for them?

Let’s talk about entrepreneurs, as you asked. People trying to start businesses tend to turn to their community. They tend to raise money from the people that they know best. But if you are a minority or live in a rural or low-income area, you likely don’t know many people who meet that accredited investor standard. You’re already at a disadvantage in raising money and getting your business off the ground. That hurts entrepreneurs in less wealthy communities, the economy as a whole, and potential investors who don’t have the opportunity to share in the growth of that business.

The house recently passed three bills looking to reform the accredited investor definition; two have codified an SEC modification to the rule allowing people who have passed certain securities tests, such as brokers or investment advisors, to qualify as accredited investors, even if they’re not wealthy enough. The third bill is a bit broader; it opens up the testing concept to allow, if passed by the Senate and signed by the President, anyone who passes a test to be able to invest as an accredited investor. There will be costs associated with the testing, and it doesn’t get at the underlying paternalism, but it is a step in the right direction.

Could you talk about ESG?

ESG is actually two distinct concepts, and it’s important to identify which one we’re talking about. It can be broken down into a dichotomy that I’ve borrowed, which is value versus values investing.

“Value investing” in the form of ESG just refers to using environmental, social, or governance factors to analyze whether a company faces risks that might affect its financial performance. Where ESG sounds a little bit different is when we think about it as “values investing.” That kind of ESG is about sacrificing financial return to reach a certain outcome with your investment, like lowering carbon emissions. Of course, investors should be free to invest their money as they see fit. If they want to invest in saving the whales, they should have that opportunity. But it gets trickier when a company or asset management firm makes those decisions about what to do with their investors’ money without being upfront with them. That’s a question of disclosure and whether or not the funds are being clear with investors.

Government mandates are the key place to focus on here because, ultimately, the market should decide whether investing in ESG is the right way to go. Europe has decided, writ large, that the way to tackle climate change is to centrally plan how money will flow through the financial system to choke off funds for non-green investment. Supporting that is a host of European directives on sustainable finance that include a lot of disclosure by companies about how they, too, will meet net-zero goals. Europe has what we in the securities industry refer to as a “double materiality standard,” where European companies are not only supposed to disclose information that might impact the company’s financial performance but also how their company impacts society and the environment. All of this comes with pretty heavy costs.

The United States is now considering how far to follow Europe down that line. The Securities and Exchange Commission (SEC) has proposed a sweeping climate risk disclosure framework. It’s different from the European framework in that the SEC at least recognizes that they don’t get double materiality; the SEC is only allowed to require companies to disclose information that investors might find useful in deciding whether to invest in the company. However, the SEC’s climate risk disclosure rule goes well beyond that. It would require all US public companies to disclose an awful lot of information about climate risk, including scope one, scope two, and, for many companies, scope three, greenhouse gas emissions. What’s important here is that this type of disclosure is not a small undertaking. It’s going to be a massive drag on public companies.

You also oppose government rules that would restrict voluntary ESG-related disclosures. Can you tell me about that?

Sure. There’s been some legislation introduced, some of it passed, from state-level Republican legislatures that prohibits the use of ESG in investment. But this broad prohibition is also not the right answer. In fact, it is itself values-based and seeks to impose an ideology onto investing.

In addition, there are real costs to blanket prohibitions of ESG. One is that ESG as value investing can sometimes yield better returns. Pensions in some states that have introduced legislation to prohibit the consideration of ESG factors have released analyses showing that over the course of 10 years, the pensions might be losing billions of dollars in returns by having their investment pool artificially limited.

Another example is Texas, which prohibits localities from doing business with financial firms that are, quote, “boycotting the fossil fuel industry.” A study done not too long ago showed that the cost of municipal borrowing has gone up in Texas because many firms exited the market, meaning taxpayers in Texas are now paying more for municipal building projects. We shouldn’t forget that narrowing the scope of investment opportunities also narrows the opportunities for growth.

Could you speak about the potential impact of AI on investment and the financial industry?

Many people don’t understand how much AI is already part of the investment industry. For example, AI is already involved with investment research, predicting stock value, and portfolio management. That’s all going on behind the scenes.

I think that there’s real potential with respect to financial advice. AI could make investment advice as accessible as trading on your phone is today. For a long time, we’ve had what are known as robo-advisors, which are essentially chatbots with a narrow tree of advice based on a set of questions. More sophisticated large language models could give individualized investment advice that considers all sorts of circumstances at a very low cost. In the future, you may be able to go on your computer or phone and tell the LLM, here’s what my investments look like; what should I do next? That’s powerful stuff, assuming that the regulators allow something like that to happen.

The Human Progress Podcast | Ep. 50

Jennifer Schulp: The Democratization of Investment

Jennifer Schulp, the director of financial regulation studies at the Cato Institute’s Center for Monetary and Financial Alternatives, joins Chelsea Follett to discuss how technology and regulation are shaping the future of investment.

Axios | Air Transport

Amazon Gets FAA Approval to Expand Drone Deliveries

“The Federal Aviation Administration has authorized Amazon’s delivery drones to fly longer distances without visual spotters, a key hurdle that will allow the retailer to expand its fledgling Prime Air service…

Now that it has FAA approval to fly ‘beyond visual line of sight (BVLOS),’ Amazon says it will begin scaling drone delivery service to more customers. First, it will start delivering to more densely populated areas of College Station, Texas (one of its initial test markets). Later this year, Amazon will begin drone deliveries in Phoenix — using a faster, lighter next-generation drone that will be integrated alongside trucks and vans into an existing fulfillment center. It expects to rapidly roll out the service worldwide over the next few years.”

From Axios.

Blog Post | Economic Freedom

Why Javier Milei Won the Presidency in Argentina

Argentina has been flatlining for over 40 years.

Photo by Haim Zach. Image courtesy of the Spokesperson unit of the President of Israel. CC BY-SA 3.0 DEED.

Summary: Once one of the world’s wealthiest nations, Argentina has suffered economic decline since the early 20th century. Argentina’s inflation and economic stagnation have led to higher time prices for basic commodities. The election of President Milei brings hope for economic revival by encouraging entrepreneurship and reducing state control, potentially restoring Argentina’s former economic power.

It’s hard to find a country that is worse off today than it was in 1980. But Argentina makes the list. Argentina was one of the richest countries on Earth in the early 1900s. Then the Peronists gained control of the government. Free markets and entrepreneurs were suffocated by bureaucrats and taxes. When politicians maxed out on taxes, they started printing money. The results were predictable. Capital and talent fled along with growth in abundance. Not only has Argentina suffered massive inflation, but its ability to create wealth has also stagnated.

Measuring Abundance with Time

Economic growth can be measured with time. A time price denotes the time it takes to earn the money to buy a product. If you are earning $20 an hour and a pizza costs $20, the time price is one hour, or 60 minutes. If your income goes up to $25 an hour and the pizza price stays the same, the time price is now 0.8 hours, or 48 minutes. For the time it took to earn one pizza, you now get 1.25 pizzas. Your personal pizza abundance has increased by 25 percent. As long as hourly wages increase faster than prices, time prices decrease, which means personal abundance increases.

As we catalog in our book Superabundance, this has been the case for most products in most countries for the last four decades. Except for Argentina.

We compared the time prices of 50 basic commodities from 1980 to 2023 for Argentina and eight other countries. The average time prices had fallen significantly in eight of the nine countries. Argentina was the exception. Time prices are actually higher in Argentina today than they were in 1980.

The trend lines indicate that markets experience temporary ups and downs, but the longer-term trends are all positive. Except for Argentina.

Percentage Change in Personal Resource Abundance, 1980–2023

Note: Capitalism replaced Marxism in China in the early 1980s. The results were astonishing.

Enter Javier Gerardo Milei. With the election of Milei as the new president last year, maybe Argentina now has a chance to restore its former position as an economic power. In 12 months, the Argentina stock market index (AR: SPMERVAL) has grown 366.05 percent, while the US Dow Jones Industrial Average (DJIA) has only increased 19.18 percent. It looks like entrepreneurs are welcome back in Buenos Aires.

A great new book on the importance of entrepreneurship from the Chinese economics professor Weiying Zhang, Re-Understanding Entrepreneurship: What It Is and Why It Matters, could dramatically help Argentina reactivate its entrepreneurs and innovators and inspire the world. All innovation is the product of entrepreneurship, and entrepreneurs cannot exist under state control, government ownership, and excessive bureaucracy. Entrepreneurs attempt to maximize value creation. Bureaucrats, on the other hand, tend to maximize the costs of entrepreneurship. Unlike entrepreneurs, bureaucrats bear little of the costs of making mistakes.

Milei understands that capitalism activates entrepreneurs. The future is really a choice between entrepreneurs and free markets versus bureaucrats and politics. Argentina once again has the opportunity to stop flatlining and prosper. How many Elon Musks, Steve Jobses, and Jensen Huangs in Argentina are waiting to blossom and flourish under a new birth of freedom? Milei won because he was able to articulate what had caused Argentina’s demise and a vision for how it can be revitalized. Words and chainsaws and courage. Buena suerte to our friends in Buenos Aires.