The Passing Lane

I’ve always kept an eye on Echostar, the company that built out the Dish Network. That started about 35 years ago when I met my friend and VC mentor, Frank. Frank ran a venture capital business in the DC Beltway area and was wired into the Department of Defense technology vortex that spun out of DARPA (Defense Advanced Research Projects Agency), the U.S. Department of Defense’s primary research and development organization focused on breakthrough technologies for national security. DARPA is arguably the most successful government research agency in history. Its lean structure, high risk tolerance, and focus on breakthrough technologies have produced innovations that shaped the modern world – from the internet you’re using right now to GPS in your phone. Frank somehow captured the satellite technology of DARPA and built it into the Dish Network that got acquired by EchoStar in its quest for satellite TV domination against DirectTV. In the news this month is that EchoStar has just sold much of its satellite spectrum to Elon Musk’s SpaceX. It sold its AWS-4 and H-block spectrum licenses to SpaceX for approximately $17 billion – $8.5 billion in cash and $8.5 billion in SpaceX stock. The spectrum covers the H-block part of the Advanced Wireless Services spectrum at frequencies between 1915-1920 MHz, which is used for 4G and 5G mobile voice and data transmission. The deal covers 50 MHz of S-band spectrum and global Mobile Satellite Service spectrum licenses. Why do I care?SpaceX said the new spectrum will enable “optimized 5G protocols” in its direct-to-phone service and allow upgraded satellites with “more than 100 times” the capacity of first-generation Starlink direct-to-cell satellites. The deal allows SpaceX to operate Starlink direct-to-cell services on frequencies it owns, rather than relying solely on those leased from mobile carriers like T-Mobile. President Trump personally urged EchoStar CEO Charlie Ergen to sell the spectrum licenses and used another FCC threat to favor his pal Elon. In August, EchoStar had already sold $23 billion worth of spectrum licenses to AT&T, so I suspect Ergen was not so hard to convince that he had has his fun with Frank’s piece of the universe and it was time to let Elon have at it. But imbedded in that are some worrisome things.

This is complex topic that is a canary in the coal mine for those of us who worry about the fate of the role of government in a world that seems to crave libertarianism. DARPA and its most important technology like satellite spectrum represents a particular approach to government control and power: investing in technological superiority to maintain military and economic dominance. By my calculus, that’s a good thing that comes out of government that might not otherwise happen. The irony is that DARPA’s most famous creation – the internet – has made government control harder in many ways, undermining information monopolies and enabling challenges to state power. Sometimes breakthrough innovations have consequences their creators never anticipated. This power grab by Musk could fundamentally alter the relationship between the state and us citizens, so its worth pondering.

There is already mounting evidence that our government (and arguably all governments around the world eventually) are becoming “Potemkin powers”. “Potemkin powers” isn’t a standard term in political science, but it’s evocative and clearly references a famous Russian legend. In 1787, Russian Field Marshal Grigory Potemkin allegedly constructed fake settlements along the Dnieper River to impress Empress Catherine II during her visit to Crimea. The story claims these were hollow façades – painted backdrops with nothing behind them – designed to create an illusion of prosperity and development. How strange that places like Crimea (Ukraine) and Gaza (the Holy Lands) are still the focus of so much that is changing and at critical junctures. Add Istanbul/Constantinople/Byzantium and you have the three biggest crossroads of western civilization.

“Potemkin village” now means any construction (literal or figurative) designed to deceive others into thinking a situation is better than it really is – a façade with nothing substantial behind it. By extension, “Potemkin powers” would describe nations that project power that they don’t actually possess. These are things like armed forces that look impressive on paper but can’t actually fight effectively (Drones seem to be impacting this in a big way), nuclear arsenals that may not be functional (who knows?), economic illusion (GDP figures inflated through manipulation, industrial capacity that exists on paper but not in reality, infrastructure projects that are showpieces rather than functional, and employment numbers that are being man-handled to suit a narrative). If it sounds like political theater, you might not be wrong. What’s next?…democratic institutions without real power, elections that are staged performances, legislatures that rubber-stamp decisions…and perhaps worst of all, courts without independence and clear partisan leaning.

The famous examples of “Potemkin powers” are Imperial Russia (Pre-WWI), Italy Under Mussolini (remember the tank with 7 gears in reverse and only one forward?), the late-stage Soviet Union (Red Square military parades, economic statistics falsified at multiple levels, and any number of collapsed and revealing underlying weakness), Iraq Under Saddam, Russia trying desperately to defeat Ukraine, and North Korea…always. The main characteristics of these “Potemkin powers” are the appearance vs. reality gap, authoritarian incentives that punished citizens for bad news and where corruption siphons resources, propaganda prevails over performance and institutional decay that allows the elite to capture all of the wealth and dominate the resources. The irony of “Potemkin powers” is that they tend to believe their own propaganda and provoke conflicts they can’t win, all while those on the outside usually see it for what it is, a failed state. Mao used to call the U.S. a “Paper Tiger” that looked fierce but was actually weak. I wonder what he would say today…probably what Xi says to his team every day. “Potemkin powers” describes a nation that projects strength, authority, or capability significantly beyond what they actually possess – a façade designed to deceive both external observers and sometimes their own population. Sound familiar?

What bothers me about the Musk spectrum deal is the ability it gives him to circumvent the governmental control we have always had over national communications. I suspect that as bad a thing as that may sound to some, that control has enabled our country to be stronger and prosper more overall. The case for or against government control is one rooted in social order and stability versus individual freedom. So, yes, we are back to the age-old issue of the public good. Hobbes said that government is there primarily to prevent chaos and the “war of all against all”. It provides predictable rules and enforcement, It protects the weak from the strong, and it seeks to resolves disputes without violence. We need it to provide infrastructure (roads, water systems, power grids, internet), funds things markets won’t provide (basic research, national defense…like DARPA), manage common resources to prevent tragedy of the commons (something like FEMA used to give us) and coordinate large-scale collective action…like against climate change and Russian aggression. The old fashioned approach to government was to enforce contracts and property rights and provide legal recourse for wrongs. But the newer view is that it must also protects minorities from majority tyranny and prevent exploitation and abuse. The question isn’t really “government or no government” but rather how much control is optimal, what kinds of control are legitimate, who should control the controllers, and how do we balance individual freedom with collective needs?

Historically, some government coordination seems necessary for civilization. All known civilizations have had some form of governance. Complete absence of authority typically leads to instability. But the most oppressive and control-focused governments have also produced the greatest suffering. We crave both freedom (autonomy, choice) and security (order, protection). We need cooperation but resist coercion. We want community but crave individuality. There are a lot of c-words in play here, but none more critical than communications and currency. Government control of currency is important because money is the “circulatory system of the economy”. Controlling it means controlling economic activity, resource allocation, and ultimately social organization itself. There is lots of bad history when countries give up monetary sovereignty and no examples of success and prosperity without it. And communications is perhaps best likened to the “nervous system of the society”, it directs all activities and control over it is the only assurance of truth and the absence of self-interested manipulation (hard enough even with control). Without these two control systems, trust evaporates, not just in currency, but in institutions generally. Wealth concentration proliferates and middle class destruction is almost assured. That causes social cohesion to break down, and soon we an “Every person for themselves” world with increasing crime, desperation driving illegal activity and escalating political extremism from all sides. This is when investment dries up as no one can plan for the future and capital flight is the norm. Educated people emigrate somewhere, productivity collapses, and public services that we mostly take for granted fail. Basically, we are back in the Middle Ages. The Roman Empire debased its currency and lost control. The British Empire fell when the British pound lost reserve status. We know that no empire lasts forever, but self-destruction should be somewhat avoidable. Neither the Libertarian nor the Statist view of the world are totally right, but government maintains dominance through regulation…certainly for both currency and communications. When governments lose monetary control and communications control, the consequences are usually severe. We tend to understand the importance of control over legitimate violence, territorial and border control, legal authority and the rule of law (at least conceptually), and even somewhat the importance of currency control (the reaction to Fed independence is a positive, but the trend towards crypto permissiveness is less so), but the whole information/communications control process is much less well-understood. In the control hierarchy, communications may have now risen to the #2 spot behind currency control…and God only knows where and how AI will further impact this hierarchy.

What we do know is that the most sustainable control isn’t control at all – it’s legitimacy. When people voluntarily comply because they believe in the system, government needs minimal coercion. When legitimacy fails, no amount of force, money, or surveillance can permanently maintain control. That’s why the strongest states aren’t necessarily the most controlling – they’re the ones where people believe the government deserves to govern. I wonder whether the governed understand how much power we have just given Elon Musk. People can choose to participate in crypto, but soon they may have no choice but to use StarLink and government regulation of it will reside somewhere up in the ozone. The passing lane is there to speed us to our destination, but sometimes its where the worst accidents occur.