I know I am a little different from the average guy on the street. Maybe weird is a better word? 🙂
Firstly, I have a personal finance blog (argh) and then, as you have seen from this post, I am also a history buff. (On a side note, those who read and watched the youtube on that post would have gotten to know how awesome John Green is, even before he came into mainstream consciousness with novels like “The Fault In Our Stars”. Yeah, I am proud to have featured him before he became uber famous!)
Somehow, I think today is a good day to introduce you to the amazing world of geopolitics. Before you close this page, I would like to reiterate that it’s sometimes boring for me to be reading and writing about money all the time. And just to get you more interested in the next few paragraphs, one probably needs to venture beyond finance to have a better chance of achieving better investment returns. Don’t believe me? You can check with folks like Warren and Charlie. 😉
And I really think “The Next 100 Years” written by George Friedman could get you more interested in understanding geopolitics and the world we live in. Afterall, yours truly didn’t really appreciate geography as much as he should before this book, even with a wife that studied Geography as an A level subject.
George W. Bush is often lambasted for the decisions he made when he served as the 43rd President of the United States from 2001 to 2009. But according to George Friedman (founder and CEO of STRATFOR, one of the world’s leading global intelligence and forecasting companies), the same decisions would likely have been made even with Clinton, Al Gore or Obama in charge.
Friedman believes that nations and political leaders behave like a chess master and if you understand the game, one often has only limited options or moves. “On the surface, it appears that each player has twenty potential opening moves. In fact, there are many fewer because most of these moves are so bad that they quickly lead to defeat.”
The September 11 attack likely shaped George W. Bush’s presidency and it probably forced his hand to intervene in the Muslim world and led to the attack on Al Qaeda and Iraq. It was imperative to strike in order to prevent a united Muslim world to emerge and challenge the hegemony of the United States. Therefore, he notes that Bush’s actions were pretty much predictable following the aftermath of September 11.
In Friedman’s words, “Geopolitics is about broad impersonal forces that constrain nations and human beings and compel them to act in certain ways”. And since some of these geographical and political constraints are pre-determined, he believes that it’s possible to predict how our world will behave in the next 100 years.
Of course, he admits that it’s impossible to be 100% accurate with the details and the accuracy would logically decrease with forays further into the future. Therefore,below are three broad predictions about what’s going to happen in the first few decades of the century which I find really interesting.
1. The 21st century is the American century
After the Great Financial Crisis, all the experts were talking about the impending fall of the United States. Like it’s a matter of time before the US Dollar no longer serves as the default world currency and that this move will bankrupt the United States, and blablabla.
How things change in 5 years. As of now, the American economy has recovered and the US market is at an all-time high, primed for more growth.
This is likely to persist over time as the United States enjoy several geopolitical advantages. First, it is flanked by the two great oceans, the Pacific and the Atlantic Oceans. Most trade is and will continue to be conducted over the sea routes and this will ensure the prosperity of the cities situated both in the West and East . And as the dominant military power in the American continents, there is little fear of an attack.
Any possible threat would have to come from the seas or the air. But the American heartland is likely to remain safe since the United States is the world’s foremost naval power, a throne it usurped from Great Britain after World War II. “The United States waged war, but America never experienced it”, and unlikely so for the foreseeable decades since it would take a large amount of time and resources for any country to develop a navy to challenge the United States.
And even though the United States contribute an astonishing one-fifth of the world’s GDP, this can be improved further as the country is relatively underpopulated, as compared to China, India or Europe. Even among the developed nations, the population density of “Japan’s is 338, Germany’s is 230 and America’s is only 31” . The American economy still has plenty of room to grow.
2. US-Russia Rematch in 2020
This book was written in 2009 and predicted that “it is only a matter of time before Russian influence will overwhelm Kiev”. 5 years later, we have the Crimean Crisis as Russia looks to reassert its influence in the region. George has been spot on and let’s see if the rest of the prediction really pans out.
“Russia is the eastern portion of Europe and has clashed with the rest of Europe on multiple occasions. The Napoleonic wars, the two world wars, and the Cold War all dealt, at least in part, with the status of Russia and it’s relationship to the rest of Europe”
This issue has never been properly resolved and the borders of Europe and Russia have shifted to and fro over the past few centuries. This looks set to repeat itself in the coming decade.
Russia is always insecure over its borders. The centre and southern European borders are anchored on the Carpathian Mountains, forming a natural border. However, there is little physical barriers on the Northern European plains. With “flat, easily traversed country with few river barriers”, the “three-hundred-mile gap between the northern Carpathians and the Baltic Sea” is a “traditional path to invade Russia.”
As Russia attempts to extend its sphere of influence westwards to have more depth as buffer against an attack, the United States would slolwy start getting alarmed. Underestimating Russia at first (like now), it would grow to overestimate it with time and start funding resistance to Russian rule in Eastern Europe.
And ultimately, the Russians would be no match for US military might, causing Russia to experience a collapse similar to the one it faced in the 80s, but more painful this time.
3. China, a paper tiger
Unlike the United States, China is landlocked on the western and northern fronts and due to physical boundaries (the Himalayan mountains and the Siberian desert), there is little room for expansion of influence in those directions. Moreover, it’s worth remembering that historically, China has never been an aggressive nation.
But more importantly, without access to the seas, Western China will remain poor as compared to coastal China in the east. As we can see, inequality is rising in China. And it’s a different kind of inequality compared to the United States since the poor in China are more likely to struggle for the basics.
A likely outcome would be that to shore up political support in the West, the central government would redistribute more wealth, inciting simmering tensions in the coastal cities. “A businessman in Shanghai has interests more in common with Los Angeles, New York, and London, as compared to Beijing” and “will try to draw in foreign powers to protect his and their interests”.
We haven’t even mentioned the secession problems faced in Xinjiang and Tibet. Therefore, instead of challenging the United States for global supremacy, China is more likely to struggle with internal problems, especially if it cannot reproduce extraordinary growth for the next few decades. And historically, no country has ever sustained such economic growth.
So on the investing front, if you believe in George Friedman’s arguments and predictions, instead of boarding the “China’s the next great power” train, maybe you should be looking at buying into good American companies when American power is in doubt again. That’s what I would be doing. 😛
I doubt I have done full justice to the book so if you found my summary a tad interesting, do read the book. And as usual, you need not spend a single cent as it’s readily found in our local libraries.