Investors still view geopolitics as a black swan, and that’s the wrong way to look at it according to George Friedman, keynote speaker at the 2013 Global Investment Conference in Whistler, BC. While geopolitical risk isn’t something you can predict and manage, it is something that investors can and should strive to understand.
Consider that the U.S. spent 17% of the 20th century engaged in full-scale multi-divisional war, not counting the Cold War and the Cuban Missile Crisis. So far in the in 20th Century, the U.S. been engaged in war 100% of the time. Geopolitics is closely tied to economics, Friedman noted.
Friedman discussed his view on the key geopolitical challenges in the world today – one of which is not North Korea. Rather, Friedman believes the situation in that country has been overblown through headlines that lead us to believe the country has gone completely mad and that we’re on the brink of nuclear war. This is not in the cards said Friedman who pointed out that regime preservation is the top priority for that country’s government. Nuclear war would not serve that purpose, especially considering the country does not have any viable nuclear weapons.
Friedman instead turned most of his focus towards Europe where he believes the biggest risks lie. The failure of the “European Project” has says is the most important event of our time. The attempt to bind Europe together through prosperity post-World War II is in the midst of failure, as Germany tries to maintain its export-led economy in a region where unemployment in countries like Spain tops 26%. As other European countries grapple with high unemployment and social unrest, Germany has managed to maintain prosperity and higher employment.
But as Europe languishes in depression, countries like Germany, Luxembourg and Austria are slipping into recession. Right now, Friedman said, we are experiencing economic dislocation in Europe not seen since the 1920s. This is a breeding ground for extreme nationalism.
China’s decline
Friedman also offered comments on China’s prospects for the future, painting a gloomy picture of a country in decline. “China has reached the end of its cycle,” he said calling it “Japan on steroids.” While Japan’s decline in the 1990s was prompted by its own economic troubles, China faces a much worse situation, with a vast number of Chinese earning less than $2 a day, the idea of trying to stimulate the economy through improved consumer spending is virtually impossible, especially when many people in the country don’t even have electricity.
Where will the next leaders be? The focus says Friedman will shift back to the U.S., which is moving towards energy independence. Right now, the country is a last haven for foreign capital from less stable regions like China and Europe. He also identified a series of countries he believes are the next successors to China when it comes to growth. Turkey, Mexico, Uganda and the Philippines were among those that topped the list.