The US and Europe are adopting the model that Russia, China, and India are discarding. The failure of command and control is writ large across the twentieth century—culminating in the collapse of the Soviet Union and upheaval and transition away from the Maoist model in China—and the first fifteen years of the twenty-first. The Western nations are not yet totalitarian nightmares and Russia, China, and India are not libertarian paradises and may never be so. What is important, however, for real-time analysis as history unfolds, is to recognize the direction and magnitude of incremental moves at the margin, which yields the conclusion that the latter are moving away from statism while the former increasingly embrace it. Not only do these trends have important geopolitical implications, they suggest an investment strategy far different, and far more profitable, than the one most Western investors, individuals and institutions, currently employ.
Command, control, and coercion are incompatible with human nature and thus, immoral. They don’t work for animals—ask anyone who trains them—how can they work for presumably more intelligent (perhaps a questionable presumption) humans? Stated plainly, the proposition that some individuals have the right to initiate coercion against other individuals is as indefensible as it sounds. However, centuries of convoluted political philosophy have attempted to justify that proposition without stating it so plainly, usually by ascribing to governments “rights” that their citizens do not have.
Debt, welfare state spending, and foreign military interventions have taken Europe and the US to the edge of a precipice, but they’re doubling down on further state control. The US has a comparative economic advantage in the Internet and online technologies, which will slowly ebb as the FCC, now empowered to treat the Internet like a utility, starts treating the Internet like a utility (see “The Net Neutered,” SLL, 2/17/15, and “Obamanet Shows Its Fangs,” Wall Street Journal, 6/22/15). Obamacare promises to further America’s slide into the slow, no, or negative economic growth mode that has plagued most of Europe for decades. It’s already promoting consolidation and centralization among insurance companies and medical care providers, the antithesis of free market decentralization, innovation, and competition.
As Greece blows up, European officials have decided the problem with the EU is too little command and control. They are calling for less national sovereignty and more power for the supranational European institutions (“Presenting The New Plan For A Eurozone Superstate—Curly, Larry And Moe,” davidstockmanscontracorner.com,). The Organization for Economic Cooperation and Development (OECD) has launched a campaign to ensure that its 34 members—most of the developed nations—don’t lower tax rates to attract businesses. The OECD envisions, and the Obama administration has endorsed, a regime in which multinational companies would have to disclose extensive information about their activities so that they could be taxed based on the location of their economic activity and “value creation” (see “1000s Of American Jobs Could Be Lost If This…,” SLL, 6/23,15), obviously a costly administrative nightmare. Lurking within the thousands of pages of the three trade agreements under consideration is undoubtedly more such “harmonization,” not just of taxes, but regulations and benefits as well (see “Trust Me, Charlie Brown,” SLL, 6/16/15).
Meanwhile, in what Sir Halford Mackinder called in 1904 the “Heartland” of the “World Island”—the Euro-Asian area encompassing Russia, Turkey, the Middle East, and Asia, which he argued was the fulcrum of world power—its nations are exploiting their latent potential and moving away from the unipolar world of US design (see “Washington’s Great Game and Why It’s Failing,” SLL, 6/8/15). With large percentages of the world’s population, land mass, and resources, Euro-Asia, led by the Chinese, is developing linkages, building infrastructure, and propelling itself forward. A new Silk Road initiative will resurrect and modernize the storied trade route traversed by Marco Polo. Petroleum pipelines and high-speed rail lines are being built between Russia and China.
Importantly, Russian-Chinese petroleum transactions will be denominated in yuan and rubles, not dollars. Petrodollar recycling—based on the dollar’s status as the reserve currency—has been an important prop for US global dominance. Across southeast Asia, China is financing and helping construct ports, roads, power plants, dams, and other transportation, trade, and industrial infrastructure. It is also providing seed funding for multilateral lending institutions, notably the Asian Infrastructure and Investment Bank, which will be a counterweight to US and European-dominated institutions like the IMF and World Bank (see “America’s European “Allies” Desert Obama, Join China-led Infrastructure Bank,” SLL, 3/17/15).
It is improbable that the Euro-Asian ascendancy presents a threat to US security, but it certainly does to the tenaciously held dream of US global dominance. China and Russia want to be the dominant powers in Euro-Asia. While that dominance has a military aspect, it will be exercised primarily through political alliances and economic development. The latter, especially, will redound to the benefit of resource-rich Russia and people, ingenuity, and capital-rich China. Their stance towards the Middle East is instructive. They have avoided the military forays that have so disastrously entangled the US. They have supported their allies, primarily Syria and Iran, in international forums and consummated opportunistic investment, energy, and arms deals. If a nuclear agreement is reached with Iran, Russia and China will rapidly expand their ties with what has historically been a dominant power in the Middle East and Iran will become an important partner in the Euro-Asian development effort.
Notwithstanding hyperventilating US politicians, it is hard to believe that either the Chinese or the Russians have offensive military designs beyond securing what they regard as their spheres of influence. They are not that stupid. The military cost curve has shifted dramatically and they know it. The costs in treasure and blood of invasion and subjugation are many orders of magnitude greater than the costs of resisting it, as the US should have learned in Vietnam and the Middle East, and as Russia apparently did in Afghanistan.
The farther away that attempted invasion and subjugation, the greater the cost disparity. Thus, if the US insists on confronting Russia in Ukraine or China in the South China Sea, it will be at a massive disadvantage. The notion that the US, which hasn’t subjugated Afghanistan after fourteen years or Iraq after twelve, could take on Russia or China on their own doorsteps is a howler. If that has been grasped by some in the Washington brain trust, it has not prompted a consensus to avoid such confrontation. Rather there have been moronic murmuring on deploying nuclear weapons. Let’s hope the brain trust is not that stupid, but it’s not a safe bet; all the surprises the last few decades have been to the downside.
While humanity as a whole makes three steps forward and two steps back, it’s never in lockstep. The Euro-Asian nations are stepping forward; the US and Europe are stepping back. To reiterate a theme SLL has sounded repeatedly (most recently, “Buy Asia; Short the US and Europe,” SLL, 2/3/15), the Euro-Asian nations will be the predominate source of long-term investment opportunities. As the last few months in China have demonstrated, there will be volatility both up and down, but longer-term, the Euro-Asia nations will far outperform the US and Europe. They have the land, resources, and people, and most importantly, they are minding their own business, promoting economic development while the US and European nations are encumbered with debt, increasingly powerful and bureaucratic national and supranational governance, and US-led foreign military intervention.
The emergence of Euro-Asia presents multitudinous opportunities from which Western governments and companies could benefit. Sadly, until those governments, especially Washington, abandon antediluvian policies based on projected power and subjugation, those opportunities will not be realized. Fortunately, nothing stops individuals from investing and profiting from the emerging Euro-Asian colossus. If your financial advisor doesn’t have a good handle on investments there, find one who does.
WHEN THE WORLD’S BEST INVESTMENT OPPORTUNITIES WERE IN THE UNITED STATES