Master Class - Geopolitics for Business and Finance

Geopolitics for Business and Finance

Prof. Milo Jones Finance Department

Who am I?

What are we going to do today?

» Instead, we will discuss what I consider the four key forces of geopolitics – this will be sort of strategic, high-level trend analysis

» It will have to be fast!

What’s wrong with how most people discuss strategy?

Porter’s Five Forces Value Chain Analysis

(The BCG Matrix is only one year younger than I am!)

What’s wrong with how we often discuss strategy?

» More importantly, they lead you into a sort of “fill in the blank”, or “paint by number” mindset.

» So what’s the alternative?

Porter’s Five Forces et al

Old-School “Strategy”

What’s the alternative?

Integrated Strategy National Governments Civil NGOs

State Regulators

Activists

The Global Media

Industry Bodies

Supranational Organizations

What’s the alternative?

National Regulators

Activists

The Global Media

Industry Bodies

Demographics

Geography

olitic

The Four Forces of Geopolitics

State Regulators

Activists

The Global Media

Industry Bodies

Demographics

Geography

olitic

Geopolitical “tidal forces” drive the “waves” of economics

Geography: Locations, Resources & Routes

» To understand the role of geography in business and finance, I recommend you remember the following:

» Be clear about the sources and direction of the lifeblood of modern economies: Energy.

» Be clear about the big picture logistical structure of world trade

» When it comes to resources: “The cure for high prices is high prices”

» If you attend IE, you will be in the only one of Western Europe’s major capital centers that is not on a major river or has access to the sea!

» River and sea access:

Ultimately a cost of capital question: ports, internal transport and power

90% of the world’s trade still travels by sea

» Why?

» According the latest BP estimates, primary energy consumption increases by 37% between 2013 and 2035, with growth averaging 1.4% p.a.

» Virtually all (96%) of the projected growth is in the non-OECD, with energy consumption growing at 2.2%

Example – Spratly Islands

What about Resource Scarcity?

Resource Scarcity?

» There is no doubt that resource scarcity can arise…

» On the other hand, in the long run, I know of no major industrial input with a continuously rising long-run price…

Resource Scarcity?

» “If you’re long commodities, you’re short human ingenuity”

» Why?

Conservation

Substitution

Recycling

Innovation

» “The cure for high prices is high prices” (i.e. Trust the price mechanism)

Resource Scarcity?

Demography

What is Demography?

» Demography is the study of human numbers:

Population size,

Population composition,

Trends of change of population.

» Demographically speaking “The future has already arrived”.

» By comparison with other contemporary forms of change — social, economic, political, technological — demographic changes are very slow and exceptionally regular.

» Demographic change is only sharp and discontinuous in times of utter upheaval and catastrophe.

Why do we say “the future has already arrived?”

» Why? Because everybody who is going to be, for example, over 18 in 2032 has already been born!

» Migration happens, but rarely in ways on a scale that rapidly changes the fundamental outlook for an economy or country.

» “Pro-natal” policies are widespread but notoriously ineffectual.

» Trends in technology (agriculture, healthcare and sanitation) have a quite steady impact on human populations.

So what do we “know” about the demographic future?

» Let’s look at (near) certainties:

» 1) There will be more people

» 2) They will be older, everywhere

» 3) More people will live in cities

» 4) People will move around and ethnic mixes will change

There will be more people…

» By 2050 the UN Population division expects human populations to stabilize at 9.6 billion, and then start to decline

And the current rankings will change…

The future is OLD almost everywhere

So what do we “know” about the demographic future?

» The world will be urban

» In 1800, only 3% of the world’s population lived in cities; by 2000, it was 47%

» In 2007, we hit 50%!

» In 1950, there were 83 cities with populations exceeding one million; by 2007, this number had risen to 468!

» By 2025, Asia alone will have at least 28 megacities!

» By the 2030s, five billion of the world’s eight billion people will live in cities.

So what else do we “Know”?

They will be urban

Source: UN Department of Economic and Social Affairs

And the ethnic composition of many places will change…

Politics & Culture

Pressure from the top…coordination without control?

Pressure in the middle from NGOs

» By NGO, I mean this… » But I also mean this!

Pressures from “empowered” and ‘connected” individuals

Indeed, arguably we have entered an era of Global Populism

» We are also seeing an amplification of nationalism and religious fundamentalism:

» This new populist age is a function partly of technology +

» The choice of nationalism or religion as legitimizing factor for autocratic governments with slowing economies…+

» In many places, a function of newly commercialized media to reinforce nationalist myths or to respond to certain other pillars of government support (like the clergy…)

» Democracies tend to cater to the “middle of the road”; autocracies tend to cater to the extremes “on the streets”

Technology

Definitions & problems

» Technology impacts:

Energy and resource use

Importance of certain geography

Military power

Competitiveness and comparative advantage

Demography

Politics, social and cultural attitudes, even morality

» The problem is, over the medium term (much less the long term) the impact of technology is very hard to imagine or predict!

Imagination and Moore’s Law

» Moore’s Law: a 1965 Electronics Magazine article’s leader said “With unit cost falling as the number of components per circuit rises, by 1975 economics may dictate squeezing as many as 65,000 components on a single silicon chip”.

» Moore’s Law - Moore’s insight is treated as if it was widely accepted when proposed and inevitable.

» But the cartoonist at the magazine obviously thought this was somewhat absurd:

Imagination and Moore’s Law: 20 years…

Prediction is hard: a technology-driven geostrategic Wildcard

» Ever hear of China’s sex imbalances?

» India has the same problem

» How did this problem arise?

» Blame 1950s industrial tools developed to find cracks in ship’s metal hulls!

Technology: we have no idea where this stuff will go!

» And guess what…

» You “ain’t seen nothin’ yet”: advances in six key general purpose technologies are accelerating and feeding off each other:

» All you need to remember is: 3 GRAIN

3-D printing

Genetic Engineering

Robotics

Artificial intelligence

Information Technology

Nanotechnology

State Regulators

Activists

The Global Media

Industry Bodies

Demographics

Geography

olitic

Geopolitical “tidal forces” drive the “waves” of economics!

Questions?

You can contact me on Linkedin or

Or via http://www.geopoliticalalpha.com/

Master Class - Geopolitics for Business and Finance

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