Posted by: Martin | June 18, 2010

The Next 100 Years

In Qn which is a publication of Yale School of Management, I found this interview with George Friedman, author of a book called “The Next 100 years”.  It’s about long term thinking of business and society – very interesting stuff in my opinion:

Q: How do the big, slow-moving trends of demographics shape geopolitics and international business?
We have been talking for several generations about the population explosion. But probably the single most important fact, is that, everywhere in the world, birthrates are declining—not just in developed countries but everywhere. In some places it’s still above 2.1, which is the replacement rate, but in Europe and elsewhere it’s fallen below that level. That sets in motion a range of things, from technological solutions to shortages of population, to changes in the status of power within regions and between regions, to switching from an anti-immigration policy to a desperate-for-immigration policy around the world.

We have been living for 500 years with a population expansion, which meant there were always going to be more consumers, more workers, more soldiers, more everything. That’s just not true anymore. By the end of this century, it will be pretty much untrue everywhere. That means that the nature of capitalism changes. More population meant you always had forces suppressing the cost of labor, more population meant the price of land always rose. The great arbiter in capitalism was capital—whoever had the money to invest was tremendously powerful. That’s not going to be the case, any longer. Labor is going to be the high-cost item, the great variable. In the 21st century, whoever controls labor is in the most powerful position.

The point about land prices rising with rising populations makes a lot of sense to me.  So, as a real estate investor one wants to be in places where the population is still increasing, and well, West Africa might be the region in the world with the highest population growth rates, and where the peak population point is furthest into the future.

Still, one has to recognise differences within countries and regions.  Japan is maybe the country in the world where the population is decreasing the most, and on top of that, there is very little immigration. Nevertheless, the city of Tokyo is expanding being a great place to live and work, attracting people from the rest of Japan and to a lesser extent from the rest of the world.

So, over say a 50 year period, is Tokyo a better place for a real estate investment than Abidjan, the commercial capital of the Ivory Coast?

Tokyo is probably going to continue being a safer, cleaner and a generally wealthier city than Abidjan in 50 years, and an apartment in central Tokyo is probably still going to be more expensive than an apartment in central Abidjan. But my bet would be that the apartment in Abidjan is going to appreciate much more than the Tokyo apartment – due to demographic trends.  Even if international migration to Tokyo (or any other developed world city) increases greatly, it just cannot match the population growth of Abidjan over the next 50 years.

Tokyo by night. Photo taken from the Roppongi area.


Q: You predict the rise of countries like Turkey, Mexico, and Poland in coming decades. What do businesses do with this sort of information now?

Companies need to be looking 20 or 30 years into the future for their investments. That will cause them to identify opportunities that most people think are preposterous, but if you look at countries as if they were companies, rising and falling, you want to identify not those who have already reached the top, where the herd is, but those that are beginning to emerge.

The time to have invested in Germany was in 1950. The time to have invested in China was 1975 or 1980. We speak about 30 or 40 years of emergence. That appears to be a very long time, but in 1975 China would have been a very interesting country to invest in. That was 35 years ago.

Q: Do businesses just need to assume that major political upheaval might render their investments completely valueless?
That’s always a possibility. In fact, it’s common. I mean, one of the things that interests me about business leaders is that they regard political events as black swans, yet if we look at the past century, the exceptional events have been the major definers of the international system. The Great Depression had far more to do with the First World War than it had to do with any decision the Fed made.

It’s extremely important to understand two things. Geopolitical events are a constant shaper of the business environment. And these events have a degree of predictability. The only certain erroneous assumption is to think that geopolitical events will not reshape the marketplace dramatically in the course of an investment. It always does.

In the 20th century, 17% of the time, the United States was involved in a major multidivisional war. So far in the 21st century it’s been almost 100% of the time. You don’t have the option of pretending that the only issues are business and market issues, because both of them are constantly being shaped and reshaped by political and geopolitical forces. Any investment made right now in the financial community is heavily dependent on the political process. An investment made in the energy industry is heavily dependent on geopolitical processes. So the option of not taking these into account just isn’t there.

Looking at the Ivory Coast it’s pretty hard to disregard political events as pretty dramatic ones have come in plentiful over the last dozen years.  My take on it is that  yes, political events are going to continue to shape the marketplace, and right now things are beaten down by negative political events (eg no tourism). Future political events might be positive, or negative, and one has to follow Ivorian politics, attempt to foresee what’s likely to happen, and adapt to any politically induced changes, which in a worst case scenario would mean to leave everything and get the hell out.

test

Time to get the hell out.

The only building standing in central Hiroshima after the atomic bomb strike in 1945.

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