master class - geopolitics for business and finance
TRANSCRIPT
© 2015 Milo Jones Geopolitics
Geopolitics for Business and Finance
Prof. Milo Jones Finance Department
© 2015 Milo Jones Geopolitics
Who am I?
© 2015 Milo Jones Geopolitics
© 2015 Milo Jones Geopolitics
© 2015 Milo Jones Geopolitics
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!
© 2015 Milo Jones Geopolitics
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!)
© 2015 Milo Jones Geopolitics
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?
© 2015 Milo Jones Geopolitics
Porter’s Five Forces et al
Old-School “Strategy”
What’s the alternative?
© 2015 Milo Jones Geopolitics
Integrated Strategy National Governments Civil NGOs
State Regulators
Activists
The Global Media
Industry Bodies
Supranational Organizations
Porter’s Five Forces et al
Old-School “Strategy”
What’s the alternative?
© 2015 Milo Jones Geopolitics
Integrated Strategy National Governments Civil NGOs
National Regulators
Activists
The Global Media
Industry Bodies
Supranational Organizations
Porter’s Five Forces et al
Old-School “Strategy”
Demographics
Tech
no
log
y
Geography
Cu
lture
& P
olitic
s
The Four Forces of Geopolitics
© 2015 Milo Jones Geopolitics
Integrated Strategy National Governments Civil NGOs
State Regulators
Activists
The Global Media
Industry Bodies
Supranational Organizations
Porter’s Five Forces et al
Old-School “Strategy”
Demographics
Tech
no
log
y
Geography
Cu
lture
& P
olitic
s
Geopolitical “tidal forces” drive the “waves” of economics
© 2015 Milo Jones Geopolitics
Geography: Locations, Resources & Routes
© 2015 Milo Jones Geopolitics
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”
© 2015 Milo Jones Geopolitics
Geography: Locations, Resources & Routes
» 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!
© 2015 Milo Jones Geopolitics
Geography: Locations, Resources & Routes
» 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?
© 2015 Milo Jones Geopolitics
Geography: Locations, Resources & Routes
» 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%
© 2015 Milo Jones Geopolitics
Geography: Locations, Resources & Routes
© 2015 Milo Jones Geopolitics
Geography: Locations, Resources & Routes
© 2015 Milo Jones Geopolitics
Geography: Locations, Resources & Routes
© 2015 Milo Jones Geopolitics
Geography: Locations, Resources & Routes
© 2015 Milo Jones Geopolitics
Example – Spratly Islands
© 2015 Milo Jones Geopolitics
Example – Spratly Islands
© 2015 Milo Jones Geopolitics
What about Resource Scarcity?
© 2015 Milo Jones Geopolitics
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…
© 2015 Milo Jones Geopolitics
Resource Scarcity?
© 2015 Milo Jones Geopolitics
Resource Scarcity?
© 2015 Milo Jones Geopolitics
Resource Scarcity?
© 2015 Milo Jones Geopolitics
Resource Scarcity?
© 2015 Milo Jones Geopolitics
Resource Scarcity?
© 2015 Milo Jones Geopolitics
Resource Scarcity?
© 2015 Milo Jones Geopolitics
Resource Scarcity?
© 2015 Milo Jones Geopolitics
Resource Scarcity?
© 2015 Milo Jones Geopolitics
Resource Scarcity?
© 2015 Milo Jones Geopolitics
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)
© 2015 Milo Jones Geopolitics
Resource Scarcity?
© 2015 Milo Jones Geopolitics
Demography
© 2015 Milo Jones Geopolitics
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.
© 2015 Milo Jones Geopolitics
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.
© 2015 Milo Jones Geopolitics
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
© 2015 Milo Jones Geopolitics
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
© 2015 Milo Jones Geopolitics
And the current rankings will change…
© 2015 Milo Jones Geopolitics
And the current rankings will change…
© 2015 Milo Jones Geopolitics
The future is OLD almost everywhere
© 2015 Milo Jones Geopolitics
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.
© 2015 Milo Jones Geopolitics
So what else do we “Know”?
© 2015 Milo Jones Geopolitics
They will be urban
Source: UN Department of Economic and Social Affairs
© 2015 Milo Jones Geopolitics
And the ethnic composition of many places will change…
© 2015 Milo Jones Geopolitics
Politics & Culture
© 2015 Milo Jones Geopolitics
Pressure from the top…coordination without control?
© 2015 Milo Jones Geopolitics
Pressure in the middle from NGOs
» By NGO, I mean this… » But I also mean this!
© 2015 Milo Jones Geopolitics
Pressures from “empowered” and ‘connected” individuals
© 2015 Milo Jones Geopolitics
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”
© 2015 Milo Jones Geopolitics
Technology
© 2015 Milo Jones Geopolitics
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!
© 2015 Milo Jones Geopolitics
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:
© 2015 Milo Jones Geopolitics
Imagination and Moore’s Law: 20 years…
© 2015 Milo Jones Geopolitics
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!
© 2015 Milo Jones Geopolitics
Technology: we have no idea where this stuff will go!
© 2015 Milo Jones Geopolitics
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
© 2015 Milo Jones Geopolitics
Integrated Strategy National Governments Civil NGOs
State Regulators
Activists
The Global Media
Industry Bodies
Supranational Organizations
Porter’s Five Forces et al
Old-School “Strategy”
Demographics
Tech
no
log
y
Geography
Cu
lture
& P
olitic
s
Geopolitical “tidal forces” drive the “waves” of economics!
© 2015 Milo Jones Geopolitics
Questions?
You can contact me on Linkedin or
Or via http://www.geopoliticalalpha.com/