A few days after the invasion of Iraq in March 2003, Tony Blair sent a note to George W. Bush titled “The Fundamental Goal”. “This is the moment when you can define international priorities for the next generation – the true post-Cold War world order,” it read. “Our ambition is big – to construct a global agenda around which we can unite the world”.
In fairness, the pair certainly succeeded in altering “international priorities for the next generation”, though not exactly in the way they intended. And as for uniting the world around them…
The hubris reflected in that note, created by years of steadily increasing prosperity in the West and without a great power competition to second-guess itself, was as strong as it was destructive. The peace of the post-Cold War order wasn’t enough for Blair. He needed a true post-Cold War order.
Much of that hubris remains today. You can still see it in commentators and pundits who believe the jarring events of the last decade were merely blips on an otherwise more economically integrated global trajectory. And as investors, this presents us with opportunities.
The idea of sacrificing GDP growth to gain a geopolitical advantage over other countries seems like heresy to them; and yet, in many ways it is a return to the historical norm. As Adam Smith wrote in The Wealth of Nations back in 1776:
… the very same circumstances which would have rendered an open and free commerce between the two countries so advantageous to both, have occasioned the principal obstructions to that commerce.
Being neighbours, they are necessarily enemies, and the wealth and power of each becomes, upon that account, more formidable to the other; and what would increase the advantage of national friendship serves only to inflame the violence of national animosity.
They are both rich and industrious nations; and the merchants and manufacturers of each dread the competition of the skill and activity of those of the other.
Mercantile jealousy is excited, and both inflames, and is itself inflamed, by the violence of national animosity; and the traders of both countries have announced, with all the passionate confidence of interested falsehood, the certain ruin of each, in consequence of that unfavourable balance of trade, which, they pretend, would be the infallible effect of an unrestrained commerce with the other.
And you can see the tide turning in more recent literature, like in War by Other Means (2016) for example. This was written by a pair of Council on Foreign Relations scholars. The CFR is a hugely influential think tank in the US, staffed by presidents, central bankers, and politicos alike:
Dismissing potential [state intervention in the economy to counter other nations] as unwise or unlikely simply because they do not fit within the confines of economic rationality is a bit like discounting the risk that a jilted paramour would exact his revenge with a gun on the grounds that the bullets would cost him money. After all, most wars, especially the most destructive ones, would fall into this category of “not particularly economically rational.”
We’ll be exploring some of the ways in which this “New World Disorder” may play out this week, and some of the ways in which investors should be positioned for it.
But that can wait. Before we dwell on all the risks to global peace, and the disturbances that will be created by it in markets, today of all days is a time to reflect on – and to remember – what that peace really cost.
All the best,
Boaz Shoshan
Editor, Capital & Conflict
Category: Market updates