The Next Phase in Globalization – Back to a Bi-Polar World
Ray Dalio says the world order is changing, and the US is likely to lose it leadership. In his Changing World Order (see the video for a high-level review and an update here) he suggests a country’s peak position in the world order comes through the positive feedback in its dominance of trade, military, and money. However, as it becomes wealthy, the country loses focus, stops investing in its people, education, and infrastructure. This loss of focus degenerates into internal polarization over wealth inequity and waste, and ultimately leads to an over-extension in imperial activities. The fall of the country’s relative position coincides with the rise of a new country’s leadership and a new world order. He says that this has happened multiple times in history and suggests it is happening now with the fall of the US leadership position and the rise of China’s.
He certainly hits all the high (or really low) points of the challenges in the US society – wealth inequity at its highest level in a century, crazy polarization leading to violence in the capital (January 6th), infrastructure crumbling, and a lower than average education level. It certainly seems that Ray is describing our future. A new world order is on the rise, led by an ascendant China.
Yet, there are differences here that don’t fit easily into his story. The current split in the world is driven not just by economic rivals but also between with authoritarian and liberal political systems. This has come into dramatic focus since the beginning of the Ukraine War and the split is accelerating. You can line up the countries (as Ray has done) with respect to their response to the Ukrainian War with the US and (most of) Europe on one side and China and Russia on the other. In the middle, lining up from the liberal pole to the authoritarian pole are the rest of the countries of the world.
What surprised me in this line up, and really drove home for me the complicated nature of this fight, was India’s response. Being one of the world’s largest democracies, I initially thought that India would have lined up with other liberal governments. Yet, this does not appear to be the case. In retrospect, perhaps it is not surprising, Russia is the largest supplier of India’s military equipment. In addition, it appears that Russia will become one of its largest suppliers of fossil fuels.
India’s move is significant. China, Russia, and India account for 35% of the world’s population. Together they can satisfy each other’s requirements for labor, energy, technology and consumer goods. And if they win in Ukraine (and Africa) – they can satisfy their needs for food. In effect, they can “check-out” of the globalization trends that have increasingly bound the world together since the end of the Cold War. The unwinding of these trends includes many structural changes to that unipolar world, including increased military expenses, disruptions & inflationary restructuring of supply chains, and changes to the global monetary system.
The last will be significant as we move to a bipolar world reserve currency system. The liberal countries have “weaponized” the central banking system and the dollar, with implications that many countries are uncomfortable and unwilling to follow. I believe that China, India & Russia will work towards creating a competitive reserve currency to the US dollar. This will become another front in a multi-front war, some of it hot (e.g., Ukraine) and some of it cold, that is likely to last for years.
In short, I agree with Ray that we are entering a transition period; yet I believe the lens of the fight is different. It’s not just about economic ascendancy, rather it is lining up to be one of liberalism vs authoritarianism. Economic systems matter of course. But their success is usually tied to a stable, benign and supportive political system. The coming fight will be as much about the supporting political systems as it is about the economic & military might of the combatants.
Help us focus.