World order

 

Auré's Notes

Apr 20

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5 min read

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Ray Dalio’s “The Changing World Order” Is One of the Most Important Books Ever Written

Here’s what you must know about it.

Source: Wikipedia

Ray Dalio is the founder and former CEO of Bridgewater Associates, the biggest hedge fund in the world.

He entered the public eye in 2017 with his book Principles in which he detailed the elements that had helped him be successful.

The Changing World Order is completely different.

It’s not a book. It’s a study.

It’s a study that narrates the rise and fall of empires, countries, and civilizations, and how it changed the world order.

As we are approaching times when a great power declines and another one is rising, it’s important to be prepared.

Here’s what you absolutely need to know from the book.

1. History Isn’t Linear — It’s Cyclical

So far, we had seen history as a straight line. We considered past and future to be different. Evolution tended to improve things over time. Sometimes, there were wars and things changed.

While this picture is entirely true, such a conceptualization gives a poor image of the rise and fall of civilizations.

Upon studying 11 empires, Dalio found out that all of them ascended for the same reasons in the same context; and all of them declined and disappeared for the same reasons…in the same context.

This information helped him draw a model made out of indicators that helped him judge where a country stood in what he calls the Big Cycle.

At the moment, the Big Cycle indicates that the US is dangerously declining, while China is quickly rising.

2. The Big Cycle Is Driven by Economics

Empires get their power from the dynamism of their economy (which in turn helps them build an army).

The economy itself is driven (or slown down) by debt and culture (people’s behavior).

Here’s how it works.

In the beginning, the population is poor, the country has a low amount of debt, low social-economic inequalities, and people work well together.

Everything is pretty stable until debt is introduced.

Debt enables entrepreneurs to build companies and create wealth.

They refund their debt with the profits and everyone gets richer — both the borrower, and the lender.

Over time, lenders lend too much money to borrowers that aren’t capable to repay.

The economy takes a hit, so the government prints money to make everyone happy. As a result, the currency loses value.

Now that people are comfortable, they’re no longer willing to work as hard as when they were poor. They borrow money — not to invest — but to maintain their lifestyle.

The economy loses in productivity and attractiveness. The poor are getting poorer, the rich are getting richer, and the debt is getting bigger.

This fuels political extremism.

When the social-economic, values, and political differences are too wide, a revolution happens.

A new internal order is introduced, debt is erased, wealth is redistributed, and the cycle happens again.

Source: auresnotes.com.

3. Civilizations Last Up to 300 Years

The Dutch Empire lasted from the 1600s to the 1800s. The British Empire lasted from the 1700s to the 1900s roughly.

And the US Empire has been there since the 1800s.

Dalio estimates that the US is 70% into its Big Cycle because the best empires last a maximum of 300 years.

They ascent in their first half, until the moment when they peak.

As things get worse, they decline and eventually disappear when they lose a war against the new ascending empire.

4. Long Periods of Peace and Prosperity Lead to Short Periods of War, Poverty, and Chaos

This cycle is constant and has been happening since always.

The reason is that while things get better in the first half of the period when the population builds its country, they tend to get worst in the second half when the country has already been built.

Dalio is clear about the fact that social-economic inequalities is the leading indicator to predict the collapse of a country. They fuel anger, division, and violence.

While everyone is getting richer in the first half of the cycle, differences tend to get bigger in the second half (the decline) which leads to a revolution.

Revolutions rarely go peacefully.

Eg:

• The dynamic 19th century was a period of peace and prosperity (especially for the British). It ended with WW1.
• The 16th century was a period of peace and prosperity for Spain. It ended with the Eighty Years’ War.
• In Russia, a new internal order started in 1917 after a civil war due to social-economic inequalities.
• In China, a new internal order started in 1949 after a civil war due to social-economic inequalities.
• In France, a new internal order started in 1789 after a civil war due to social-economic inequalities.

5. The leading Empire Does Not Disappear Without a Fight

The Habsburgs (from Spain) Empire did not disappear without a fight. When they lost against the Dutch, the Dutch rose and imposed their world order after 1648 (Treaty of Münster and Osnabrück).

The Dutch Empire didn’t disappear without a fight. When they lost against the British during the Fourth Anglo-Dutch War, the Dutch Empire definitely ceased to exist.

The British Empire didn’t disappear without a fight (actually, two fights).

While they won both WW1 and WW2, they were too exhausted to keep their empire. We should also highlight that the Americans replaced the British in many, many places (Iran, Saudi Arabia, etc).

Will the US Empire disappear without a fight? History would tend to say “no”.

6. The American World Order Is Ending — and the Chinese World Order Is Beginning

Dalio finishes his book by giving a picture of the current situation in America and China.

The US ticks all of the cases of a fast declining power, namely:

• High debt
• Lots of money printing
• Internal conflicts
• Huge political and value gaps
• Populism
• Debt contracted to maintain lifestyle instead of investing
• Overextended army
• Weakening character
• Huge social-economic inequalities
• Bad research and educational infrastructures

The only thing the US has going is innovation and tech. It’s still a leading power, but China is quickly catching up.

As for China, the indicators are rather positive:

• Dynamic economy
• Low debt
• Inventive, educated, and resourceful population
• Strengthening of the military
• Low social-economic inequalities
• Productivity
• Competitiveness
• Good research and education infrastructures

Conclusion

The period 1945–2022 has been an impressive period of peace, inventiveness, and prosperity.

While there were a few conflicts here and there, they never directly impacted the leading power(s) nor overly threatened the Pax Americana — the American World Order.

Unfortunately, as the leading indicators show, this is quickly changing.

Ray Dalio explains that if there ever were a war between China and the US, it would likely be over Taiwan.

The cost for the US would be too great not to intervene should China make a move on the island.

Dalio estimates the chances of such a war at 30%.

Will he be right?

History, as he shows, is a cycle.

Let’s hope that in this case, it will be a straight line.

For a complete summary of The Changing World Order, head to auresnotes.com.