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Looking Inward

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I am watching a PBS special on civilization with one of my favorite teachers and writers, Niall Ferguson. I tend to watch his stuff, recorded on TIVO, two or three times, mostly when I’m using my exercise bike in the early morning.

In Ferguson’s “Civilization,” he postulates that China would certainly have gained even more global dominance in the early 1400s had it continued its global travel and outreach. But one far-seeing emperor died, and — in typical Chinese fashion — the new-broom successor made it a crime to have a ship with more than one mast. (China’s global multi-masted ships were, at the time, huge — 10 times the size of the average Western ship.) Visits to other countries (and global outreach) stopped instantly. 

I don’t know what it is about Chinese culture that causes these sudden changes in direction, do you? The country has reinvented itself in the last 30 years, as Ferguson says, compressing the industrial revolution into three decades. However, in the past, it has fostered sudden directional changes — cultural revolution, for example, which made it a sin to be an intellectual or maybe even to think. These changes seem to happen in an historical instant and sometimes have long-lasting ramifications. 

Ferguson has narrowed down the reasons behind a civilization’s dominance to six. But here’s the thing — when civilizations fail, it often has something to do with looking inward and with not staying out in front of the world curve. Many say “buy American,” meaning only buy things fabricated in this country, but that’s probably one of the worst things we could do in terms of the maintenance of the future of our own civilization. Besides, no matter in what part of the globe one lives, products may or may not be “made” there, but the means of production and the components used for the product probably come from a dozen other spots on our earthly orb. Free trade among countries is an essential part of survival economically today.  

Global trade seems ultra-important to me. Ferguson talks about competition being one of the six traits of dominant civilizations, and I immediately thought of auto manufacturing. W. Edwards Deming, in the 1940s, tried to sell his ideas for inventory control and engineering — just-in-time manufacturing — to a skeptical (we’ve always done things this way and, by God, this way works) Detroit. None of the Big Three would have anything to do with him, but Japan thought differently, and I think Deming is revered there to this day. Deming taught Japan how to make a car (and other things), and then Japan taught the world (and Japan has a long history as a manufacturing country). Those who condemn global trade, if they had had their way, would still be driving eight-mile-per-gallon guzzlers and polluting like mad.

See also: FIO, Congress Urged to Take Greater Roles to Boost Industry’s Trade Globally

So, when investing, you might want to keep your eyes on companies that do business in many countries.  And you might want to think about things in different ways. For example, China loans money to a United States that has been bogged-down in wars and troubled by unemployment, debt and angst to the extent that it is having trouble rebuilding its own infrastructure. On the other hand, China, using the capital essentially owned by its government, created from exports and interest paid by the United States, has been building cities the size of Chicago in three-year periods and literally creating a new civilization. One could hope for a sea change — maybe the current government shifting direction instantly back to things rural and simple — but I’m not going to count on it. China doesn’t even care that some of the cities are not yet populated. The government knows that the people will come; the people will have to come. 

When we select the next president, we’ll want to pay attention to the one who can set the tone for the next hundred or so years, right? We may be at an inflection point, one from which we may go sideways, down or up. 

I hope you had a good long Memorial Day weekend. I did, and reflected on the fact that I was honorably discharged from the U.S. Navy 52 years ago, almost to the day. (I’m still trying to find my Form DD214 for the exact date, but I think it might have been May 28th.) Even the aircraft carrier — the USS Independence, on which I was a plank owner — is in mothballs.  

Have a great week and think about international investing when you have a spare moment.  

For more from Richard Hoe, see:

Growth at What Price?

J.P. Morgan Scandal: Bankers, 1; Citizens, 0