Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

Ray Dalio

4.28(14452 readers)
NEW YORK TIMES BESTSELLER * MORE THAN ONE MILLION COPIES SOLD “A provocative read...There are few tomes that coherently map such broad economic histories as well as Mr. Dalio’s. Perhaps more unusually, Mr. Dalio has managed to identify metrics from that history that can be applied to understand today.” —Andrew Ross Sorkin, The New York Times From legendary investor Ray Dalio, author of the #1 New York Times bestseller Principles, who has spent half a century studying global economies and markets, Principles for Dealing with the Changing World Order examines history’s most turbulent economic and political periods to reveal why the times ahead will likely be radically different from those we’ve experienced in our lifetimes—and to offer practical advice on how to navigate them well. A few years ago, Ray Dalio noticed a confluence of political and economic conditions he hadn’t encountered before. They included huge debts and zero or near-zero interest rates that led to massive printing of money in the world’s three major reserve currencies; big political and social conflicts within countries, especially the US, due to the largest wealth, political, and values disparities in more than 100 years; and the rising of a world power (China) to challenge the existing world power (US) and the existing world order. The last time that this confluence occurred was between 1930 and 1945. This realization sent Dalio on a search for the repeating patterns and cause/effect relationships underlying all major changes in wealth and power over the last 500 years. In this remarkable and timely addition to his Principles series, Dalio brings readers along for his study of the major empires—including the Dutch, the British, and the American—putting into perspective the “Big Cycle” that has driven the successes and failures of all the world’s major countries throughout history. He reveals the timeless and universal forces behind these shifts and uses them to look into the future, offering practical principles for positioning oneself for what’s ahead.

Publisher

Avid Reader Press / Simon & Schuster

Publication Date

11/30/2021

ISBN

9781982164799

Pages

608

Categories

Economics

About the Author

Ray Dalio

Ray Dalio

Raymond Dalio (born August 8, 1949) is an American investor, hedge fund manager, and philanthropist. Dalio is the founder of investment firm Bridgewater Associates, one of the world's largest hedge funds.

Questions & Answers

The "Big Cycle" of empire rise and decline is a cyclical model that describes the rise and fall of empires over time. It is characterized by three main cycles: the long-term debt and capital markets cycle, the internal order and disorder cycle, and the external order and disorder cycle. These cycles are mutually reinforcing and drive swings between peace and war, economic boom and bust, and political shifts.

Key determinants influencing this cycle include:

  1. Education: A well-educated population fosters innovation and technological advancement.
  2. Competitiveness: Economic competitiveness in global markets is crucial for maintaining power.
  3. Innovation and Technology: Technological progress can lead to increased productivity and global influence.
  4. Economic Output: A strong economy supports military power and global influence.
  5. Share of World Trade: Being a major player in global trade enhances an empire's power.
  6. Military Strength: A strong military is essential for defense and projecting power.
  7. Financial Center Strength: A dominant financial center can attract capital and influence global markets.
  8. Reserve Currency Status: Being the issuer of a global reserve currency can confer significant economic power.

These determinants interact and reinforce each other, creating a virtuous or vicious cycle that ultimately leads to the rise or decline of empires.

The "Big Five" forces that drive the world's total wealth, power, and living standards are:

  1. Human Productivity: Driven by learning, building, and inventiveness, productivity improvements lead to higher living standards.
  2. Innovation and Technological Development: Advances in technology and innovation solve problems and make improvements, contributing to the upward trend.
  3. Capital Markets: Efficient capital markets facilitate savings, investment, and resource allocation, crucial for economic growth.
  4. Cultural Factors: Cultural differences in values, beliefs, and behaviors influence societal development and interactions.
  5. Military Strength: Military power, both internally and externally, affects stability and international relations.

These forces interact with the eight indices of power (economic, military, political, cultural, technological, educational, financial, and natural resource) to shape the Big Cycle. The indices reflect and drive the rise and fall of a country's power, while the Big Five influence the direction and pace of these changes. For instance, innovation can boost productivity and technology, which in turn can enhance military capabilities and economic growth. Similarly, strong capital markets can support innovation and infrastructure, while cultural factors can influence political stability and international relations. The interplay of these forces and indices creates the cyclical nature of the Big Cycle, with periods of growth and decline.

Major reserve currency empires, like the British and the current US Empire, follow the Big Cycle, a pattern of rise and decline. The cycle typically includes a rise in power due to factors like education, innovation, and military strength, followed by overextension, debt accumulation, and internal and external conflicts. The British Empire, for instance, experienced a rise due to the Industrial Revolution and its global trade network, but it eventually declined due to over-reliance on colonialism and excessive debt. Similarly, the US Empire has seen rapid growth in education, technology, and military power, but it's currently facing challenges like wealth inequality and debt, suggesting a potential decline.

Lessons from these experiences include the importance of maintaining a balance between growth and sustainability, managing debt responsibly, and adapting to changing global dynamics. They also highlight the cyclical nature of power and the need for long-term planning and foresight.

The Big Cycle suggests that the US-China relationship and global order are subject to cyclical shifts. Historically, dominant powers like the US have experienced periods of rise and decline, often marked by internal and external conflicts. This implies that the current US-China rivalry, characterized by economic, technological, and military competition, may be part of a larger cycle. The US, currently in a relative decline, may face challenges in maintaining its global influence, while China, on the rise, could emerge as a new dominant power. This shift could lead to a reconfiguration of the global order, potentially resulting in a multipolar world with new power dynamics. The implications include increased tensions, strategic realignments, and the need for both nations to navigate these changes carefully to avoid conflict and foster cooperation.

Individuals and policymakers can leverage the Big Cycle insights to navigate the evolving world order by understanding the cyclical nature of power, wealth, and conflict. Individuals can:

  1. Adapt to Cycles: Recognize that economic and political cycles are normal and prepare for downturns by saving, diversifying investments, and maintaining financial prudence.
  2. Learn from History: Analyze past cycles to anticipate future trends, such as shifts in wealth, power, and technology, and adjust their strategies accordingly.
  3. Focus on Long-Term Well-being: Prioritize sustainable growth and development over short-term gains to ensure long-term prosperity.

Policymakers can:

  1. Monitor Key Indicators: Use the Big Cycle's determinants to gauge a country's health and adjust policies to strengthen its position.
  2. Promote Education and Innovation: Invest in education and innovation to drive productivity and maintain competitive advantage.
  3. Manage Debt and Risk: Monitor debt levels and manage risks to avoid crises and maintain economic stability.
  4. Foster International Cooperation: Engage in diplomacy to manage conflicts and promote global stability.

By understanding and adapting to the Big Cycle, individuals and policymakers can better navigate the complexities of the changing world order and make informed decisions for the future.

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