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Protection against the storm

Written by Pablo González and Pedro Nonay, trying to find what we can do in our adaptation to changes in world order.

Entry 2

Speed of change.

August 30, 2024

In the previous entry I tried to describe the world we are going to. It was clear that there will be many changes. But those changes are not going to happen all at once.

In this entry I try to define the factors that will force the changes. I do so from the perspective of trying to know which of the changes will be implemented earlier and which later.

Once we know (with its large margin of error) what changes will occur first, we know that it is the protection against those changes that has to be our first priority.

Speed of change.

I have already said that not all changes will occur at the same time. Some will be implemented sooner, and others later.

Nor will each of the changes occur all at once. Rather, it will be gradual. However, with some exceptions that may be more sudden, such as the past examples of the dinosaur meteorite, or the Russian revolution of 1917.

In general, the speed of change depends on many factors, such as:

• Geopolitics. 
  
  
  • A world war would accelerate all changes (as well as misfortunes).
    
    
  • A country changing geopolitical bloc would accelerate its internal changes. This is the case of Argentina, which was invited to join the BRICS+ and, after Milei’s election, turned it down. It could also be the case of Venezuela, if Maduro’s regime eventually falls and it joins the Western bloc.
    
    
  • Blockades, sanctions, tariffs, …, produce changes in supply channels, or even shortages of something.  That leads to changes in prices (inflation), and to losses in non-adapted companies (perhaps bankruptcies, increased unemployment, or even recession).

• Demographics. 
  
  
  • A city, region, or country that loses/gain demographics, has to reduce/increase its production of almost everything, or change its import-export system. This has consequences on business activity; unemployment; the ability to pay taxes; the government’s ability to meet its expenses; the increase/reduction of public debt; …
    
    
  • If the demographic change is in the form of a decrease in the working age population and an increase in the retired population, what will happen is that the capacity of the taxes collected to pay pensions will decrease. This leads to social instability.
    
    
  • If the solution to population loss is based on immigration, there is a risk of cultural changes, xenophobia, social tensions, …

• Technology.
  
  • Technological advances lead to an increase in productivity. Thus, the same production is achieved, with less money invested, and with fewer personnel. This is good for a country that is losing its working-age population, and bad in the opposite case, since in that case, unemployment would increase.
    
    
  • Technology can also change social habits, which has consequences of all kinds. One example has been teleworking. Those who have been able (and willing) to choose it, spend fewer hours of their own time on transportation, and less money on transportation and food away from home. But, companies dedicated to office real estate have less m2 occupied, and will have economic problems. 
    
    Other examples are Internet shopping, which leads to the disappearance of local commerce; or the possibility of renting vehicles by the hour for transport, …
    
    
  • There is a lot of talk about the impact of artificial intelligence, but there are two stages to this. The first stage, in which small advances in AI allow it to be used by individuals and companies to increase their productivity, has the same consequences that I have outlined in the first point.
    
    The second stage, which is the so-called “singularity”, will occur when the AI will be able to do everything, without humans doing anything (not even the government). That will be an immense and total change, but it’s not going to happen in the short term, so I don’t study it here.
    
    
  • And, of course, technology has already changed the ways of communication. This is very good, for the efficiency of instant and cheap communications (without travel), and for the easy and cheap access to all kinds of information. That is, for productivity, and for improvement in research.
    
    But, it is generating social problems of coexistence, due to the proliferation of false news, as well as the increase of messages that incite hatred towards the opposite. 
    
    This ends up generating temptations to increase censorship by governments (which they find it difficult to implement, because they have lost control). It also generates loss of power by the media that previously controlled the dissemination of information (i.e., the mental “manipulation” of the masses), and they give that power (increased by their effectiveness) to social networks. This is a major change, because these networks are less dependent on governments than the traditional media were.
    
    
• There are many other factors that affect the speed of change, such as changes in energy, climate change, the economy, the reference currency, … But I do not go into it here, both because their effects are well known, and because I have talked about it a lot in my previous entries.
  

What each of us needs to do is to monitor what changes are being implemented first (or will be implemented soon) in our place of residence, or work, or investment. 

And, prepare our personal actions to adapt to these changes. After doing so, we will have to repeat the process with the following changes, and so on. 

In other words, we need to adopt a culture of constant adaptation, and avoid the old culture of “optimizing the status quo”. 

Thus, thinking about the organization of companies, I believe that the future position of “trend advisor” will be much more important than that of CFO.

I imagine all this as something similar to Darwin’s natural selection. Whoever does not adapt will disappear.

Ray Dalio.

Dalio has written a highly recommended book on this issue of changes. The book is called “Principles for Confronting the New World Order: Why Countries Succeed and Fail”, and can be found here. Dalio has also made a video summary of his book, which can be viewed here.

In the book, Dalio studies the creation and decline of various world empires in history. And he tries to find patterns that help him detect when change will occur.

He does this for his personal objective, which is to choose where to invest at any given moment. Other people will have other objectives, and the elements of detection that Dalio has selected may not be applicable to them. But the concept idea will be valid for them, and they will be able to apply it to their interests.

In the book, after his analysis, and supported by his great research team, Dalio provides an interesting graph in which he defines how 8 factors behave throughout the life cycle of an empire. It is as follows:

Source: Ray Dalio

As can be seen in the graph, there are factors in which the future empire is better than its competition before becoming an empire (advanced factors), as is the case of education and innovation. And, there are other factors in which the empire is still relevant, although it is already in decline (backward factors), as is the case of having the reference currency.

Dalio himself recognizes that the US is already in decline, and that China is on the rise. He sees some possibility of slowing that decline, and gives his recommendations for doing so, but he knows it is not easy.

As an element of verification, it occurred to me to look for an easy data on one of the advanced factors (innovation). It is the number of patents. I asked ChatGPT the following question: How many new patents has the USA developed in the 21st century? The answer is the following:

• The United States has maintained a strong presence in innovation and patent development in the 21st century.
  Summary of Patents in the 21st Century:
  
  • Year 2000: The United States filed approximately 300,000 patent applications.
    
    
  • Year 2021: The United States filed around 600,000 patent applications, consistently ranking at the top worldwide.
    
• In total, between 2000 and 2023, the United States has filed more than 8 million patent applications. Although China has surpassed the U.S. in number of applications in recent years, the U.S. remains a global leader in technological innovation and patents.

In other words, China is already winning in this advance factor. It seems that the change of empire is coming.

On the other hand, as can be seen in Dalio´s  graph, the world reserve currency is one of the backward factors of the empires. It is true that the dollar is still the world reserve unit, but, as I wrote in the previous entry, it seems that its days are numbered. This is another indication that the US empire is on its last legs.

Noah Harari and Alvin Toffler.

A good friend of mine has the habit of making excerpts and writing down ideas from the books he reads. The fact is that he has shared with me the ones related to several books that deal with changes in society (thank you, Jose Maria). After reading them all, very interesting and well extracted, I decided to read the original book by Yuval Noah Harari called “21 lessons for the 21st century”, by whom I had already read other things, but not this book.

The whole book is particularly interesting, even if it is criticized for its political positioning (to which it is entitled).

I do not intend to excerpt it here, but to refer to what has caught my attention in terms of what we are dealing with regarding the changes.

In chapter 7, Harari makes a striking reflection on climate change. He says that Russia would be the beneficiary, as it has no coastal resources and is not concerned about sea level rise. In addition, he also says:

• “And while higher temperatures are likely to transform Chad into a desert, at the same time they could transform Siberia into the breadbasket of the world. Moreover, as ice melts in the far north, the Russian-dominated Arctic sea lanes could become the artery of global trade, with Kamchatka perhaps replacing Singapore as the world’s crossroads.”

The book is written in 2018, before the Ukraine War. The thing is that sea routes through the Arctic are already opening up. Could it be that climate change has influenced Putin’s decision making and Xi’s support? In that case, it is in their interest to accelerate climate change, i.e., among other things, to increase CO2 emissions.

At the end of chapter 8, Harari gives a good summary of the problems to which he devotes the book. He states.

• “We are thus caught between a rock and a hard place. Humanity now constitutes a single civilization, and problems such as nuclear war, ecological collapse and technological disruption can only be solved on a global level. On the other hand, nationalism and religion still divide our human civilization into different and often hostile camps. This collision between global problems and local identities manifests itself in the current crisis facing the world’s greatest multicultural experiment: the European Union. Built on the promise of universal liberal values, the European Union is teetering on the brink of disintegration due to the difficulties of integration and immigration.”  

In Chapter 18, he addresses a crucial issue: education and the skills taught in schools. He says that what is taught today may be completely useless in the future, because it will be done automatically by technology. He argues that the skills that need to be reinforced in teaching are the “four Cs”: critical thinking, communication, collaboration and creativity. The rest of life will be a matter of constant learning and adaptation.

On the other hand, the summaries of my friend Jose Maria led me to take up again an old reading: “The Third Wave”, by Alvin Toffler. It was written in 1979, but it is completely current.

For Toffler, the first wave of change in humanity was that of agriculture; the second, the industrial revolution; and the third, information/technology. He says that each of them takes us to completely different worlds.

Without going into the summary of the book, which would be a long thing to do, I would like to highlight the following sentence: 

• “A destination to create
  The sooner we start designing alternative political institutions based on the three principles described above – minority power, semi-direct democracy and decisional sharing – the more likely we are to have a peaceful transition.”

As for the groups of people on how to deal with the situation, Toffler divided them into three:

• Those who do not want anything to change, because they have their interests in the second wave world. 

• Those who do want to adapt to this third wave, especially in the change of energy model.

• Those who, frightened by the situation, ask to return to the first wave, to life before the industrial revolution, idealizing it. 

The forces of these groups are the ones that will define the changes.

The fact is that Toffler was defining (in 1979) all the changes that are now much talked about. And he was quite right. He saw change as very imminent, … and it hasn’t happened yet. The question is whether change can continue to be delayed. 

US Elections.

Yes, elections in the USA affect the speed of change. And they do so for reasons other than the ideology of the voters, who will vote for their concept of left vs. right (outdated concepts today), as well as for the manipulation of the media (old and modern).

At this time, geopolitical and economic factors (inflation – depression) are of the utmost importance for these elections.

As a disclaimer, I warn that what I say below is my way of looking at things. It may be wrong, and it is almost certain that many will find it shocking (though perhaps thought-provoking). It does not imply a political position on my part. It is just the scenario I see, and it does not seem right to me not to share it.

As for the economy, it is well known that the US public debt is unaffordable (and growing). And that inflation is a risk, so interest rates should not fall. On the other hand, it is also known that the stability of Wall Street, and of the banks is harmed if interest rates do not fall.

As a paradox, we find that the Democratic party (which is the supposed party of the left) is supported by Wall Street and the banks (the old power). And it is that party that supports the planned interest rate cut in September.

They camouflage this drop by saying that inflation is under control, and that the effects will be good for economic stability and for the shopping basket of normal people. But, the truth is that, who they are helping is the banks, and they are hurting normal people with the inflation and depression that will emerge later on. In other words, the left is saving the rich and hurting normal people (something more than curious). The Democratic party is today the party of the elites, perhaps we are facing what they call the “left-caviar”.

On the other hand, it is also curious to observe how the Republican party (the supposed right-wing party, those who do not want to change anything so that the world remains the same) is being supported by the future technological power (Elon Musk explicitly), who is the one who is going to take power away from the old banking. Likewise, Trump has the support of the “normal people”, who consider themselves abandoned by the elites. It also happens that Trump supports bitcoin, while the Democrats do not. In other words, it seems that the right wing is in favor of the new times.

As for geopolitics, the “enemies”, i.e. Russia, China, Iran, …, will not make their decisions until they know who is the president of the USA. And they will be different if they find a president in dialogue with them (they seem to consider Trump as such), than if the opposite happens. Until that moment, the “enemies” are acting according to their interests. They do so by supporting Trump in media intoxication campaigns.

The effect of all this on the speed of changes can be summarized in the fact that, if Trump wins, and is able to agree with the “enemies” something like: “I recognize that the USA is not the world power, and I let you rule your part of the world, if you let me rule mine”, the risk of world war will be avoided, and all changes will be activated in a faster way.

On the contrary, if the Democrats win, it is likely that, based on the influence of the “old elites” who control the party, an attempt will be made to extend the life of the old world order. And this will be done at the cost of increasing all kinds of tensions (global, internal US, and economic), as well as delaying the implementation of the changes until it is unavoidable to do it in an abrupt and more painful way.

These are strange times.

The policy does not adapt.

Related to the above, in the rest of the countries of the West something similar happens with political parties.

They still use the left vs. right image. They do it because it is the traditional one, and it is the one that conditions their voters by their affinities, almost religious.

But, the truth is that these concepts are outdated. We are no longer in the times of the struggle of the proletariat against the bourgeoisie. 

In fact, the proletariat understood as the workers in the big factories is already almost residual in terms of the percentage of voters. 

Today’s losers are the self-employed in precarious jobs (e.g. home deliverers); or the former small business owners of high street stores who are now bankrupt; or the former middle class office workers whose jobs have been eliminated by technology; or … And none of them have the characteristics of the former proletariat.

The political parties of the future, no matter what name they have, should adapt to what Alvin Toffler predicted said above. They should be either i) parties that seek to continue in the second wave, and that nothing changes, or ii) parties that seek to ride the third wave, and adapt. In addition, hybrid parties would emerge, seeking to adapt in some respects, and not to adapt in others.

And, as Toffler also predicted, parties (and the electoral system) should be less “territorial” (deputies by geographical areas) and more by representation of different group interests, including minorities.

Young versus old.

Another issue that will greatly condition the speed of change is the generational battle within each country.

Because of the old order (which is now being exhausted), and because of the consequences of the various crises since 2007, it is a fact in the West that wealth is concentrated in the hands of the elderly. Thus:

• Most young people, with their current salaries, and after inflation and the rise in real estate prices (purchase and rental), do not have access to save, nor to get a “decent home”.

• The elderly are the ones with the savings and real estate wealth. 

• In addition, in many cases, the pensions of the elderly are higher than the salaries of the young.

In addition, in many countries in the West, the demographic pyramid indicates that there will soon be fewer people of working age than those who are not. This makes it unfeasible for the taxes of those who work to pay the pensions of those who do not. Besides being the pensioners the ones who need the money the least, because they are the ones who have the wealth (of course, with many exceptions).

We must also add the fact that it is young people who understand the new world best (they are the digital natives). And they are the ones who will suffer the consequences of the changes.

Finally, it is important to note that in countries where the demographic pyramid is inverted, the electoral strength of the elderly is higher. This implies that politicians will focus on meeting the demands of the elderly, to the detriment of the young.

To this electoral argument we must add the detail, not minor, that the way to “electorally manipulate” voters is done in the elderly through traditional media (easier to control and censor by politicians). In young people it is done through social networks.

All of the above means that a youth revolution cannot be ruled out in the short term. Of course, it is true that we are marginalizing them.

Conclusion:

While there are many important issues at stake (U.S. elections, economic challenges, geopolitical tensions, etc.), the key element is the speed at which these changes will occur.

In summary, the main theme of this entry is the need to adjust our strategies and decisions to the speed with which global changes will occur on various fronts. Although I do not yet define that speed for each specific case (I will do so in later entries), I caution that the pace of change is a determining factor and that we must be ready to adapt quickly.

I will start the following entries with the changes that will occur first (in my opinion), as these are the first ones we have to take our protective measures against. And I will try to explain the measures we can take, assuming the risk of generalization (as well as those of error).

*****

That’s as far as I’ll go for today.

As always, I welcome comments on my email: pgonzalez@ie3.org