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

by Ray Dalio

If done well, this virtuous cycle leads to… … strong income growth, which can be used to finance… … investments in infrastructure, education, and research and development. The country must develop systems to incentivize and empower those who have the ability to make or get wealth. In all of these past cases, the most successful empires used a capitalist approach to incentivize and develop productive entrepreneurs. Even China, which is run by the Chinese Communist Party, uses a state-capitalism approach to incentivize and enable people. To do that incentivizing and financial enabling well, the country… … has to have developing capital markets—most importantly its lending, bond, and stock markets. That allows people to convert their savings into investments to fund innovation and development and share in the successes of those who are making great things happen. The inventive Dutch created the first publicly listed company (the Dutch East India Company) and the first stock market to fund it. These were integral parts of their machine that produced a lot of wealth and power. As a natural consequence, all of the greatest empires developed the world’s leading financial center for attracting and distributing the capital of their times. Amsterdam was the world’s financial center when the Dutch were preeminent, London was when the British were on top, New York is now, and China is quickly developing its own financial center in Shanghai. As the country expands its international dea...