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

by Ray Dalio

keep in mind that the two things about war that one can be most confident in are 1) that it won’t go as planned and 2) that it will be far worse than imagined. It is for those reasons that so many of the principles that follow are about ways to avoid shooting wars. Still, whether they are fought for good reasons or bad, shooting wars happen.

People today often assume that World War I must have been easy to foresee in the years leading up to it, but that wasn’t the case. Before the war, there had been about 50 years of almost no conflict between the world’s major powers. During those 50 years the world experienced the greatest innovation and productivity growth rates it had ever seen, which led to enormous wealth and prosperity. Globalization was at new highs, with global exports up several multiples in the 50 years prior to World War I. Countries were more interconnected than ever. The US, France, Germany, Japan, and Austria-Hungary were rapidly rising empires, experiencing dizzying technological advancement. The UK was still the dominant global power. Russia was rapidly industrializing. Of those countries shown in the table of worst investor experiences, only China was obviously in decline. Strong alliances among European powers were seen at the time as a means of keeping the peace and maintaining the balance of power. Going into 1900 things looked great, except for the fact that wealth gaps and resentments were increasing and debts had become large. Between 1900 and 1914 these conditions worsened and international tensions increased. Then came the periods of terrible returns I just described. But it was worse than just terrible returns. In addition, the impacts on wealth of wealth confiscations, confiscatory taxes, capital controls, and markets being closed were enormous. Most investors today don’t know of s...