Growing Geopolitical Uncertainty, the "Wild Card" of the Near Future

As we learned on September 11, 2001, geopolitical threats can materialize in a moment and change the reality of our lives forever.  For investors, managers, and citizens, the real challenge is to be prepared to make the most of whatever the future holds. 

According to Stratfor Global Intelligence,¹ threats that may be realized in the coming decade are looming from numerous quarters. The obvious ones include Iraq and Iran.  Other threats are not so obvious, such as Mexico. 

Mexico is particularly important, since it shares our border.  The efforts of authorities to stem the tide of drugs and the associated violence are threatening the very stability of the country itself.  There were more deaths from the drug cartels there in 2008 alone than there were U.S. soldiers killed in Iraq since 2004.

As pointed out by the U.S. Joint Forces Command in its Joint Operating Environment² report, weak and failing states like Mexico and Pakistan present major challenges and increase uncertainty for the developed world.  The historical examples of Lebanon and Yugoslavia show how quickly a state can fail and what the long-term consequences can be.  This makes it all the more important to look carefully at what Pakistan and Mexico may hold in store for the world. 

If Pakistan were to collapse, its nuclear weapons could fall into the hands of terrorists, sharply ratcheting up global insecurity.  If Mexico were to collapse, it is not at all certain that the border could be secured.  Even as we speak, the broad economic crisis means that Mexico, which is heavily dependent on the U.S. for its economic survival, is becoming more hard-pressed.  That only makes criminal gangs bolder in their activities, since they have little to lose. 

Both of these countries are being undermined by unconventional forces, such as militias and terrorist groups.  These groups operate across national boundaries and are not subject to the normal controls on power, such as treaties.  For example, Hezbollah is a militia that has the weapons and training to fight like a state, but has none of the political and social conventions that restrain real states in the use of force. 

Modern information technology — as well as low-cost military technologies — has made it possible for small groups to wield increasing power in the modern world.  The use of the Internet for training, organization, and recruiting makes these groups far more powerful than their size would suggest.  Also, today's more precise and destructive conventional weapons, as well as biological and chemical weapons, may allow these groups to pose an increased threat to global security.  Today, there is little stopping a very rich individual or small group — such as a drug cartel — from acquiring and using those weapons.

This has special significance for the United States and Mexico, where such weapons and increasingly sophisticated tactics could endanger border-states in the U.S. and even the interior of the country. 

When President Felipe Calderon took office, he ramped up the war on drugs in Mexico.  His government was successful in significantly disrupting the drug cartels, which were traditionally polarized between the cartel on the Gulf of Mexico and the cartel in the state of Sinaloa.  Because Calderon focused on the Gulf cartel, a vacuum of power has developed that other cartels are trying to fill — which has led to an increase in violence.  Paradoxically, the success of Calderon's policies has led to a deteriorating situation. 

This trend toward greater geopolitical turmoil leads us to make the following four forecasts: 

First, the first half of the 21^st century will continue to be characterized by dramatic "wild card" disruptions.  As long as there are failing states and rogue actors, combined with readily available advanced technology, there will be people motivated to disrupt otherwise stable states.  This means that businesses, individual investors, and even ordinary workers will have to factor highly improbable events — black swans — into their planning strategy. 

Second, pressure to plan for random high-impact events will cause a reallocation of resources at every level.  When people regard the world as basically stable, they spend and invest one way.  When they regard it as fundamentally unstable, they behave differently.  An emphasis on materials, resources, and investments that can withstand a shock will characterize the markets that emerge from the current global recession.  In many areas, this shift in thinking will be reflected in a greater emphasis on gold, government bonds, durable commodities that everyone needs, and the more recession-proof businesses, such as pharmaceuticals and health care. 

Third, the U.S. military will have to change its thinking.  The military has traditionally suffered from the error of planning for the last war it fought, only to be surprised by a new kind of warfare.  Iraq and the 9-11 attacks have given us a window on the future, in which asymmetrical and unconventional conflict is the rule, not the exception.  The learning curve has been steep, but it will have to get steeper for the military to hold in check all the potential sources of threat in the world.

Fourth, the needs of the military will require new treaties and agreements among friendly nations in order to form a coalition capable of managing all the various risks, from Mexico to the Middle East.  No one nation, not even the U.S., will be able to do it alone.  As terrorists and non-state actors increase their destructive power, otherwise reluctant nations will come forth with their own military contributions to make a suitable force for global defense.  When all rational nations cooperate, not even the most determined terrorist organization will be able to flourish.