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The first assumption was that the United States was the dominant political and military power but that such power was less significant than before, since economics was the new focus. The second phase still revolved around the three Great Powers -- the United States, China and Europe -- but involved a major shift in the worldview of the United States, which then assumed that pre-eminence included the power to reshape the Islamic world through military action while China and Europe single-mindedly focused on economic matters. 

Nothing is as it was in 1991.

Europe primarily defined itself as an economic power, with sovereignty largely retained by its members but shaped by the rule of the European Union. Europe tried to have it all: economic integration and individual states. But now this untenable idea has reached its end and Europe is fragmenting.

Germany wants to retain the European Union to protect German trade interests and because Berlin properly fears the political consequences of a fragmented Europe.

In the indebted peripheral region, Cyprus has been treated with particular economic savagery as part of the bailout process. Certainly, the Cypriots acted irresponsibly. But that label applies to all of the EU members, including Germany, who created an economic plant so vast that it could not begin to consume what it produces -- making the country utterly dependent on the willingness of others to buy German goods.

Europe can no longer afford pride, and it is every nation for itself. Cyprus set the precedent that the weak will be crushed. It serves as a lesson to other weakening nations, a lesson that over time will transform the European idea of integration and sovereignty.

Authoritarian nationalism is an old European cure-all, one that is re-emerging, since no one wants to be the next Cyprus.

It is nice to imagine expanded domestic demand, but in a country as impoverished as China, increasing demand requires revolutionizing life in the interior. China has tried this many times. It has never worked, and in any case China certainly couldn't make it work in the time needed.

It is interesting to recall the extravagant claims about the future of Japan in the 1980s. Awestruck by growth rates, Westerners did not see the hollowing out of the financial system as growth rates were sustained by cutting prices and profits. Japan's miracle seemed to be eternal. It wasn't, and neither is China's. And China has a problem that Japan didn't: a billion impoverished people. Japan exists, but behaves differently than it did before; the same is happening to China.

Both Europe and China thought about the world in the post-Cold War period similarly. Each believed that geopolitical questions and even questions of domestic politics could be suppressed and sometimes even ignored.

Periods of prosperity, of course, always alternate with periods of austerity, and now history has caught up with Europe and China.

The greatest military power in the world has the ability to defeat armies. But it is far more difficult to reshape societies in America's image.

The United States has emerged into the new period with what is still the largest economy in the world with the fewest economic problems of the three pillars of the post-Cold War world. It has also emerged with the greatest military power.

Now, we are at a point where the post-Cold War model no longer explains the behavior of the world. We are thus entering a new era. I don't have a good buzzword for the phase we're entering, since most periods are given a label in hindsight.

First, the United States remains the world's dominant power in all dimensions. It will act with caution, however, recognizing the crucial difference between pre-eminence and omnipotence.

Second, Europe is returning to its normal condition of multiple competing nation-states. While Germany will dream of a Europe in which it can write the budgets of lesser states, the EU nation-states will look at Cyprus and choose default before losing sovereignty.

Third, Russia is re-emerging. As the European Peninsula fragments, the Russians will do what they always do: fish in muddy waters.

The deals they are making, of which this is a small sample, are not in their economic interests, but they increase Moscow's political influence substantially. 

Fourth, China is becoming self-absorbed in trying to manage its new economic realities.

And fifth, a host of new countries will emerge to supplement China as the world's low-wage, high-growth epicenter. Latin America, Africa and less-developed parts of Southeast Asia are all emerging as contenders

Its two great counterbalances are losing their ability to counter U.S. power because they mistakenly believed that real power was economic power. The United States had combined power -- economic, political and military -- and that allowed it to maintain its overall power when economic power faltered. 

And while China is reaching for military power, it will take many years to produce the kind of power that is global, and it can do so only if its economy allows it to. The United States defeated the Soviet Union in the Cold War because of its balanced power. Europe and China defeated themselves because they placed all their chips on economics. And now we enter the new era.

Moreover, it has to be understood as a global crisis enveloping the United States, Europe and China that has different details but one overriding theme: the relationship between the political order and economic life.

the origin of the current financial crisis was the subprime mortgage meltdown in the United States.

From the standpoint of economics, this was essentially a financial crisis: who made or lost money and how much.

From the standpoint of political economy it raised a different question: the legitimacy of the financial elite.

Then think of the economic system as being divisible into subsystems — various corporate verticals with their own elites, with one of the verticals being the financial system.

A sense emerged that the financial elite was either stupid or dishonest or both.

There was a crisis of confidence in the financial system and a crisis of confidence in the political system. The U.S. government’s actions in September 2008 were designed first to deal with the failures of the financial system. Many expected this would be followed by dealing with the failures of the financial elite, but this is perceived not to have happened.

The Tea Party movement emerged in part as critics of the political elite, focusing on the measures taken to stabilize the system and arguing that it had created a new financial crisis, this time in excessive sovereign debt.

Its argument was that the political elite used the financial crisis to dramatically increase the power of the state (health care reform was the poster child for this) while mismanaging the financial system through excessive sovereign debt.

What had been a minority view was strengthened by the recession.

The European crisis paralleled the American crisis in that financial institutions were bailed out. But the deeper crisis was that Europe did not act as a single unit to deal with all European banks

One is the German version, which has become the common explanation. It holds that Greece wound up in a sovereign debt crisis because of the irresponsibility of the Greek government

The Greek narrative, which is less noted, was that the Germans rigged the European Union in their favor. Germany is the world’s third-largest exporter, after China and the United States (and closing rapidly on the No. 2 spot). By forming a free trade zone, the Germans created captive markets for their goods.

Moreover, the regulations generated by Brussels so enhanced the German position that Greece was helpless.

The point is that Europe is facing two political crises generated by economics. One crisis is similar to the American one, which is the belief that Europe’s political elite protected the financial elite. The other is a distinctly European one, a regional crisis in which parts of Europe have come to distrust each other rather vocally. This could become an existential crisis for the European Union.

The first was to keep factories going by encouraging price reductions to the point where profit margins on exports evaporated.

The second was to provide unprecedented amounts of credit to enterprises facing default on debts in order to keep them in business.

This led to a second crisis, where workers faced the contraction of already small incomes.

The response was to increase incomes, which in turn increased the cost of goods exported once again, making China’s wage rates less competitive, for example, than Mexico’s.

China had previously encouraged entrepreneurs. This was easy when Europe and the United States were booming. Now, the rational move by entrepreneurs was to go offshore or lay off workers, or both.

In the United States, the first impulse was to regulate the financial sector, stimulate the economy and increase control over sectors of the economy.

In Europe, where there were already substantial controls over the economy, the political elite started to parse how those controls would work and who would benefit more.

In China, where the political elite always retained implicit power over the economy, that power was increased.

In the United States, the Tea Party was simply the most active and effective manifestation of that resistance.

In Europe, the resistance came from anti-Europeanists

It also came from political elites of countries like Ireland who were confronting the political elites of other countries.

In China, the resistance has come from those being hurt by inflation

Russia went through this crisis years ago and had already tilted toward the political elite’s control over the economy.

Brazil and India have not experienced the extremes of China, but then they haven’t had the extreme growth rates of China.

Left-wingers opposing globalization and right-wingers opposing immigration are engaged in the same process — challenging the legitimacy of the elites.

This, then, is the third crisis that can emerge: that the elites become delegitimized and all that there is to replace them is a deeply divided and hostile force, united in hostility to the elites but without any coherent ideology of its own.

The first is that the political economic crisis, if not global, is at least widespread, and uprisings elsewhere have their own roots but are linked in some ways to this crisis.

The second is that the crisis is an economic problem that has triggered a political problem, which in turn is making the economic problem worse.

The followers of Adam Smith may believe in an autonomous economic sphere disengaged from politics, but Adam Smith was far more subtle. That’s why he called his greatest book the Wealth of Nations. It was about wealth, but it was also about nations. It was a work of political economy that teaches us a great deal about the moment we are in.

Later in the week, Ben Levisohn authored a column in Barron's called "Smoke Signals from China." He wrote, "In the classic disaster flick 'The Towering Inferno' partygoers ignored a fire in a storage room because they assumed it has been contained. Are investors making the same mistake with China?"

Meanwhile, Goldman Sachs -- where in November 2001 Jim O'Neil coined the term BRICs and forecast that China might surpass the United States economically by 2028 -- cut its forecast of Chinese growth to 7.4 percent. 

Suddenly finding Stratfor amid the conventional wisdom regarding China does feel odd, I must admit. Having first noted the underlying contradictions in China's economic growth years ago, when most viewed China as the miracle Japan wasn't, and having been scorned for not understanding the shift in global power underway, it is gratifying to now have a lot of company.

One of the things masking China's weakening has been Chinese statistics, which Krugman referred to as "even more fictional than most."

China in fact has had an extraordinary period of growth. The last 30 years have been remarkable, marred only by the fact that the Chinese started at such a low point due to the policies of the Maoist period.

China's growth surge was built on a very unglamorous fact: Chinese wages were far below Western wages, and therefore the Chinese were able to produce a certain class of products at lower cost than possible in the West.

China had another essential policy: Beijing was terrified of unemployment and the social consequences that flow from it. This was a rational fear, but one that contradicted China's main strength, its wage advantage.

Growing the economy is possible, but not growing profitability. Eventually, the economy will be dragged down by its inefficiency. 

As businesses become inefficient, production costs rise. And that leads to inflation. As money is lent to keep inefficient businesses going, inflation increases even more markedly. The increase in inefficiency is compounded by the growth of the money supply prompted by aggressive lending to keep the economy going. As this persisted over many years, the inefficiencies built into the Chinese economy have become staggering. 

China's overall per capita GDP is around the same level as the Dominican Republic, Serbia, Thailand or Jamaica.

The Chinese have maintained a strategy of depending on exports without taking into account the operation of the business cycle in the West, which means that periodic and substantial contractions of demand will occur. China's industrial plant is geared to Western demand. When Western demand contracted, the result was the mess you see now.

The Chinese can prevent the kind of crash that struck East Asia in 1997. Their currency isn't convertible, so there can't be a run on it. They continue to have a command economy; they are still communist, after all. But they cannot avoid the consequences of their economic reality, and the longer they put off the day of reckoning, the harder it will become to recover from it.

The Chinese economic performance will degrade, but crisis will be avoided and political interests protected. Since much of China never benefited from the boom, there is a massive force that has felt marginalized and victimized by coastal elites. That is not a bad foundation for the Communist Party to rely on.

Rather than the feared repatriation of funds, the United States will continue to be the target of major Chinese cash inflows.

In a world where Europe is still reeling, only the United States is both secure and large enough to contain Chinese appetites for safety. Just as Japanese investment in the 1990s represented capital flight rather than a healthy investment appetite, so the behavior we have seen from Chinese investors in recent years is capital flight:

The major shift in the international order will be the decline of China's role in the region. China's ability to project military power in Asia has been substantially overestimated.

Its naval capacity is still limited compared with the United States. The idea that it will compensate for internal economic problems by genuine (as opposed to rhetorical) military action is therefore unlikely.

China will continue to be a major power, and it will continue to matter a great deal economically. Being troubled is not the same as ceasing to exist. China will always exist. It will, however, no longer be the low-wage, high-growth center of the world. Like Japan before it, it will play a different role.

Then came the reversal: from the 1920s to 1980, it shrank back to levels not seen since the mid-19th century.

Does observing just one and a half cycles really show that there is a regular pattern in the dynamics of inequality? No, by itself it doesn’t.

In our book Secular Cycles (2009), Sergey Nefedov and I applied the Phillips approach to England, France and Russia throughout both the medieval and early modern periods, and also to ancient Rome.

And the cycles of inequality were an integral part of the overall motion.

Cycles in the real world are chaotic, because complex systems such as human societies have many parts that are constantly moving and influencing each other.

Understanding (and perhaps even forecasting) such trend-reversals is at the core of the new discipline of cliodynamics, which looks at history through the lens of mathematical modelling.

One of the most important forces affecting the labour supply in the US has been immigration

Another reason why the labour supply in the US went up in the 19th century is, not to put too fine a point on it, sex.

This connection between the oversupply of labour and plummeting living standards for the poor is one of the more robust generalisations in history.

The population of England doubled between 1150 and 1300.

causing the population of London to balloon from 20,000 to 80,000.

fourfold increase in food prices and a halving of real wages.

when a series of horrible epidemics, starting with the Black Death of 1348, carried away more than half of the population, the same dynamic ran in reverse.

Much the same pattern can be seen during the secular cycle of the Roman Principate.

Naturally, the conditions affecting the labour supply were different in the second half of the 20th century in the US. An important new element was globalisation

Falling wages isn’t the only reason why labour oversupply leads to inequality. As the slice of the economic pie going to employees diminishes, the share going to employers goes up.

And so in 13th-century England, as the overall population doubles, we find landowners charging peasants higher rents and paying less in wages: the immiseration of the general populace translates into a Golden Age for the aristocrats.

the number of knights and esquires tripled between 1200 and 1300.

Only the gentry drank wine, and around 1300, England imported 20,000 tuns or casks of it from France per year. By 1460, this declined to only 5,000.

In the US between around 1870 and 1900, there was another Golden Age for the elites, appropriately called the Gilded Age.

And just like in 13th-century England, the total number of the wealthy was shooting up. Between 1825 and 1900, the number of millionaires (in constant 1900 dollars) went from 2.5 per million of the population to 19 per million.

On the face of it, this is a wonderful testament to merit-based upward mobility. But there are side effects. Don’t forget that most people are stuck with stagnant or falling real wages. Upward mobility for a few hollows out the middle class and causes the social pyramid to become top-heavy.

As the ranks of the wealthy swell, so too do the numbers of wealthy aspirants for the finite supply of political positions.

The civil wars of the first century BC, fuelled by a surplus of politically ambitious aristocrats, ultimately caused the fall of the Republic and the establishment of the Empire.

very intense status rivalry

Archaeology confirms a genuine and dramatic shift towards luxury.

Social Darwinism took off during the original Gilded Age, and Ayn Rand (who argued that altruism is evil) has grown astonishingly popular during what we might call our Second Gilded Age.

Labour markets are especially sensitive to cultural norms about what is fair compensation, so prevailing theories about inequality have practical consequences.

the US political system is much more attuned to the wishes of the rich than to the aspirations of the poor.

Inverse relationship between well-being and inequality in American history. The peaks and valleys of inequality (in purple) represent the ratio of the largest fortunes to the median wealth of households (the Phillips curve). The blue-shaded curve combines four measures of well-being: economic (the fraction of economic growth that is paid to workers as wages), health (life expectancy and the average height of native-born population), and social optimism (the average age of first marriage, with early marriages indicating social optimism and delayed marriages indicating social pessimism).

In some historical periods it worked primarily for the benefit of the wealthy. In others, it pursued policies that benefited the society as a whole. Take the minimum wage, which grew during the Great Compression era and declined (in real terms) after 1980.

The top marginal tax rate was 68 per cent or higher before 1980; by 1988 it declined to 28 per cent.

In one era, government policy systematically favoured the majority, while in another it favoured the narrow interests of the wealthy elites. This inconsistency calls for explanation.

Unequal societies generally turn a corner once they have passed through a long spell of political instability.

We see this shift in the social mood repeatedly throughout history — towards the end of the Roman civil wars (first century BC), following the English Wars of the Roses (1455-85), and after the Fronde (1648-53), the final great outbreak of violence that had been convulsing France since the Wars of Religion began in the late 16th century.

The worst incident in US labour history was the West Virginia Mine War of 1920—21, culminating in the Battle of Blair Mountain.

The US, in short, was in a revolutionary situation, and many among the political and business elites realised it.

The US elites entered into an unwritten compact with the working classes. This implicit contract included the promise that the fruits of economic growth would be distributed more equitably among both workers and owners. In return, the fundamentals of the political-economic system would not be challenged (no revolution).

while making such ‘categorical inequalities’ worse, the compact led to a dramatic reduction in overall economic inequality.

The co-operating group was mainly native-born white Protestants. African-Americans, Jews, Catholics and foreigners were excluded or heavily discriminated against.

When Barry Goldwater campaigned on a pro-business, anti-union and anti-big government platform in the 1964 presidential elections, he couldn’t win any lasting support from the corporate community. The conservatives had to wait another 16 years for their triumph.

It is no coincidence that the life of Communism (from the October Revolution in Russia in 1917 to the fall of the Berlin Wall in 1989) coincides almost perfectly with the Great Compression era.

when Communism collapsed, its significance was seriously misread. It’s true that the Soviet economy could not compete with a system based on free markets plus policies and norms that promoted equity.

all of these trends are part of a complex and interlocking system. I don’t just mean that everything affects everything else; that would be vacuous.

Cliodynamics also explains why historical reversals in such diverse areas as economics and culture happen at roughly similar times. The theory of secular cycles was developed using data from historical societies, but it looks like it can provide answers to questions about our own society.

In other words, we are rapidly approaching a historical cusp, at which the US will be particularly vulnerable to violent upheaval. This prediction is not a ‘prophecy’. I don’t believe that disaster is pre-ordained, no matter what we do. On the contrary, if we understand the causes, we have a chance to prevent it from happening. But the first thing we will have to do is reverse the trend of ever-growing inequality.

Jiang, emerging as a post-Tiananmen Square leader, was faced with a situation where the Party was rapidly losing its legitimacy and where state-owned enterprises were encumbering China's economic opening and reform.

by the time he took on the additional role of president in 1993, the decline of the Japanese economy and the boom in the United States and the rest of Asia left an opening for China's economy to resurge.

When Hu succeeded Jiang in 2002-2003, China's economic growth was seemingly unstoppable, perhaps even gaining steam from the Asian economic crisis.

Xi may not have to rebuild a fractured Party or state as Deng did, but in some ways he faces the same fundamental challenge: redirecting and redefining China.

Deng emerged as China's paramount leader out of the struggles and chaos of the Gang of Four era and the Cultural Revolution. He redefined what China was and where China was going, not out of a desire to try something different or an infatuation with "Western" economic models but out of a fundamental need to change course.

while this will likely entail selectively scaling back the Party's power in certain areas, it does not mean the overall reduction of Party power.

The consolidation of Party and political leadership was made clear in the formula. It is matched by the general secretary and president also holding the dual roles of chairman on the two parallel Central Military Commissions, one under the Party and the other under the state.

Jiang's accession to the presidency formalized Party-government leadership, but consensus leadership constrained his power. Jiang may have technically held all the key posts of power, but other power brokers in the Politburo could counterbalance him.

Ensuring the right web of connections often became more important than fulfilling the responsibilities of the Party or the state.

The intertwining threads were just too complex. Rapid policy swings were impossible and factional battles that threatened the fabric of the state were effectively eliminated, but the cost was a decision-making process that was increasingly cumbersome and timid.

Though China was corrupt, beset with a cumbersome regulatory environment and prone to violations of intellectual property rights, it was fairly predictable overall, unlike so many other developing economies.

But when the foundation of China's economy began to shake after 2008, when China's very success drove up wages and prices as its biggest consumers faced serious economic problems of their own, China's consensus leadership proved unequal to the task.

To overcome the limitations of consensus leadership, Xi apparently is trying to strengthen the role of president.

This should add efficiency to the system (its stated goal), but it may also confer greater central oversight and control by cutting through the webs of vested interests that have taken hold in many of China's most powerful institutions.

They will introduce more market and competitive mechanisms while giving Beijing greater control over the overall structure.

to create a more nimble and adaptive government, Xi is seeking to harness the people in a slight reversal, using his role as president to rebuild the legitimacy of the Party

But China is at a turning point, and without nimble leadership, a system as large and complex as China can move very rapidly down an unpredictable and uncontrollable path.

The Rocky Mountains dominate the Western third of the northern and central parts of North America

Farther east of this semiarid region are the well-watered plains of the prairie provinces of Canada and the American Midwest

East of this premier arable zone lies a second mountain chain known as the Appalachians.

North of the Great Lakes region lies the Canadian Shield, an area where repeated glaciation has scraped off most of the topsoil.

The continent’s final geographic piece is an isthmus of varying width, known as Central America, that is too wet and rugged to develop into anything more than a series of isolated city-states, much less a single country that would have an impact on continental affairs. Due to a series of swamps and mountains where the two American continents join, there still is no road network linking them, and the two Americas only indirectly affect each other’s development.

Very few of its tributaries begin at high elevations, making vast tracts of these rivers easily navigable. In the case of the Mississippi, the head of navigation — just north of Minneapolis — is 3,000 kilometers inland.

The unified nature of this system greatly enhances the region’s usefulness and potential economic and political power.

This factor is the primary reason why the major economic powers of the past half-millennia have been Japan, Germany, France, the United Kingdom and the United States.

The vast bulk of the prime agricultural lands are within 200 kilometers of a stretch of navigable river.

First, navigable rivers by definition service twice the land area of a coastline (rivers have two banks, coasts only one).

Second, rivers are not subject to tidal forces, greatly easing the construction and maintenance of supporting infrastructure.

Third, storm surges often accompany oceanic storms, which force the evacuation of oceanic ports.

First are the severe indentations of North America’s coastline, granting the region a wealth of sheltered bays and natural, deep-water ports.

Second, there are the Great Lakes.

Third and most important are the lines of barrier islands that parallel the continent’s East and Gulf coasts.

There are many secondary stretches of agricultural land as well

The rivers of the American Atlantic coastal plain — flowing down the eastern side of the Appalachians — are neither particularly long nor interconnected. This makes them much more like the rivers of Northern Europe in that their separation localizes economic existence and fosters distinct political identities, dividing the region rather than uniting it. The formation of such local — as opposed to national — identities in many ways contributed to the American Civil War.

What is now Mexico lacks even a single navigable river of any size. Its agricultural zones are disconnected and it boasts few good natural ports.

Canada’s maritime transport zones

Its first, the Great Lakes, not only requires engineering but is shared with the United States.

The second, the St. Lawrence Seaway, is a solid option (again with sufficient engineering), but it services a region too cold to develop many dense population centers.

The eastern end of the border could be anywhere within 300 kilometers north or south of its current location (at present the border region’s southernmost ports — Brownsville and Corpus Christi — lie on the U.S. side of the border). As one moves westward to the barren lands of New Mexico, Arizona, Chihuahua and Sonora, the possible variance increases considerably. Even controlling the mouth of the Colorado River where it empties into the Gulf of California is not a critical issue, since hydroelectric development in the United States prevents the river from reaching the Gulf in most years, making it useless for transport.

In the north, the Great Lakes are obviously an ideal break point in the middle of the border region, but the specific location of the line along the rest of the border is largely irrelevant. East of the lakes, low mountains and thick forests dominate the landscape — not the sort of terrain to generate a power that could challenge the U.S. East Coast.

So long as the border lies north of the bulk of the Missouri River’s expansive watershed, the border’s specific location is somewhat academic, and it becomes even more so when one reaches the Rockies.

On the far western end of the U.S.-Canada border is the only location where there could be some border friction. The entrance to Puget Sound — one of the world’s best natural harbors — is commanded by Vancouver Island.

It is common knowledge that the United States began as 13 rebellious colonies along the east coast of the center third of the North American continent. But the United States as an entity was not a sure thing in the beginning

Most of the original 13 colonies were lightly populated by European standards — only Philadelphia could be considered a true city in the European sense — and were linked by only the most basic of physical infrastructure. Additionally, rivers flowed west to east across the coastal plain, tending to sequester regional identities rather than unify them.

With European attentions diverted elsewhere, the young United States had an opportunity to carve out a future for itself relatively free of European entanglements.

This was not England, an island that forced the early state into the expense of a navy. This was not France, a country with three coasts and two land borders that forced Paris to constantly deal with threats from multiple directions. This was not Russia, a massive country suffering from short growing seasons that was forced to expend inordinate sums of capital on infrastructure simply to attempt to feed itself.

The early nation was particularly vulnerable to its former colonial master.

There are only two ways to protect a coastal community from sea power. The first is to counter with another navy.

The second method of protecting a coastal community is to develop territories that are not utterly dependent upon the sea.

Achieving such strategic depth was both an economic and a military imperative.

The United States was entirely dependent upon the English imperial system not just for finished goods and markets but also for the bulk of its non-agricultural raw materials, in particular coal and iron ore.

The Appalachians may not be the Swiss Alps, but they were sufficiently rugged to put a check on any deep and rapid inland expansion.

The Ohio River faced the additional problem of draining into the Mississippi, the western shore of which was the French territory of Louisiana

At the time, Napoleon was girding for a major series of wars that would bear his name. France not only needed cash but also to be relieved of the security burden of defending a large but lightly populated territory in a different hemisphere.

This single road (known in modern times as Interstate 40 or Interstate 70 for most of its length) allowed American pioneers to directly settle Ohio, Indiana, Illinois and Missouri and granted them initial access to Michigan, Wisconsin, Iowa and Minnesota.

The trail was directly responsible for the initial settling of Kansas, Nebraska, Wyoming, Idaho and Oregon. A wealth of secondary trails branched off from the main artery — the Mormon, Bozeman, California and Denver trails — and extended the settlement efforts to Montana, Colorado, Utah, Nevada and California.

From beginning to end, the entire process required less than 70 years.

The Columbia River Valley and California’s Central Valley are not critical American territories.

among other things, they grant the United States full access to the Pacific trading basin — only that control of them is not imperative to American security.

The first land threat to the young United States was in essence the second phase of the Revolutionary War

the British navy could outmatch anything the Americans could float

Geopolitically, the most critical part of the war was the participation of semi-independent British Canada.

Canadian forces, unlike the British, did not have a supply line that stretched across the Atlantic.

Canada is far enough north that its climate is far harsher than that of the United States, with all of the negative complications one would expect for population, agriculture and infrastructure.

What few rivers Canada has neither interconnect nor remain usable year round.

Most of these river connections also have rapids and falls, greatly limiting their utility as a transport network.

the St. Lawrence Seaway — a series of locks that link the St. Lawrence River to the Great Lakes and allow full ocean access — was not completed until 1959.

Newfoundland and Prince Edward Island — are disconnected from the Canadian landmass and unable to capitalize on what geographic blessings the rest of the country enjoys

what population centers Canada does have are geographically sequestered from one another by the Canadian Shield and the Rocky Mountains.

All four provinces have been forced by geography and necessity to be more economically integrated with their southern neighbors than with their fellow Canadian provinces.

The British were exhausted from the Napoleonic Wars in Europe and, with the French Empire having essentially imploded, were more interested in reshaping the European balance of power than re-engaging the Americans in distant North America.

the Americans were mobilized, angry and — remembering vividly the Canadian/British sacking of Washington — mulling revenge.

Using a combination of illegal settlements, military pressure and diplomacy, the United States was able to gain control of east and west Florida from Madrid in 1819 in exchange for recognizing Spanish claims to what is now known as Texas

the United States’ efforts to secure its southwestern borders shifted to a blatant attempt to undermine and ultimately carve up the one remaining Western Hemispheric entity that could potentially challenge the United States: Mexico.

the United States quickly transformed itself from a poor coastal nation to a massively capital-rich commodities exporter.

the biggest potential security threat to the United States was newly independent Mexico, the border with which was only 150 kilometers from New Orleans. In fact, New Orleans’ security was even more precarious than such a small distance suggested.

In the United States, the cheap transport system allowed early settlers to quickly obtain their own small tracts of land.

in time the wealth accumulated to the point that portions of the United States had the capital necessary to industrialize.

Mexico, in contrast, suffered from a complete lack of navigable rivers and had only a single good port (Veracruz).

First and most obviously, the lack of navigable waterways and the non-abundance of ports drastically reduced Mexico’s ability to move goods and thereby generate its own capital. Second, the disassociated nature of Mexico’s agricultural regions forced the construction of separate, non-integrated infrastructures for each individual sub-region, drastically raising the costs of even basic development.

Third, the highland nature of the Mexico City core required an even more expensive infrastructure, since everything had to be transported up the mountains from Veracruz.

very different economic and social structure

Instead of small landholdings, Mexican agriculture was dominated by a small number of rich Spaniards

The Mexican landowners had, in essence, created their own company towns and saw little benefit in pooling their efforts to industrialize. Doing so would have undermined their control of their economic and political fiefdoms.

In just two generations — by 1870 — the American population had ballooned to 38.6 million while Mexico’s was only 8.8 million.

The first was Texas, and the primary means was settlement as enabled by the Austin family.

For a long time, I was misled by the fact that 90% of the available books frame globalization and the emergence of modernity in terms of the nation-state as the fundamental unit of analysis, with politics as the fundamental area of human activity that shapes things.

But the more I’ve thought about it, the more I’ve been pulled towards a business-first perspective on modernity and globalization.

Culture is the most mysterious, illegible and powerful force.

But one quality makes gravity dominate at large space-time scales: gravity affects all masses and is always attractive, never repulsive.  So despite its weakness, it dominates things at sufficiently large scales. I don’t want to stretch the metaphor too far, but something similar holds true of business.

On the scale of days or weeks, culture, politics and war matter a lot more in shaping our daily lives.

Business though, as an expression of the force of unidirectional technological evolution, has a destabilizing unidirectional effect. It is technology, acting through business and Schumpeterian creative-destruction, that drives monotonic, historicist change, for good or bad. Business is the locus where the non-human force of technological change sneaks into the human sphere.

Culture is suspicious of technology. Politics is mostly indifferent to and above it. War-making uses it, but maintains an arms-length separation.

It is business that creates the world of magic, not technology itself. And the story of business in the last 400 years is the story of the corporate form.

What was new was the idea of a publicly traded joint-stock corporation, an entity with rights similar to those of states and individuals, with limited liability and significant autonomy

In politics, Mercantilism led to balance-of-power models.

In business, once the Age of Exploration (the 16th century) opened up the world, it led to mercantilist corporations focused on trade

The forces of radical technological change — the Industrial Revolution — did not seriously kick until after nearly 200 years of corporate evolution (1600-1800) in a mercantilist mold.

Smith was both the prophet of doom for the Mercantilist corporation, and the herald of what came to replace it: the Scumpeterian corporation.

The corporate form therefore spent almost 200 years — nearly half of its life to date — being shaped by Mercantilist thinking, a fundamentally zero-sum way of viewing the world.

The Black Hills Gold Rush of the 1870s, the focus of the Deadwood saga, was in a way the last hurrah of Mercantilist thinking. William Randolph Hearst, the son of gold mining mogul George Hearst who took over Deadwood in the 1870s, made his name with newspapers. The baton had formally been passed from mercantilists to schumpeterians.

for America, corporations employed less than 20% of the population in 1780, and over 80% in 1980, and have been declining since

Certainly corporations today seem far more powerful than those of the 1700s, but the point is that the form is much weaker today, even though it has organized more of our lives. This is roughly the same as the distinction between fertility of women and population growth: the peak in fertility (a per-capita number) and peak in population growth rates (an aggregate) behave differently.

a useful 3-phase model of the history of the corporation: the Mercantilist/Smithian era from 1600-1800, the Industrial/Schumpeterian era from 1800 – 2000 and finally, the era we are entering, which I will dub the Information/Coasean era

To a large extent, the history of the first 200 years of corporate evolution is the history of the East India Company. And despite its name and nation of origin, to think of it as a corporation that helped Britain rule India is to entirely misunderstand the nature of the beast.

At a broader level, the EIC managed to balance an unbalanced trade equation between Europe and Asia whose solution had eluded even the Roman empire.

For this scheme to work, three foreground things and one background thing had to happen: the corporation had to effectively take over Bengal (and eventually all of India), Hong Kong (and eventually, all of China, indirectly) and England.

The background development was simpler. England had to take over the oceans and ensure the safe operations of the EIC.

eventually, as the threat from the Dutch was tamed, it became clear that the company actually had more firepower at its disposal than most of the nation-states it was dealing with. The realization led to the first big domino falling, in the corporate colonization of India, at the battle of Plassey.

The EIC was the original too-big-to-fail corporation. The EIC was the beneficiary of the original Big Bailout. Before there was TARP, there was the Tea Act of 1773 and the Pitt India Act of 1783. The former was a failed attempt to rein in the EIC, which cost Britain the American Colonies.  The latter created the British Raj as Britain doubled down in the east to recover from its losses in the west. An invisible thread connects the histories of India and America at this point. Lord Cornwallis, the loser at the Siege of Yorktown in 1781 during the revolutionary war, became the second Governor General of India in 1786.

But these events were set in motion over 30 years earlier, in the 1750s. There was no need for backroom subterfuge.  It was all out in the open because the corporation was such a new beast, nobody really understood the dangers it represented.

The East India bubble was a turning point.

Over the next 70 years, political, military and economic power were gradually separated and modern checks and balances against corporate excess came into being.

It is not too much of a stretch to say that for at least a century and a half, England’s foreign policy was a dance in Europe in service of the EIC’s needs on the oceans.

Mahan’s book is the essential lens you need to understand the peculiar military conditions in the 17th and 18th centuries that made the birth of the corporation possible.)

arguably, the doings of the EIC and VOC on the water were more important than the pageantry on land.  Today the invisible web of container shipping serves as the bloodstream of the world. Its foundations were laid by the EIC.

I call this the “most misleading table in the world.”