Top Ten Books On Geopolitics

A number of clients and colleagues have asked me for a recommended reading list on “geopolitics.” This is the “top ten” list.

Geopolitics, as a discipline or social science, does not exist. Furthermore, for many investors, it is simply a catch-all term for everything that is not economics or finance, but that still leaves a vast subject area that covers everything from history, political science, sociology, anthropology, qualitative methods, and psychology. Within each of those disciplines, some methods and ideas are more relevant for investors than others.

My reading list is therefore an eclectic mix of topics that cover qualitative methods, psychology, and political science (with a special skew towards international relations theory and the ‘classics’ of geopolitics). I only recommend two history books, largely because I believe one should always be reading history. The two books cover the episodes I think are particularly relevant to contemporary geopolitics: Imperialism and late 19th century European history.

Readings that you will not see recommended in my list are works by Halford Mackinder and Alfred Thayer Mahan. These two men are considered the fathers of geopolitical strategic thought, but I recommend that instead of reading their work in detail, investors read summaries of their work (such as my own blog post on the subject). Both have influenced strategic military planners from Wilhelm II to U.S. defense planners at the Pentagon, but their ideas are fairly simple to digest and do not require careful study.

Below is therefore a “top-10” list (I could not actually keep it to just 10!) of books that I believe will stimulate investors to think outside the ‘market’ box. Some books are useful for methodology, specific subject areas, and different levels of analysis (society, state, international system, human nature, organizational behavior, etc.). Therefore, I try to assemble a best of the best list, each with a little description for why I am recommending the particular book. They have all influenced my thinking and my own eclectic (‘fox’ as opposed to a ‘hedgehog,’ to use Isiah Berlin’s terminology) approach to analysis. Note that I tried to keep this reading list fairly up-to-date with recent titles and as such it ignores a slew of philosophical and theoretical works that have shaped modern social science. The point of the list is to focus on readable and accessible works.

  1. Psychology of Intelligence Analysis – Richards J. Heuer (2005). This book is actually published online in PDF format; it was commissioned by the CIA and provides a great overview of how to do intelligence-relevant social and political research. It is a methodology book, but it is also extremely accessible, intuitive, short, and useful.
  2. The Signal And The Noise… Why So Many Predictions Fail – But Some Don’t – Nate Silver (2013). Another methodology book. Silver shows the value of Bayesian probability modeling (crucial for thinking about investment-relevant forecasts), but also cautions against an overreliance on quantification and data. A more thorough study, but also far more tedious to get through, would be Philip Tetlock’s Expert Political Judgment (2005). Tetlock shows that most political judgment is not expert at all.
  3. The Person And The Situation – Lee Ross and Richard Nisbett (2011). The latest edition of this social psychology classic is a methodological must-read for anyone studying politics and societies. It illustrates the folly of imbuing personality with agency, as opposed to emphasizing the context/situation. This book essentially makes the point that context/situation/constraints are far more relevant than preferences. That is a powerful point for anyone trying to predict policymaker moves.
  4. Guns, Germs, and Steel – Jared Diamond (1997). As macro of an overview of human development as it gets. Diamond stresses geography, climate, and biology. The book tries to explain European/Western dominance from a very macro, super materialist (as opposed to ideological and cultural) perspective. It is an exercise in geographic determinism. I don’t agree with all its conclusions, but it provides a worthy mental workout that forces the reader to accept that there are impersonal forces shaping outcomes.
  5. The Dynamics of Global Dominance: European Overseas Empires (1415-1980) – David Abernathy (2000). A comprehensive overview of European colonization and imperialism, this book attempts to explain why Europe conquered the world. Unlike Guns, Germs, and Steel, it uses micro-analysis to explain European domination, relying on social and political factors rather than geography. Particularly powerful is Abernathy’s argument that inter-state competition and the lack of a central continental power created European imperialism.
  6. Modernization, Cultural Change, and Democracy: The Human Development Sequence – Ronald Inglehart and Christian Welzel (2005). The authors argue that wealth changes human values, which then leads to demands for democracy. I don’t necessarily agree with all of the conclusions in the book – I am of the belief that development and modernity can be reversed, for example – but it is certainly an important contribution to the study of social and human development. Also, great survey data that should be updated soon on their website, I have used it in BCA Geopolitical Strategy analyses before.
  7. The Rise And Decline Of Nations – Moncur Olson (1982). A completely different view of modernization and development from Inglehart and Welzel, Olson emphasizes interest group choices and policies. Olson is also best known for his “collective action dilemma,” which specifically explores the dynamics of interest groups.
  8. The World In Depression, 1929-1939 – Charles Kindleberger (2013, 40th anniversary edition). Kindleberger introduces the ‘hegemonic stability theory’ through the study of the Great Depression. The idea is that the world, lacking a single superpower, was allowed to descend into a Depression. The new edition has an excellent foreword by Barry Eichengreen, whose Globalizing Capital (1996) really should have made the reading list as well.
  9. The Tragedy Of Great Power Politics – John Mearsheimer (2014 edition). Mearsheimer makes a compelling case for why the unbalanced multipolar system is the most volatile geopolitical arrangement. The 2014 updated edition also contains a chapter on why China will not rise peacefully. There are many books of international relations (IR) theory that could have made the list, but this one is, in my view, the most relevant today.
  10. The War That Ended Peace – Margaret Macmillan (2014). The best overview of European history during the late 19th and early 20th century, and how that period led to the First World War. It describes very well the unbalanced multipolar context that led to the Great War. It is an empirical/historical complement to Mearsheimer’s theoretical work. Every investor should know about this period of global history.
  11. The End Of Power – Moises Naim (2013). The premise of Naim’s book is that power – the ability of those in positions of power to shape events at the expense of others – is decaying everywhere. Naim argues that changes in values (very much along the Inglehart and Welzel line of thought), education levels, and wealth are empowering individuals and the less powerful. He also points out why this is such a dangerous development, potentially leading to an anarchic world.
  12. A Logic Of Expressive Choice – Alexander A. Schuessler (2000). This book illustrates why voters vote to express their identity, not because of expectations of policy outcomes. A must-read to understand how voter preferences are determined. For example, this is a useful paradigm that explains why the Greeks continue to support the euro at very high rates, despite their severe disagreements with the Berlin-Brussels axis over policies.
  13. The Capital – Karl Marx (The Oxford World’s Classics abridgement, 1999). One of the most useful studies of social systems and economics. The chapter on ‘exchange’ is a classic example of materialist dialectic, a structural approach to analysis that disaggregates all societal and cultural factors and concentrates purely on the material structure.
  14. The Protestant Ethic And The Spirit Of Capitalism – Max Weber. Marx’s Das Kapital should be read in conjunction with Weber’s ‘Spirit Of Capitalism.’ Unlike Marx’s materialist dialectic, Weber introduces cultural and societal factors in explaining economic development. The two works complement each other extremely well and illustrate the different methodological approaches to the study of politics, economics, and societies. Also, Weber’s book is far more accessible, shorter, and interesting than Marx’s tome.
  15. The Prince – Niccolo Machiavelli. An absolute must read for anyone studying politics. It is short, to the point, and the first attempt at a systematic study of politics by any modern Western philosopher. Machiavelli is considered to be the father of political science.

We* Read (And Liked)… Only Yesterday – An Informal History Of The 1920s

Frederick Lewis Allen’s Only Yesterday1 is by no means a well-kept secret. It was a best-seller when it was published in 1931, and continues to show up on reading lists of both university courses and famous investors. For anyone interested in learning about the prelude to the Big Crash, this is a must-read.

As the title implies, Only Yesterday chronicles American life in the 1920s. The book reinforces the popular image of that era (a decade of prosperity and riotous living), but most fascinating are Allen’s descriptions of the profound social changes that took place in the 1920s: the clash between young and old after the war and the rise of the consumer economy.

It is impossible to finish the book without reflecting on how history tends to rhyme (if not repeat).

Lewis colourfully describes consumers’ exuberance in the 1920s, which led to the ‘age of thrift’ that eventually became embedded in the generation that lived through the Great Depression. Similarly, today’s sub-par consumption patterns have their roots in the housing/mortgage bubble of the 2000s. Perhaps today’s Millenials are therefore an echo generation of the ‘Silent Generation’ that was born into the depression of the 1930s.

A second important similarity is the role of demographics and generational change. The Lost Generation – the cohort who came of age during the First World War and the 1920s – were often accused of being shallow amusement seekers who drank a lot. But this generation successfully upended social norms and thus forever changed the moral code of America. The coming generational conflict will not look anything like the 1920s, but Lewis’ description of the handover of power to the post-war youth suggest that the looming transition from Baby Boomers to Millenials (now turning 35) will not be without friction.

Hands down though, the most exciting theme in Only Yesterday is the equity mania that builds throughout the decade and how it gradually seduces the masses into believing the business cycle was on a permanent uptrend. For investors, the best part of the book comes at the very end. It is a forty page play-by-play of the rise and fall of stock prices during 1929. You’ll need to read that part in one sitting.

* This month’s book review is authored by our colleague Lenka Martinek, Managing Editor of the BCA Daily Insights service.

1 Allen, Frederick Lewis (2010). Only Yesterday – An Informal History Of The 1920s. New York: Harper Perennial Modern Classics.

The “New, Normal” In EM Ex-China

EM economies ex-China are slowing to a “new, normal growth” phase, which will keep bulks and base metals under pressure this year and next. These economies join China in a broad-based EM slow-down, which will increase the supply-side slack in metals generally, and stretch out supply and inventories globally.

Private and public spending is ratcheting lower in EM ex-China markets. Real capital expenditures dipped into negative territory year-on-year as 2014H2 opened, while real private consumption decelerated to ~ 3% y-o-y.

Slowing EM Spending And Capex Will Pressure Industrial Commodities


Coupled with China’s “new, normal growth,” which we discussed last week, this provides another indication commodity price pressure will remain contained for the balance of this year and next. In addition, it raises the odds of a eurozone recession, to which the IMF last week assigned a 40% probability. This would hit commodity prices harder than markets expected earlier this year: EM growthwill no longer offset DM slack.

(Part I) EM Credit Spreads: Unsustainable Divergence

EM sovereign and corporate credit markets have so far defied the selloff in EM equities and foreign exchange markets, but the odds of material spread widening are considerable.


As G7 central banks have crowded out global fixed-income investors from G7 bond markets by depressing yields, investors have rotated into other segments of global fixed-income markets and bid up prices of hard-currency denominated EM sovereign and corporate bonds. Our EM strategists believe the stampede into EM credit markets has gone too far, and that these divergences between EM currencies and stocks on the one hand and EM credit markets on the other will not be sustainable.

Today, EM countries’ private sector foreign debt levels (as a share of GDP) are not lower than at the end of 1996 and early 1997, when the emerging Asian crisis commenced. This is not to argue that the EM world is headed for a similar crisis like what transpired in 1997-’98. The point is that currency depreciation raises foreign debt burdens and as such should lead to a re-pricing of credit risk – i.e., wider corporate spreads.

Although the EM public sectors’ foreign debt burden is very low, most developing nations’ fiscal positions will deteriorate going forward. This will occur because the growth slowdown will drive down corporate profits and consequently governments’ tax intake. In the meantime, political pressure to keep the population happy will lead many EM governments to loosen the fiscal purse. All in all, government debt and budget deficit dynamics will worsen, justifying higher spreads on sovereign credit.

Weaker EM growth and commodity prices also represent a menace to EM credit markets. Please see the next Insight, (Part II) EM Credit Spreads: Unsustainable Divergence.


In a multipolar world countries will have to navigate multiple relationships, some will be difficult to classify as either alliances or rivalries.

I am not entirely sure as to the origin of the term ‘frenemy’ – the wikipedia entry for the word suggests it comes from the TV show Sex and the City – but it is perfect for today’s geopolitical context. Multipolarity is defined as a global system where more than one or two states are capable of pursuing a significant, and independent foreign policy. Great (and significant) powers have multiple foreign policy goals, some regional, some global, and some calibrated for the domestic arena. Out of this necessity to pursue multiple, often competing, strategies simultaneously arises a new type of a relationship between countries, one that is best captured by the pop-culture term frenemy.

Take the following two articles from Reuters:

In the first, a senior Iranian official told the newswire agency that the U.S. had informed Tehran in advance of its intention to attack the Islamic State (IS) militants in Syria and “assured Tehran that it would not target the forces of Syrian President Bashar al-Assad,” an Iranian ally. Another Iranian official, commenting on the U.S.-Iran cooperation against IS, tried their best to dance around the issue of an informal alliance, “This is an intelligence matter and I can assure you geopolitical and intelligence matters will not be shared with Americans… but military and security issues are being shared to fight against IS.” In other words, the U.S. and Iran are cooperating on geopolitical and intelligence matters!

In the second article, Reuters reported that the U.S. is looking to sell Vietnam P-3 Orion surveillance aircraft. The U.S. is upgrading its surveillance fleet with the new P-8 Poseidon aircraft and thus is looking to off-load the older, but still highly capable, P-3 to countries in East Asia that are concerned about China’s rise. To sell Vietnam the aircraft, Washington has to lift its arms embargo on Vietnam and ignore the human rights violations that it had repeatedly criticized Hanoi for in the past. But in the context of a more assertive China, which recently provoked Vietnam by floating a massive oil rig in waters that Hanoi claims as part of its exclusive economic zone, Vietnam and the U.S. are coming closer together.

Clients often ask me why American foreign policy so incoherent, particularly in the Middle East. It comes back to what Henry Kissinger said in the 1980s: “America has no permanent friends or enemies, only interests.” Perhaps the phrase should instead end with, “only frenemies.”