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Richard Gray, Dolfin’s Head of Investment Management, was the first to address the 50 or so guests gathered over Champagne at Jaeger-LeCoultre’s flagship store on London’s Bond Street. He chose to explore today’s investment landscape through the lens of history.
“The finest watches are built by skilled craftsmen to be enjoyed by future generations,” said Richard. “A well-constructed investment portfolio should also be able to withstand the test of time, the ‘bumps and scrapes’ of everyday life.The best watchmakers utilise skills and techniques developed long ago. For investment managers, the past can often provide the best clues as to what might happen in the years ahead.
As the Head of Investment Management at Dolfin, I spend a lot of time studying history – in particular, the history of nations, economies, geopolitics and financial markets. I do not consider that history repeats itself – but I strongly believe that it rhymes. We are currently in a phase of global history where one great nation – the established dominant power – feels challenged by the rise of another. China’s economic growth has put it on a collision course with the United States, particularly in the Western Pacific, the East China Sea and the South China Sea. China, whose recorded history is ironically much longer and more illustrious than that of the United States, sees Asia within its natural sphere of influence.
The United States, whose economic dominance and military might has underwritten the enormous phase of global growth seen since the Second World War, believes instead that Asia is within its sphere of influence.
So, can Presidents Trump and Xi find a way to accommodate their respective national ambitions, or is the current trade war merely the precursor to a conventional war?
The historian, Thucydides, wrote about the Peloponnesian War which was fought between 431BC & 404 BC. This war saw Sparta fight against the rising power of Athens for dominance in the Aegean. Thucydides wrote afterwards: “It was the rise of Athens – and the fear that this rise instilled in Sparta – that made war inevitable.”
We now use the phrase ‘Thucydides Trap’ to describe a situation where a rising power challenges an established super power, making war difficult – if not impossible – to avoid.
The Yale historian, Donald Kagan, offers parallels between the Peloponnesian War and the two World Wars of the twentieth century. His conclusion: peace, like war, requires hard work. “A persistent and repeated error through the ages has been the failure to understand that the preservation of peace requires active effort, planning, the expenditure of resources, and sacrifice, just as war does.” In other words, be careful, or you will stumble into war.
Graham Allison, a Harvard historian and former advisor to numerous US presidents, wrote a fascinating book recently titled ‘Destined for War’. According to Allison’s Harvard research project, there have been 16 moments during the last 500 years in which a rising power has challenged an existing hegemon – and 12 of those 16 have ended in war. Some of the grievances of the United States appear legitimate – including the limited access for US companies to Chinese markets and the theft of intellectual property via industrial espionage (and some state-sponsored intelligence gathering).
Additionally, there are those in America that feel that China has somehow demonstrated a lack of gratitude, given that much of its recent economic rise was only possible because the US Navy guaranteed those post-Bretton-Woods global economic structures (GATT, ITO & WTO, IMF, World Bank & IBRD, NATO, etc.) that were created after the end of the Second World War. One can easily see how the rivalry between the US and China starts to fit the three pillars of the ‘Trap’: fear, interest and honour?
That is not to say, however, that war is inevitable. Britain narrowly avoided war, for instance, with the United States towards the end of the nineteenth century. The former colony turned economic power, challenged Britain for dominance in the Western Atlantic. Amongst other grievances, Britain was upset that the rise of the US had only been possible because British naval dominance had ensured the stability and safely of trading routes throughout the world. Can you see the parallels, the rhyming of history?
Britain backed-down to concentrate its efforts across the Empire and war was avoided – but peace was short-lived when the rise of another economic power, Germany, challenged Britain in her European backyard.
History does not give us all the answers – but it does provide a framework through which we can understand the world.”
As the audience absorbed Richard’s ideas, Jaeger-LeCoultre’s Director of Heritage, Stéphane Belmont, concluded the formal part of the evening with some fascinating insight into the history of the brand and how it is applying years of experience in fine watchmaking to its latest creations.
The remainder of the evening was convivial as guests spent time discussing what they’d heard, exploring Jaeger-LeCoultre’s boutique and watching a master watchmaker demonstrate his skill.