The Mid-Year Geopolitical Outlook

The Mid-Year Geopolitical Outlook

As is our custom, we update our geopolitical outlook for the remainder of the year as the first half comes to a close. This report is less a series of predictions as it is a list of potential geopolitical issues that we believe will dominate the international landscape for the rest of the year. It is not designed to be exhaustive; instead, it focuses on the “big picture” conditions that we believe will affect policy and markets going forward. They are listed in order of importance.

#1. The Political Fragmentation of the West

For most of the period following WWII through the end of the Cold War, Western governments were dominated by center-left or center-right governments. The fall of communism raised hopes of an “end of history”1 where democracy and capitalism won out and no other system of organizing society was realistically possible.

There were some thinkers who warned that ending the intellectual battle between capitalism/democracy and communism/ totalitarianism would lead to other problems.2 Samuel Huntington postulated that the world was instead heading toward a clash of civilizations. However, he saw the clash of civilizations in geopolitical terms. Instead, we are seeing it in domestic politics.

The term “loyal opposition” is used to describe the party out of power. Despite being out of power, this group would remain loyal to the government and the overall path of policy. Therefore, the party that loses an election still generally believes that the policies coming from the incoming government would be different only by degrees.

In the West, the concept of loyal opposition is fading. Elections are now being seen as “zero sum games.” Losing an election appears catastrophic; voters simply don’t like members of other parties and view them as enemies.3 The following quote captures this issue:

In 1960, just 5 percent of Republicans and 4 percent of Democrats said they would be unhappy if a son or daughter married someone from the other party. In a YouGov survey from 2008 that posed a similar question, 27 percent of Republicans and 20 percent of Democrats said they’d be “somewhat” or “very upset” by that prospect. By 2010, that share had jumped to half of Republicans and a third of Democrats.4

This situation isn’t just seen in the U.S.; Europe is developing similar traits. Brexit was a shocking outcome. The fact that PM May couldn’t secure a majority in recent parliamentary elections suggests that “leave” wasn’t all that popular. Perhaps more astounding is that the opposition is led by the Labour Party, run by a “paleo-socialist” who wants to renationalize major industries and essentially reverse Thatcher’s reforms. Meanwhile, the French have elected their youngest president of the Fifth Republic and his new party now holds a majority in the National Assembly.