[Marko Papic, Geopolitical Alpha. An Investment Framework for Predicting the Future (Hoboken, New Jersey: Wiley, 2021), 286 pp.]

March 3, 2021

review / Emili J. Blasco

"In the post-Trump and post-Brexit era, geopolitics is all that counts," assures Marko Papic in Geopolitical Alpha, a book on political risk whose purpose is to provide a method or framework from work for those engaged in forward-looking analysis. consultant in investment funds, Papic condenses here his experience in a profession that has gained attention in recent years due to growing national and international political instability. If risk factors used to be concentrated in countries in development or emerging markets, they are now also present in the advanced world.

With the degree scroll of the book, Papic designates a process of analysis in which geopolitics itself, in its meaning most closely linked to geography, is only a part of the considerations to be taken into account, as the author maintains that first the political and then the economic (and financial) conditioning factors are important. For the analysis as a whole and the estimates to which it gives rise, Papic uses the qualifier "alpha geopolitics" (or "alpha geopolitics"), as if referring to a plus or reinforced geopolitics: one that takes into account political or macroeconomic constraints in addition to the traditional geopolitical imperatives.

At bottom it is a nominalist question, in a collateral battle in which the author entangles himself unnecessarily. One might say that it is a settling of scores with his former employer, the Stratfor led by George Friedman, whom Papic praises in his pages, but who he seems to underhandedly criticize for basing much of his foresight on the geography of nations. To suggest that, however, is to make a caricature of Friedman's sound analysis. In any case, Papic has certainly bolstered his training with programs of study financials and makes useful and interesting use of them.

The central idea of the book, leaving aside this anecdotal rivalry, is that in order to determine what governments will do, it is not the intentions they proclaim, but what constrains them and forces them to act in a certain way. "Investors (and anyone interested in political forecasting) should focus on the material constraints, not the preferences of politicians," says Papic, and adds a phrase that he repeats, written in italics, in several chapters: "Preferences are optional and subject to constraints, while constraints are neither optional nor subject to preferences.

These material constraints, according to the order of importance established by Papic, are political constraints (the majority available, the opinion of the average voter, the level of popularity of the government or the president, the time in power or the national and international context, among other factors), macroeconomic and financial constraints (budgetary room for maneuver, levels of deficit, inflation and debt, value of bonds and currency...) and geopolitical constraints (the imperatives that, initially derived from geography -the particular place that countries occupy on the world chessboard-, mark the foreign policy of nations)....) and geopolitical (the imperatives that, initially derived from geography - the particular place that countries occupy on the world board - mark the foreign policy of nations). To that list, add constitutional and legal issues, but only to be taken into account if the above-mentioned factors do not pose any constraint, as it is well known that politicians have little problem circumventing the law.

The author, who presents all this as a method or framework of work, considers that the fact that there may be irrational politicians who entrance do not submit to objective material constraints does not derail the approach, since this status is eventually overcome because "there is no irrationality that can alter reality". However, he admits as a possible objection that, just as the opinion of the average voter conditions the actions of the politician, there may be a "hysterical society" that conditions the politician and that it itself is not affected in the short term by objective constraints that make it bend to reality. "The time it takes for an entire society to return to sanity is an unknown and impossible prognosis," he acknowledges.

Papic proposes a reasonable process of analysis, broadly followed by other analysts, which is why a certain initial, somewhat smug boasting about his personal prospective skills, indispensable for investors, is not necessary. Nevertheless, the work has the merit of a systematized and rigorous exhibition .

The text is punctuated with specific cases, whose analysis is not only well documented but also conveniently illustrated with tables of B interest. Among them, the one presenting the evolution of the pro-euro opinion in Germany and the growing Europhile position of the average German voter, without which Merkel would not have reached the previously unthinkable point of accepting the mutualization of the EU debt. Or those that note how the trade of England, France and Russia with Germany increased before the First World War, or that of the United States with Japan before the Second World War, which exemplifies that rivalry between nations does not normally affect their commercial transactions.

Other interesting aspects of the piece include his warning that "the class average will force China out of geopolitical excitement," because international instability and risk endangers Chinese economic progress, and "keeping its class average happy takes precedence over dominance over the world." "My framework based on constrictions suggests that Beijing is much more constrained than U.S. policymakers seem to think (...) If the U.S. pushes too hard on trade and Economics, it will threaten the prime directive for China: escape the middle-income trap. And that is when Beijing would respond with aggression," says Papic.

With regard to the EU, the author sees no risks for European integration in the next decade. "The geopolitical imperative is clear: integrate or perish into irrelevance. Europe is not integrating because of some misplaced utopian fantasy. Its sovereign states are integrating out of weakness and fear. Unions out of weakness are often more sustainable in the long run. After all, the original thirteen colonies of the United States integrated out of fear that the United Kingdom might eventually invade them again."

Another suggestive contribution is to label as the "Buenos Aires Consensus" the new economic policy that the world seems to be entering, moving away from the Washington Consensus that has governed international economic standards since the 1980s. Papic suggests that we are exchanging the era of "laissez faire" for one of a certain economic dirigisme.