Pim Poppe: Coming and going
This column was originally written in Dutch. This is an English translation.
By Pim Poppe, Managing Partner at Probability & Partners
Civilisations, hegemonies, forms of government, leaders, truths: they come and go. It is a rhythm of generations or centuries, not of years or decades.
You and I are just ordinary people. We barely notice these wave movements, if at all. After all, we have never experienced anything on this timescale ourselves. We have had history lessons, but we have largely forgotten them. Western countries have been living in relative peace for generations. Seventy years since the Second World War. We simply cannot imagine that the world could look any different. Not really.
What could we learn from people who have looked at these shifts in power through a particular lens? What have they seen? What patterns are visible? And what are the possible conclusions for the next thirty years?
Imperial overstretch leads to decline
Paul Kennedy's The Rise and Fall of the Great Powers was written in 1987. I read it in 1989, shortly after it was published. Because of all the turmoil in the world, I recently took the book off the shelf again. It offers a description and analysis of the rise and fall of world powers between 1500 and the end of the 20th century. The author examines how economic strength and military power are intertwined and how great powers often fail when they do not maintain a balance between the two.
Central to this is the concept of “imperial overstretch”: if a country's sphere of influence becomes too large, it can no longer afford the necessary defence because its economy cannot sustain it. Countries that squander their resources on endless wars and military expansion ultimately ruin themselves. The book contains many examples, relevant lessons and implications.
To my mind, the law of large numbers (more inhabitants) and the catch-up of GDP per capita remain decisive. It is likely that China will surpass the US economically – and ultimately also militarily. The US's resistance will not slow this down, certainly not in the way it is currently happening. On the contrary.
Inclusive institutions, democratic governments and free markets.
Acemoglu and Robinson published their book Why Nations Fail in 2012. In it, they argued that we need inclusive institutions, democratic governments and free markets for economic prosperity and happiness. The authors repeatedly compare twin countries: for example, North Korea and South Korea or Mexico and the state of Texas. Countries with virtually the same geographical starting points can build up enormous differences in progress in just a few decades.
To achieve success, markets must function, governments must be democratic, and inclusive institutions must ensure that the power of elites is limited so that they cannot monopolise the economy and politics. Inclusive institutions ensure equal opportunities, which promotes equality and innovation.
An important lesson for me is that in the US, the most important preconditions for long-term economic growth are being undermined: inclusiveness and democracy are at risk. The exclusion of migrant workers is already having a major impact on supply and demand, such as inflation due to the deportation of undocumented migrants. The attractiveness of the US to highly educated people is also declining, which is damaging its capacity for innovation.
As far as markets are concerned, we can say that, in the absence of antitrust supervision, monopoly profits are now being made by the largest technology companies. This is good for shares in the short term and bad for the economy (and shares) in the long term.
One problem for the theory is China, which is achieving economic growth under an authoritarian regime. Acemoglu and Robinson argued in 2021 that this growth was mainly driven by technological copies and labour migration from agriculture to industry. With the knowledge we have in 2025, this no longer seems to be the case. China's autonomous innovative power is greater than expected, and the country is ahead of the West in several areas.
Balance between the state, the rule of law and democratic accountability
In The Origins of Our Politics (2011), Francis Fukuyama analyses the historical development of political institutions. He argues that successful societies must strike a balance between three essential elements: a strong state (for order and security), the rule of law (for equal rights), and democratic accountability (for participation and control).
What I find lacking, however, is that Fukuyama does not describe the role of markets and innovation. In that respect, his analysis is incomplete. It is therefore wise to read Acemoglu and Robinson's Why Nations Fail as a supplement.
As early as 2011, Fukuyama warned that the US was showing signs of institutional decline. The balance between the state, the rule of law and democracy is being disrupted by increasing political polarisation, growing inequality and an inefficient government apparatus. He emphasised that a renewed focus on institutional reforms and social cohesion was needed to strengthen American democracy.
With the knowledge we have today, we can safely say that this strengthening of American democracy has not taken place. In fact, the decline of the US is accelerating and there are no signs of a reversal. The big question is whether the process of decline will continue and whether we have already had the last democratic elections. The midterms in November 2027 are the next and probably crucial step in the development of democracy in the US: further decline, or perhaps a small step back towards a functioning democracy.
Predictable patterns?
In The Changing World Order (2020), Ray Dalio examines the rise and fall of world empires through economic, political and social cycles. Dalio is an American investor, hedge fund manager and founder of Bridgewater Associates, one of the largest hedge funds in the world. Given his economic successes, he has some authority on the subject.
Dalio argues that nations follow a predictable pattern: rise through strong institutions, innovation and cooperation, followed by decline through debt, inequality and internal divisions.
Dalio considers the role of a reserve currency, such as the US dollar, to be crucial. Countries with a reserve currency benefit from low financing costs, but decline begins with high debt and declining confidence.
I think Dalio takes a very deterministic approach, with a possible oversimplification of geopolitical dynamics. In particular, the role of individual leaders, with all their whims and ambitions, also matters. Some leaders rise above themselves and their country, others do not. I would therefore recommend that everyone also look through the lens of Simon Sebag Montefiore.
War is not necessarily bad for stocks, but internal conflict usually is.
Stocks for the Long Run is one of my favourite books. I have read the 2008 and 2014 editions. The updated 2023 edition was recently published, which I have read again. The conclusions are basically the same as in previous editions. In the book, Siegel also analyses the impact of wars on the economy and financial markets. That's what I was interested in. He emphasises that stock markets remain resilient, even during wars and conflicts. Although geopolitical crises cause short-term volatility, equities continue to offer strong returns in the long term due to economic resilience, technological progress and productivity growth. Examples such as the reconstruction after the Second World War and market growth during the Cold War illustrate this resilience.
Internal conflicts within countries, such as civil wars or political instability, often have a more negative impact on stock returns because they directly damage the domestic economy and investor confidence. However, Siegel emphasises that good policy can restore economic growth.
Viewed through this lens, the outlook for the US also becomes bleaker. The likelihood of internal conflict seems very high to me. The president is almost deliberately seeking it in every possible way. Conflict will lead to uprising. Uprising will lead to repression. At least, that is quite conceivable.
Power, love, rivalry and ambition determine the course of world history
In The World: A Family History (2022), Simon Sebag Montefiore offers an ambitious and compelling journey through world history, told through the lens of families. This book is different from the others. In the book, Montefiore explores how dynasties, families and personal relationships have shaped the course of history, from ancient civilisations to modern nations. He brings well-known and lesser-known figures to life, such as the pharaohs, the Romanovs, the Rothschilds and contemporary political dynasties, and shows how power, love, rivalry and ambition have determined their influence.
Montefiore's unique approach combines grand historical events with intimate details about the private lives of historical actors, making complex geopolitical developments more tangible. He emphasises how family ties are often at the root of conflicts, alliances and cultural transformations.
The book reads like a juicy Netflix original with details. Details that sometimes overshadow the main narrative. Nevertheless, the book offers a valuable additional perspective on world history. Namely, that people with human emotions and drives matter. Love, power, hatred and retribution at the individual level also dictate the course of world history. Whether Harris or Trump is president can make a world of difference.
And now what?
What do we see when we look through the lens and theories of these authors? One thing is certain: investors cannot escape a changing world. Strangely enough, wars have ambiguous effects on equities. What is likely is that inclusivity, a predictable rule of law and restrictions on the power of elites stimulate economic growth. Internal conflict inhibits growth. In the long term, economic growth drives equity returns. The US is in the process of destroying important conditions for economic growth. This will be bad for all countries in the world, but more so for the US than for other countries and regions.