Geography - Essential to Understanding Geopolitics and Useful for Investing

Preface

This post is a "think piece".  It reflects some initial thoughts on the applicability of geography to assessing the potential of a prospective investment. I'm offering it with the thought that others might get insights into an alternative approach.

Definition of Geography

Defined simply, geography is the study of the distribution of things over the surface of the earth.  

This definition was drilled into me by my thesis advisor who had a sign over his door which warned: I'm the meanest son-of-a-bitch in the valley.  I am indebted to that magnificent man: he was the proverbial pot of gold at the end of the rainbow - the man who opened intellectual doors and made my university experience worthwhile.  Some of his aphorisms still echo in my mind:  The only excuse for an late assignment is death.  A dirty mind is a perpetual feast.  

A Ridiculously Short Introduction to the Three Main Schools of Geography

1.  Environmental Determinism

The thesis is that the physical environment predisposes human development to certain trajectories i.e. that humans respond directly to the opportunities and limitations imposed by their physical environments.  For example, you cannot grow rice in Antartica. Many industrial sites were situated to exploit hydro power - everything from pioneer mills to huge lumber and pulp and paper complexes along the Ottawa River (which also served to transport logs to the mills from vast upstream catchments).

• this school of thought has a long tradition and flourished in the late 1800's and late 1900's
• it has considerable explanatory power in matters such as patterns of agricultural activity, patterns of overland and maritime trade (e.g. it is possible to model with considerable accuracy, the distribution of things ranging from transportation corridors to retail outlets) 
• the approach has been attacked by academics and others in recent decades as "politically incorrect" i.e. one application of the approach has been to "explain" why some societies are more advanced than others.  For example, northern Europeans developed more robust societies than those who live in more salubrious climes because they had to strive to survive and in so doing, evolved to have a competitive advantage over less developed societies
• it has also been used to try and explain why certain societies are more insular and conservative than others e.g. mountain dwellers (Swiss excepted) are generally poorer and more conservative than their lowland cousins 
• opponents reject it as a relict of colonialism, imperialism, sexism ...  you name it ... 

2.  Cultural Determinism

Followers of this approach believe that human ingenuity is the main determinant of human development e.g. that it trumps physical limitations such as water scarcity.

• this approach predominates in academic institutions 
• practitioners feel that it constitutes a more nuanced approach in that factors other than the physical environment can play a more significant role in determining human outcomes e.g. the role of technological innovation in opening vast areas to agriculture, aviation and electronic communication has overcome limitations posed by distance 

3.  Possibilism

This is a compromise which recognizes that human activity can be explained by elements of environmental and cultural determinism.

• it is not in favour within academic institutions which are constrained by the dictates of political correctness - even to countenance thinking outside the reigning orthodoxy is a non-starter
• when used judiciously, it has tremendous explanatory power as it levers the power of both approaches
• no better is this illustrated than when it comes to developing strategies to solve practical problems e.g. military strategy must account for human and technological factors as well as physical considerations related to characteristics of the theatre of operation; ditto for efforts to determine the best location for retail outlets.  

Application of The Geographical Approach in Assessing Investments

1.   Geopolitical Applications

There is a huge body of literature on geopolitical theory.  Perhaps the best recent addition to the literature is The Revenge of Geography: What the Map Tells Us About Coming Conflicts and the Battle Against Fate by Robert D. Kaplan.  He is a "possibilist".

Here are a few reviews which provide various takes on this impressive work:

http://www.nytimes.com/2012/10/07/books/review/the-revenge-of-geography-by-robert-d-kaplan.html

http://thesummaryreport.com/the-revenge-of-geography-by-robert-kaplan-tsr/

In contrast with the current academic approach to reduce the study of human activity to efforts to know more about less, Kaplan has taken a broader, more synthetic approach which is more reflective of the "real world" - something which the movers and shakers have to address on a daily basis.  It involves taking a considerable risk on his part, especially as it involves personal judgement.

I would also urge readers to take up a copy of The Influence of Sea Power Upon History: 1660–1783 by Alfred Thayer Mahan. Published in the 1890, it is perhaps the most influential book on the geopolitics of naval warfare ever written.  It is every bit as relevant now as then.  I wrote about it in an earlier post:

Sea Lanes and Maritime Security, Globalization, and A Great Source of Information About Think Tanks

The important take-away for these works is that they address high order, low moving processes which "control" or "dictate" the expression of shorter-term events such as battles, or strategies adopted by various nation states as they rise and fall.  Read these books to get beyond theheadlines.  It is no accident that wars tend to be repeated on the same pieces of geography and unfold in generally the same ways.

A Few Potential Applications for Investment Analysis

• An appreciation of the extent, importance and nature of geopolitical trends (e.g. military pressure points/strategies) can point the way to potential investments.  I will be writing about one of them in a future post. 
• Risk analysis is an important part of any investment.  It is important to get beyond the headlines and ascertain if potential threats are short-term in nature or the consequence of long-term high order geopolitical drivers.  
• The consequences of upheaval in one part of the world can, in a sense, be modelled.  For example, have you ever thought of potential consequences associated with the closure of various choke points on maritime routes for the transport of oil ... and how you could prepare for it?  (All of my oil-related investments have been made with this in mind.)  

2.  Hierarchy Theory