Investing In A Convulsing, Uncertain World

The Middle East is in upheaval.  Europe has mini-upheavals: 250,000 march on London's streets where 500 anarchists wreak havoc;  Greeks are on the streets;  Angela Merkel's party lost votes for her decision to subsidize the PIGS; the PIGS are making  promises, but not delivering; and in France, Marine Le Pen of the National Front may beat Sarkozy, according to the latest polls.

The discord in these places is not only about the role of government and corruption.  The civil war in Libya is along tribal lines, as has been the case in Lebanon.  The discontent, if not yet civil wars, is among tribal affiliations in Syria, as well as Jordan with its 60 percent Palestinian population.  Turkey and other countries in that area are likewise affected.

In Europe we find the frugal Germans and heavily populated France forming an alliance against the  "profligate" Mediterraneans.  In addition to these intranational problems in Europe we also find these settled  "nations/tribes" adhering to the principles of Western Civilization confronting the mores of newcomer Muslims.

Geert Wilders of PVV, Netherlands' third-largest party, compared the Quran to Adolph Hitler's "Mein Kampf."  The Freedom Party in Austria, which sports an anti-immigration agenda, placed second in Vienna's municipal elections with 27% of the vote.  The Danish People's Party, which likewise promotes a restrictive immigration policy, is the third largest in their parliament.

What else is there in common between the Middle East and Europe, besides discontent with their governments and tribal divisions on multiple levels?

Parliamentary democracy and free elections are not an issue  in Europe.  Yet these features did not prevent the current mess.  Neither did they prevent the Weimar Republic practicing both only to relapse into murderous dictatorship.  The lasting, more stable solutions need other features as well.

The Western language and its institutions have no meaning in the Middle Eastern countries.  There is no  dispersion of power; there is no middle class; there is no separation between "church" and "state"; and "freedom" does not refer to Adam Smith's notion of enabling people to choose their business or work, unhampered by government or  monopolies, and protected by the rule of law.

"Freedom in Islam" is a legal term referring to "lack of slavery," as it does in the Bible too, and nothing else.  The Islamic notion of "just laws" does not have Western connotations and refer to lack of "lack of oppression."

The populace in the Middle East is rallying against the existing tyrannies and wants something else.  But, that  "something else" is not yet defined.  It is impossible  to say what shape or form it will take, how long will it  take to evolve, and whether it will achieve any semblance of  stability.

This is clear:  elections and parliamentary democracy were not a solution for the Weimar Republic that witnessed the implosion of its middle class thanks to hyperinflation.  They will also not be the solution for the Middle East or any other country that does not currently have them.  They will likely worsen the situation.

Europe risks disintegration and some of its countries face severe population declines.  The Middle East is on fire. China remains a one-party state. The United States is experimenting with unprecedented monetary policy and the Beltway politicians are forgetting the social model that has made the U.S. unique. Namely, that stable money and accountable, democratizing capital markets are key.

So where do you invest your money?

These themes remain:

-Adjusting to a world population that went from one to seven billion in a century that needs resources.  Even with technological innovations, commodities, fertilizers, agriculture, and infrastructure-related businesses will stay good bets for quite a while;

-The fiat monetary experiment is failing, so gold should do well for a while;

- despite the problems previously discussed,  the U.S. still has the best chance of correcting mistakes faster than  other countries.   This may seem like Machiavelli waiting for his Prince, who never arrived.  But it is a good bet that the U.S. needs less "princes" and more re-strengthening of its institutions that were  inadvertently weakened.

-Australia and Canada are good bets too. They both have vast resources with minuscule populations and decent governments, who also have a history of correcting their mistakes.  And they are now a magnet for talent.

-Finally, perhaps India, Brazil, and parts of Latin America will realize their potential.

-Reuven Brenner holds the Repap Chair at McGill's Desautels Faculty of Management

Read full article: Forbes, March 31, 2011