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Founders Perspective | New Geopolitical Realities Require Change

John Merrill, May 21, 2025

The geopolitical backdrop has radically changed from the one dominated by America and the other Western powers after WWII. Fukuyama’s End of History (1992), after the fall of the Berlin Wall and the U.S.S.R, declared that communism/mercantilism had forever been “defeated” by democracy/capitalism. That celebratory mood left us overconfident and unprepared for a highly competitive future.

The return of the communist/mercantilist ideologies by today’s triumvirate of authoritarian rulers (Xi Jinping in China, Vladimir Putin in Russia, and Kim Jong Un in North Korea) along with their combined military might and economic power has forced a reevaluation of our relationship with the world as well as our most basic expectations from our government, our educational institutions, and corporate America. 

Such changed expectations are not new. In fact, we have lived through several periods of major change over the last century.

President Calvin Coolidge (1923-1929) once said, “The business of America is business.” This was consistent with how America saw itself into the early 1960s. In 1953, President Dwight Eisenhower’s Vice President, Charles Wilson (former CEO of GM), famously said, “What is good for GM, is good for America”.

During that period, America’s industrial might was seen as a benefit to all Americans – employees, communities, and shareholders…and supported American’s pride in the country. The 1960s brought on many changes. Social issues rose to center stage including racial tensions, women’s rights, unease with the war in Vietnam, air and water quality, and the “war on poverty”. America began to question itself and its values, including the roles played by business, government and education.

Our federal government focused at home on the “Great Society Programs” that greatly expanded benefits for those considered in need. As time went by, most of these programs expanded well into the middle class and even the upper class.

At the same time, American businesses began to change in other ways. The new interstate highway system allowed business the freedom to move to more desirable locations – mainly away from the unionized states in the north to the “right to work” states in the south. The northern industrial base became the so-called “rust belt” as manufacturing relocated.

As the industrial base was leaving, the focus in northern states shifted to white collar jobs. This in turn led educators (mostly from universities in the northeast) to develop a new educational curriculum referred to as the “college preparatory track”. Under this curriculum, every child would be prepared to go to college.

As unrealistic as this was, it was adopted country wide. It led to a new societal attitude that white collar careers were superior to blue collar ones. Traditional trade jobs lost educational support for the decades that followed which eventually depleted the supply of skilled trades. (This bias continues even though many trade jobs pay 2 times to 3 times that of the average college graduate and without the corresponding cost/debt.)

America’s businesses became less and less associated with specific communities. Corporations were no longer “the local employer”. Instead, businesses became a means to an end. Communities started competing for new businesses while shareholders began evaluating companies by how well they navigated this new landscape through their earnings growth.

The late 1960s became known as the “go-go era” with companies forming conglomerates in a race for profit growth. Stock investors turned away from the industrial powerhouses of the past generation toward the most successful at delivering profits. The most successful became known as the “Nifty Fifty”.

Nobel prize winning economist and market observer Milton Friedman codified this new approach to shareholding with his famous dictum on free market capitalism, “the sole purpose of a public company is to benefit its shareholders” (the owners). From that time forward, stocks have been evaluated primarily on the growth of their earnings and dividends.

The 1970s and 1980s were characterized by the rapid growth of Japan and the Asian tigers (South Korea, Taiwan, Hong Kong, and Singapore). They had a low-cost labor force that benefitted from another innovation in transportation (like the interstate highway system earlier) – the packaged ocean carrier. This innovation allowed a product to be packed once (in a pod container) and travel by ocean, train, and truck to be opened only at the end of its journey by its final user. This dramatically reduced international shipping costs.

American corporations, with only the mandate to increase earnings growth, jumped on the opportunities that globalization offered.

Once China joined the Asian tigers, the possibilities from their massive population seemed limitless. This time, American businesses hollowed out much of the southern manufacturing base as they invested abroad…particularly in China.

(Our government took a laissez faire attitude that it was best for the economy. However, Ross Perot received 10% of the vote for president in the 1992 election – the most ever for an independent candidate – on the grounds that such moves would hollow out our entire economy.)

For its part, China did not play fairly. They forced technology transfers from their American “partners”, put an array of restrictions on our ability to penetrate their local market, and heavily subsidized their state-owned enterprises (SOEs) in industries they wanted to dominate.

This was made clear in 2015 with the introduction of their “Made in China 2025 Policy”. This was a state led industrial policy whose goals were to have their domestic companies dominate ten key industries including high tech manufacturing, aerospace, energy equipment, and critical materials by this year. This program has been highly effective in those areas.

American consumers did benefit from the lower costs available from Asian manufacturers. However, the former American employees that lost their jobs were forced to find new ones. In many cases, the only replacement jobs available were in service industries such as finance, health care, leisure and travel, technology, engineering, etc. Many who lost their jobs had no background, training, or desire to enter such fields.

Discontent with this changing job and social environment has grown in the twenty-first century. Many displaced workers that did not find jobs fell out of the U.S. workforce. The percentage of men in the prime ages of 25-54 not working jumped from 2.0% in 1954 to about 11% in 2024 (approximately 12 million men). See Chart.

In addition, we discovered during the pandemic that many of the health care supplies, car parts, and computer chips we depend on were no longer available when China shut down as there were few U.S. manufacturers still in those businesses.

This was a wakeup call which drew overdue attention to basic questions of national security. If global supplies were cut off because of a confrontation with China, how well and for how long could we defend ourselves or our allies? Would we have the needed access to all the components that make our economy run?

Corporate America’s almost sole focus on the consumer benefits, lower costs, and higher profits from globalization had done wonders for our overall economy, high income earners, and stock market but left us exposed to the growing risks from the authoritarian triumvirate.

America needs the workforce and basic manufacturing capabilities within our shores or those of our closest allies to maintain our basic needs for self-reliance and national defense. These must be priorities of our government, educational institutions, and corporate leaders.

Government. Federal tax, regulatory, and spending policies must focus on the specific goals of self-sufficiency and national security. The litmus test for any legislation should be… does it enhance our security? Those needs include cyber security, a secure electric grid, a technologically advanced military, stable finances, and secure access to all the parts and materials that keep our economy running.

Educational Institutions. It will be impossible to achieve these national goals without the workforce necessary to perform the necessary functions. Many of the jobs require highly specialized technical training within specific trades. Our K-12 public education system needs a much broader brush than the college preparatory track. The recent initiatives within some school districts to develop or expand trade training programs should be accelerated.

Business. The business of America is still business, but the goalposts have moved. No longer can focus on consumers, the lowest cost, and highest profit growth be the sole determinants of success. Securing America, and our way of life, must be the highest priority. Corporate leaders across all sectors should have this at the top of their mission statements. Business leaders must not allow the Vladimir Lenin quote to come true, “The Capitalists will sell us the rope with which we hang them.”

These changes needed in our government policies, education institutions, and business priorities rivals that of the 1960s. The changes from that period forward have focused on expanding our social programs, becoming much more inclusive, and growing profits and national wealth. We have had unquestionable success in each of these.

However, in various ways, government, educators, and business have gone too far.

• The extent of our social programs on their current trajectories will overwhelm everything else our government provides.

• Many university educators have fought harder for various inclusion metrics than for teaching the value and importance of western philosophy and institutions.

• Both the higher incomes and the wealth created in our current economic structure have skewed disproportionately to the top 10% or even 1%.

The geopolitical backdrop has changed dramatically in the twenty-first century. China, Russia, and North Korea have eschewed working cooperatively within the post WWII economic system, particularly in the past decade.

They do not recognize, desire, or respect the democratic freedoms we enjoy: the rule of law, independent judiciary, freedom of the press and speech, assembly, and the separation of church and state. Instead, they agitate for their authoritarian, communist form of governing across the world. America, along with the rest of the free world, must act on the changes necessary to be self-reliant and secure in the face of this reality.

No one wants a hot war with China, the likely consequences of which would be a staggering change in everyday life, both here and there. Yet our intelligence agencies tell us that China is preparing the capabilities for war with the goal of being able to “win” (if there is such a thing) by 2027.

The best way to prevent a war is for your opponent to know you have the capability to “win”. In today’s world, we cannot just look at our military for that comfort. War in the twenty first century could take place on many fronts and we need to be prepared for all. Artificial Intelligence adds a whole new dimension to this challenge.

(The recent back and forth on tariffs is in part inspired by this adversarial competition with China. However, after 40 years the integration, our economies are so deeply connected that a complete decoupling today poses an existential threat to many American businesses. The moderation of tariffs is more a nod to the economic necessities of our current relationship than a change in the long-term needs for our national security.)

As investors, we also need to be prepared for a wide range of outcomes. Well diversified portfolios, like those we have at Tanglewood, are essential when changes and outcomes are unknown. Key ingredients include:

• Technology stocks (and other productivity enhancers) – as they will lead into the future

• U.S. Treasury bills and bonds – as they provide stability during economic setbacks

• Infrastructure – as upgrades become a new means of competition

• International stocks (outside of China) – as defense, technology, and utilities get much more funding than in the past

• Real Estate – residential, REITs, and rental property as they offer non correlated benefits

• Gold – as the ultimate disaster hedge as well as a growing reserve currency not issued by a single government

When the goals are well understood, American democracy and capitalism can meet any recognized challenge. Our entrepreneurs are the best in the world. The vast research potential of our higher education institutions is second to none. Our financial markets are by far the deepest in the world. Our economy is larger and more resilient than any other. We have all the building blocks necessary to accomplish the needed changes.

Disclosures