Investing in Collapse: Countries that implode

Declining nations follow the same pattern, time and time again, over the centuries. This is not coincidence. The pattern exists because human nature never changes, regardless of the era or the locale. Political leaders make the same mistakes as their forebears, and the people of a nation react in kind.

Jeff Thomas for International Man

For years, I’ve been writing about Venezuela, describing it as the “movie” by which we can view the future of other jurisdictions that are presently in decline.

The reason is that declining nations follow the same pattern, time and time again, over the centuries. This is not coincidence. The pattern exists because human nature never changes, regardless of the era or the locale. Political leaders make the same mistakes as their forebears, and the people of a nation react in kind.

For this reason, countries have a sort of “shelf life.” They rise in prominence, due to work ethic and productivity. They then go through a period of abundance, which eventually deteriorates, due to complacency and apathy. Finally, they collapse into a period of bondage.

If we recognize that this pattern has played out countless times over the millennia, we can track any given country and assess where it is at present, in the pattern. For example, Europe and North America are presently in the last stages prior to collapse, Venezuela is in the process of collapse and Cuba is in the post-collapse recovery.

But, although this may be historically interesting, of what value is it to us in terms of our own lives and the choices we make for our future?

Well, we can observe Venezuela and see the effects of the present policies evident in our own country, if we happen to live in one that’s on the verge of collapse.

For example, we can see that ever-increasing largesse by a government—on the backs of productive taxpayers—is a major destructive trend. “Protective” tariffs and capital controls also lead to collapse. And excessive debt is a pathway to economic collapse.

We can see from the recent history in Venezuela how these political mistakes caused their collapse, and we can now observe how that collapse plays out.

But, going back to the title of this essay, how do we invest in collapse?

Well, the reader will be familiar with the investment principle of “buy low, sell high.” This means that the investor should not wait until an investment is already popular. He should invest when it’s at its least popular.

So, let’s look at that a bit more closely.

The principle would suggest that, in the main, the US, in its final, declining stage, is a poor country for investment, but that Venezuela could be a far better possibility.

But at what point should investment take place? Well, there are a few basic assumptions that might be made. First, investment is difficult at a time when there’s massive unrest. If a “boots on the ground” assessment can be made fairly safely, this can be a very advantageous time to begin studying possibilities.

Also, during a collapse, local businessmen and government officials are desperate and will cut virtually any deal with anybody, just to get a bit of money into their hands. Such deals are normally cancelled wholesale by the incoming government, after power has been transferred to them (often just for spite).

So, for any investor, the country should ideally be researched both during and following the collapse and a decision made as to what investments to focus on. Then, when the new government has largely stabilized the country (the riots are over and commerce has begun to function normally), the greatest opportunities for investment occur. The country is desperate for inward investment, and opportunities abound.

So, let’s have a look at a country that has already passed through its collapse stage and has stabilized.

Cuba collapsed for much the same reasons as its neighbour, Venezuela is now collapsing. But that was back in the 1990s. An anomaly in Cuba’s case is that the government was not overturned and the re-stabilisation was left to the still-collectivist government. Being unable to admit that they’d caused the collapse, but desperately needing a recovery, the Castro government chose the obvious solution—capitalism. By this time, the once-committed communist Raul Castro advised his brother Fidel that collectivism was a failure and that they must adopt a free-market if the country was to recover.

However, being unable to admit that the problem was of their own doing (they blamed the American blockade), they set about introducing free-market principles within the existing system.

Over the years since that time, it’s become increasingly possible for Cubans to open their own businesses, and to pay the government taxes on the profits.

Today, there are now so many cuentapropistas (business owners) in Cuba that the taxes generated have not only enriched many of the Cuban people, but have refloated the government. (Even a mid-level bureaucrat understands that the reason he’s been able to discard his thirty-year-old Russian Lada and now has a new Hyundai is due to the influx of tax revenue.) No one in Cuba has the cheek to call it “free-market,” but most everyone understands that the end of food shortages and the importation of such goods as appliances and stylish clothing is due to the cuentapropista revenue.

So, then, why isn’t this big news in the larger world? Well, although the free market has been taking over the Cuban economy (from the bottom, up) for over a decade, the Castro government still maintains ownership of much of the real estate, still owns many businesses, and controls the military. However, the government businesses (as they are collectivist) are highly inefficient, so the flood of tourists prefer the privately run businesses, which are thriving.

And the military is now in charge of renovating Havana’s old buildings for new shops—they’ve become a sort of urban public works department.

Yet the claim internationally is that Cuba is still communist.

Strictly speaking, this is so. But each year, more government businesses fold and more opportunities are given to allow restaurants, tourist accommodations, taxi services, farm cooperatives and factories to be started up privately by the Cuban people.

The government not only condones the free-market development, but encourages it, as today, the butter on their own bread comes from tax receipts, not Russian subsidies.

At present, the government still holds many areas of investment for itself. An outside investor cannot legally make an investment deal with a local unless he’s a “relation.” But the government creates opportunities and joint-ventures with outside investors for tourism, mining, telecommunications, energy, biotechnology, etc., and, in fact, each day cruise ships arrive in Havana Harbour from Miami, loaded with American tourists, whose countrymen are under the impression that they cannot enter Cuba legally.

The anomaly in Cuba is that it’s a country that’s being reinvented from within, but without the customary announcements from the political leaders that the “rebirth” is underway.

Raul Castro has just stepped down as president, but as I’d expected, he’ll stay on as the Secretary General of the Communist party until 2021, which would mean that he’ll continue to engineer the rebirth of Cuba from behind the scenes.

After this date, the cloak of free-market secrecy may be tossed off in Cuba, and those who have invested at the bottom will watch their investments blossom.