The immense tree quivered like one in agony, and with a crushing, raging, deafening sound it fell, … breaking into a million pieces.
Eyewitness to the fall of a giant sequoia, 1893.
I stood at General Sherman’s ankle—he is the largest known living organism and one of the oldest—and contemplated a question I was asked long ago by a somewhat philosophical investment manager. What is long-term risk? What is the right measure of risk for a truly patient investor? If you are mandated to ensure survival for longer than a hundred years, preferably forever, what is a good replacement for value-at-risk? VAR may be appropriate for market-based financial intermediaries but is certainly not a good measure of risk for massive real money investors like pension funds and sovereign wealth funds. What is the right measure for such patient investors? I spoke of adverse secular movements in demographics, productivity, sustainability, and so on. But the real answer eluded me since the question was not well-posed. A well-posed replacement for that question is, What would a grand-strategy of immortals look like?
We define a patient investor as one seeking to survive in perpetuity; an immortal, like giant-sequoias. These immense trees don’t die; they fall. They fall like monarchs in periods of extreme instability. Only massive earthquakes, extremely powerful lightning bolts, ultra-hot and tall wild-fires, or men with saws can fell them. Giant-sequoias are not alone; there are plenty of immortal species; species with no finite lifespan. A patient investor is the analogue of the immortal species—while death may occur due to extreme events, the grand-strategy is geared to survive for eternity.
Giant sequoias are some of the oldest living individuals on the planet. General Sherman was born twenty-two centuries ago; around the birth of the Roman Empire; ie the Second Punic War, 218 BCE, a decisive hegemonic war when Rome took over the reins of the Mediterranean Sea from Carthage. Unipoles in general and the Roman Empire in particular can be thought of as immortal as well, at least in grand-strategic terms. Rome’s grand-strategy was to eliminate all rivals through the use of force. It was successful for a while. The Roman Empire can be said to have died at the latest with the fall of the western Roman Empire in 476 CE. Sherman was then around 700 years old. He has been alive for twice as long since, and is still going strong. Some giants are even older than human civilization.
The grand-strategy of the giant-sequoias is the orthogonal complement of the Roman grand-strategy; one I will call benign hegemony. The giant sequoia’s grand-strategy is adapted to wild-fires, earthquakes, squirrels, and men. I will show how that evidence yields first-order insights for both unipoles and patient investors.
Mature sequoias have yard-thick fire-resistant barks, a layer of fluid right underneath that provides additional protection against fire, a tremendous girth of fire-resistant wood, and no branches below the canopy hundreds of feet above the ground. Only extremely hot ‘canopy fires’ that reach hundreds of feet above the ground can fell a mature sequoia. But these don’t occur naturally in the forest. What happens is the slow accumulation over decades of incendiary material on the forest floor which periodically ignites wild-fires of varying intensity. The sequoias treat wild-fires as opportunities and practice what is called ‘explosive reproduction.’ In the immediate aftermath of a fire, prime substrate soil, suitable for sequoia seeds to grow, gets exposed. And the big trees start producing cones and seeds at a rate that is orders of magnitude higher than in normal times. Sequoias thus harvest forest fires to reproduce. That sounds like an aggressive strategy of expansion. Why would I call it benign hegemony? I call it benign hegemony because of the effect of this grand-strategy on forest dwellers. For after a major wild-fire, with the ground smoking with soot, the only thing left to eat for the animals is sequoia cones and seeds. The sequoias’ explosive reproduction thus provides crucial insurance against catastrophe to forest dwellers.
Protection against earthquakes is provided by the stability of the dead weight of the tree, the tapering profile of the trunk, and an extraordinary root system that grips the face of the earth. A mature giant sequoia weighs two million pounds and stands rigidly upright. The trunk at the base is a hundred feet in circumference and tapers as it goes up to the canopy towering hundreds of feet above the ground. The roots are the most remarkable, if invisible, feature of this organism. For instead of going hundreds of feet into the ground, they go no more than a dozen feet deep. Instead, they spread out over an immense area; often more than a whole acre. The root system grips almost the whole geological formation thus stabilizing the immense mass. The extraordinary root system protects the nutrition-rich top soil of an immense area from erosion, thereby providing further insurance against catastrophe to forest dwellers.
But I believe that the most remarkable thing about the sequoias’ grand-strategy is their adaptation to man. For sequoias have evolved such that their wood is entirely useless to man. Ironically, it is simply too light to be used as timber. But even more strikingly I think, the giant sequoias have through their august stature awed mankind into protecting them. If Ayahuasca can be thought of as trying to control men’s minds, then so can giant sequoias; only much more successfully. For the discovery of the Big Trees was the principal trigger for environmental protection and forest preservation efforts that began in the nineteenth century. Again, the forest benefits as a whole from the sequoias’ strategy of winning hearts and minds with shock and awe.
The picture of the immortal giants as benign hegemons only intensifies as a we pay closer attention to the ecology of this magnificent species. Every giant sequoia is the territory of a single Douglas squirrel—each resident squirrel vigorously defends its Big Tree. They have a life-span of just five years, so that a mature sequoia may host hundreds of them over thousands of years. The squirrels feed on the sequoia pine cones—which, unlike other pine cones, are soft enough to be eaten—and as they do, drop the seeds to the ground. Thus, the non-explosive half of the sequoias’ reproductive strategy relies on a symbiotic relationship with the Douglas squirrel. The giant provides ample food, shelter, and insurance to the resident squirrel. For its part, the resident squirrel helps the giant procreate in the period between fires.
Giant sequoias also willingly accommodate each other. One often finds a number of them in an imposing posse together, and sometimes in more intimate twos or threes, sharing the same patch of thin top soil. Their root systems get so intricately intertwined that they no doubt stand and fall together. Imagine a cohegemony lasting for three thousand years!
So the grand-strategy of the giant sequoias is best described as benign hegemony. Enjoying a surplus of security, giant sequoias act as guarantors of the forest, providing insurance against catastrophes, literally holding the precarious soil in which they and others can grow, and persuading others around them to leave them in peace for eternity.
Analogously, a unipole can be said to follow a grand-strategy of benign hegemony when it acts as a security guarantor to the lesser great powers, enforces the removal of the threat of the use of force in great power relations—in particular from the unipole itself; and fosters the peaceful resolution of international disputes through multilateral negotiation. The grand-strategy builds on the surplus of security of the unipole. It dissuades lesser great powers from rearmament by taking responsibility for their security, giving them a seat at the table, and accommodating their vital interests and self-respect. It deals with rising powers with reassurance and accommodation; and seeks a modus vivendi, in full knowledge of assured survival and full appreciation of its own strength and ability to prevail in an extended rivalry. It can be said to be successful if security competition between the great powers vanishes, the lesser great powers follow the lead of the unipole, and rising powers do not seek to revise the status quo by the use of force or the threat thereof.
The United States has not followed the grand-strategy of the Roman Empire in that it did not conquer and eliminate other great powers. For the most part, the United States has followed a grand-strategy of militarized liberal hegemony whereby the US maintained military primacy, accommodated the lesser great powers, acted as their security guarantor, and tamped out security competition among them. But US foreign policy since the Soviet capitulation has gone back and forth between defending the status quo, multilateralism and persuasion on the one hand, and revisionism, unilateralism and imposition on the other.
This bipolar disorder is not so much about bad apples in the White House, as the result of the takeover of the GOP by reactionary elements with an aggressive, ill-thought-out, revisionist foreign policy agenda that has tested the transatlantic alliance before and is testing it again. In other words, hunkering down until 2020 is not enough. The Anglo-Saxon powers have become unreliable partners for Europe. The question facing Europe is whether it can rise up to the challenge and pursue an independent course. A game-changer here, as Adam Tooze suggested, would be for Macron to offer to turn over the French deterrent to Europe. What would the Germans say to that?
Dominance and hegemony are not the same thing. Dominance is the fact of the military preponderance of the unipole. Hegemony is the willingness of lesser great powers to follow the lead of the unipole. If the unipole tries to impose its will on the lesser great powers by leveraging its military power it can be said to follow a grand-strategy of unilateral dominance. Such a grand-strategy may succeed if the lesser great powers still bandwagon with the unipole. They may indeed do so as a result of the tragedy of commons.
But if they resist the unipole, what obtains is dominance without hegemony; a fundamentally unstable situation that structurally incentivizes the lesser great powers to rearm and form balancing alliances against the unipole. The onset of such a regime in world affairs looks like the great big sulk that we are observing across Eurasia after the US walked out of the agreement between Iran and the P5+1 powers.
The giant sequoias have an important lesson for the patient investor as well. It is based on the crucial observation that a state of the world that is catastrophic for impatient investors, but not for patient investors, is an extraordinary opportunity for the latter. Just as a giant sequoia goes into explosive reproduction mode in response to a wild-fire, a patient investor should go into a wholesale buying frenzy in response to a major crash in asset prices. An aggressive counter-cyclical investment strategy, one that maximizes exposure to risk assets in states of the world that are catastrophic to impatient investors such as recessions, wars, and financial busts, and slowly sheds that exposure when asset prices boom, would not only yield superior long-term returns but also provide insurance to markets by providing a floor for asset prices.