The world isn’t getting any less complicated. Governments, international companies and globally engaged individuals face an ever-increasing mountain of information as they work to make sense of the news each day. The current international environment, however, doesn’t need to be difficult to understand if you know where to focus your energy.
In this episode of the Stratfor Podcast, we share a keynote presentation that Vice President of Strategic Analysis Rodger Baker delivered at the 2017 Mackinder Forum. Baker outlines the principle of applied geopolitics that Stratfor was founded upon and explains how businesses, investors, governments and individuals can leverage geopolitical analysis and forecasting to inform strategic decision-making and better understand the underlying forces shaping world events.
The Numeric Problem by Rodger Baker
On Geopolitics, A Series of Stratfor Worldview Columns
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Fred Burton [00:00:00] Hello, I'm Chief Security Officer Fred Burton, and this podcast is brought to you by Stratfor, the world's leading geopolitical intelligence platform. To learn more about Stratfor Worldview, Threat Lens, or Stratfor's custom advisory services, visit us at stratfor.com.
Rodger Baker [00:00:31] There's not a piece of information that doesn't go on the news today that doesn't have a big red bar underneath it that says "breaking." Everything is the imminent crisis. And what geopolitics says, what is significant versus what is merely important?
Ben Sheen [00:00:48] Welcome to the Stratfor Podcast, focused on geopolitics and world affairs from Stratfor.com. I'm your host Ben Sheen. The world isn't getting any less complicated, and it's increasingly easy to become overwhelmed with news headlines and the absolute flood of information we encounter each and every day. Here's the thing though, the world doesn't have to be difficult to understand. In this episode of the Stratfor Podcast, we're sharing a keynote presentation from Vice President of Strategic Analysis Rodger Baker, delivered at the 2017 Mackinder Forum, named for Sir Halford John Mackinder, one of the founders of geopolitics as a field of study. Baker outlines the principle of applied geopolitics that guides Stratfor's work, and also how businesses, investors, governments, and globally engaged individuals can leverage geopolitical analysis and forecasting to inform strategic decision-making and better understand the underlying forces shaping our world. Thanks for joining us.
Rodger Baker [00:01:55] Geopolitics as a field is most often used, most often applied, in things like state strategy and if you think about where the field emerged and how it was shaped it really came into the ideas of state strategy, how to think about what was the role of the state, how does the state protect itself, how does the state expand, or what are the state's interests and how does it act on them and how does it understand the other states. It's shifted fairly applicably into warfare. And for much of its history it's been seen in those ways, even in a lot of the geopolitics before geopolitics was a term. When you go back into the ancient times, the ideas of geopolitics still were about state strategy, they were about the state as the center of gravity. But as a company, when Stratfor was founded, 21 years ago-ish, really one of its early aspects was to try to take geopolitics and say this does have application for business. And it has application for business, one, if you think about business today, a lot of people will talk about multinationals and multinational organizations as para-state entities, that have global interests and global influence, far beyond their origin space. We've seen it at other points in history, right? The British East India Company, but in a very different way today. Okay, BP had its own army for a while, but most people don't, most businesses don't, right? But they do operate in spaces far beyond the standard set of geography, they operate in ways in which they're not necessarily directly connected to their state of origin.
Rodger Baker [00:03:29] We had a company we worked with for a while that had a 63-country supply chain. How do you maintain and manage and understand a supply chain of that magnitude? If you don't apply geopolitics to even know what to be thinking about and what to be looking for, going forward, right? But even companies that aren't these huge multinationals with these very broad, diverse spaces, we know that business today is integrated all over the world and we know that things that happen in one place have double and triple and quadruple ripple effects in other locations. If you have an increase in Chinese housing starts, that may hit copper, but it may also have impacts on, another few years down the road, on Brazilian soy, because you may have a change in socioeconomic patterns that's going to change food consumption patterns that's going to change the input patterns into the agriculture that's going to change where you're getting your products from and what you're going to have. It's thinking in these double and triple and quadruple ripples, rather than the one-off direct connection. It's obvious if you increase housing you're going to need more copper or you're going to need more steel. It's not necessarily directly obvious that a little bit down the road you're going to need more soybeans, because you need more beef, because pork is no longer good enough for you. Those aspects I think do have an implication and finally, there's a lot of political risk and political risk perception out there, and I think that when you look at it just from a political risk standpoint,
Rodger Baker [00:05:01] it misses some of the underlying aspects and some of the underlying realities, that may mislead how one looks at it. The Party Congress, there's a great case in point. The Chinese come out; the general narrative in the United States, Xi Jinping has consolidated power, he's the most powerful Chinese leader since Mao Tse-Tung (Zedong) or Deng Xiaoping. His theory is now enshrined in the Chinese constitution, and it's all about building a stronger, more cohesive China, and no thought about, what are the limitations on that? There's a great contrary in the two slides that went up; one shows a Gini coefficient of like, 55 or something like that for China, and the other says, but there's no more poverty, everything's fine. But the gap is actually massive. So yes it pulled a whole large number of people out of poverty, but when you look at it structurally you realize that okay, there's 400, 450 million people in the Chinese working economic powerful class, and those are the ones who are controlling that well over half of the wealth; that means you have 900 million people who are not, and are not part of the economy. And when you think about the Chinese government and they say, we want to build towards equality and bring that up, what do you do? Well it means that you're moving into a moment of redistribution of wealth. And what happens if you move into redistribution of wealth? Where you take a coastal, powerful element that's 1/3 of the population but 2/3 or 3/3 of the economy, and you try to shift that and even that out
Rodger Baker [00:06:23] to the 2/3 of the population that's left behind? There are implications, right? And so thinking about these in an inclusive aspect is what geopolitics does best. I want to talk a little bit about a couple of things. One, how do we define geopolitics? Now if you were to look around this room at half a dozen people, you're going to get half a dozen different definitions, probably more than that. I just spent the year reading all sorts of books on it again and there's no common definition across the board. It doesn't matter, there's no common definition, right? It's all over the place; what is geopolitics? What I'm going to tell you about is what we will refer to as applied geopolitics in the sense of, how do we think about it and use it in a day-to-day perspective. And again, in any field there's a million different variants on this. What I would say is the most basic definition, from our perspective, is, understanding the intersection of place and organized people over time. Now in a sense that doesn't tell you anything about the future; it doesn't tell you, it seems to tell you only about the past, but in many ways it doesn't because what it is, is how do I understand why and how, for lack of a better word, national characteristics have emerged in different spaces, and how those perceive and interact with each other and how those shape things. If we were to say, is there a Chinese way of doing business, a Russian way of doing business, an American way of doing business, in general we would all say, well sure.
Rodger Baker [00:07:49] If we were to say does anyone actually do it in exactly that stereotypical way, we'd probably say no. But there is this perception that there are these ways of doing business. Is there a Russian way of reacting, from a government perspective, different than an American way or a Chinese way or a British way, well yes. Well, why? It's not because of ideology necessarily, ideology is reflecting something that's emerged over long periods of time in that space and in that interaction of that space and those people. And so, when we're thinking about geopolitics, the first step is, how do we understand the world system? We're 500-plus years into an integrated world system. Prior to that, the world is largely sectional, it doesn't mean that Rome didn't trade with China or that some Chinese admiral didn't discover America once and leave it alone. But it means that if you were in China you could in many ways think in terms of a regional space, and not have to think in terms of Brazil, or the United States or Western Europe. If you were in Western Europe, you were thinking primarily in that space, maybe a little bit around it, but not really worried about what's going on in other parts of the world. And today, it really is, it's a closed and complete world system, and that means that complexities ripple all over the place. I think I actually wrote this down, because I thought this was great in rereading something. "Every explosion of social forces, instead of being dissipated in a surrounding circuit of unknown space and barbaric chaos," I like that,
Rodger Baker [00:09:25] "will be sharply reechoed from the far side of the globe and the weak elements in the political and economic organism of the world, will be shattered in consequence." Which was written quite a while ago, by Mackinder. But the idea that in the concept of a closed world system you don't have buffer between crises in different spaces, they have ripple implications that can reach around the world in ways that you're not expecting. We're used to the metaphor of throwing a rock in a pond and seeing the ripple move out, but if you imagine a pond, and then it's got all sorts of little bits of trees sticking up out of it, and there's something swimming in it, and there's shores, that ripple doesn't just go out in one single ripple, right? It starts hitting other things and that changes the directionality of it and you have counter-ripples that are going on, and then it bounces back up; it impacts the entire space, it impacts the entire system. When we're thinking about geopolitics, what we're trying to understand is, how to think about the ways in which these impact and implicate each other, and what does that mean for us today? We think of geopolitics also in the application as a synthetic or a complex study. We look at geography, obviously geo, right? We look at geography, we look at politics, we look at history, we look at society, we look at economics, we look at security, we look at technology, and we look at the intersection of all of them. In geopolitics there is no economics without politics and security and society,
Rodger Baker [00:10:53] there is no politics without understanding economics. All of these have to be looked at as an inclusive whole. So it brings each of these sub-fields together into a way of looking at them integratively. I pick on political science majors who are sometimes so focused on the definition of the system that they start to forget all of these other pieces that implicate it and play into it and that, there is no such thing as a democratic system that's equally assessed in different places. What does democracy look like in Singapore versus the United States versus the United Kingdom? It's a fundamentally different thing, and that's been impacted by time and history, it's been impacted by social forces and shaped them back and forth. When we're looking at this, we're looking at the way in which all of these sort of pull together, that you can't look at economic trend lines in isolation of politics. The rise of China, and how do you understand the economic rise of China without understanding the social structures in China, and the politics going on, the security both internally and externally in the region. The change in Chinese dynamics today when you think about it as a quote "expansionary power" pushing out into the maritime space. Well if you go back to the mid 1990s, to the late 1990s, you're going to see that for the first time in Chinese millennial history, Chinese consumption of imported raw commodities starts to vastly exceed their domestic production. And China becomes forced to become integrated into a world system where, throughout history,
Rodger Baker [00:12:26] they've always had the ability to be isolated and buffered from a world system when they need to be. So it changes the dynamic. So, those play into it; it's not just saying, oh well the Chinese are a power that missed their chance 100 years ago and now they're just aggressive and assertive. There are economic forces that are compelling China to take certain actions in a strategic sense. Exactly what they do is their choice, but it doesn't mean the compulsion isn't there; they now also have the economic freedom to be able to act on it. Being able to think in those types of complex terms becomes really useful in geopolitics and in playing it around. Geopolitics helps you think about the difference between subjective desire and objective reality. There's not a politician out there who doesn't speak subjective desire. And it doesn't mean that they're lying or they're manipulative; they could truly want and truly believe the directionality that they're promoting, or that they think things are going. But it doesn't mean that that's the actual direction that things are going. There are lots of objective realities that sit underneath, and if we spend our time only listening to the public discourse, we miss those structural elements that fit right underneath it that are impacting or constraining those desires or those wishes.
Ben Sheen [00:13:48] We'll get back to the second part of Rodger Baker's presentation on applied geopolitics at the 2017 Mackinder Forum, in just one moment. If you're interested in seeing Stratfor's methodology and practice, be sure to visit us at Stratfor Worldview. Worldview is our premier digital publication where we share daily analysis, strategic insight, and industry perspectives, to help you make sense of an increasingly complicated world. It's also where you'll find our quarter, year, and decade forecasts for key geopolitical trends shaping the global system. If you're not already a Worldview member, you can learn more about individual, team, and enterprise access at worldview.stratfor.com/subscribe. Now back to Part Two of Roger Baker's discussion on applied geopolitics, and how businesses can apply this insight both to their short and longterm planning.
Rodger Baker [00:14:46] If I were to think about, well what does geopolitics mean for business? A couple of things, number one, it helps you to understand an excessively complex world in a simple but not simplistic manner. So one of the interesting things on geopolitics is while taking all of these into consideration, what it's trying to do is not be so full of every detail; it's trying to pull back and understand the general directionality or the general trend. And that lets you see the system without being caught up in every little aspect of it. You don't have to be a specialist in absolutely everything, or have a specialist in absolutely everything who's down into every detail. The specialists have a value, because they're testing and challenging the sub-components and the assertions that are being made. But geopolitics allows you to make very broad-based assertions about global systems. When we think about the world system, the world first of all is not linear. It doesn't move in a linear fashion. The relative power of nations or states is not linear. There's a cyclicality to it when you think about it throughout history. When we look at the way in which the systems integrate, it seems too complex. There's too much information today, right? You know, 20 years ago, 30 years ago, it may have been the challenge was, how do I find certain pieces of information; today it's more like how do I get rid of information so I can actually pay attention. But by giving you a frame of a world system, where you can build it up from geopolitics ... We work with military and academic groups a lot
Rodger Baker [00:16:26] in the ideas of how do you do a rapid geographic assessment of a space. And I pick random countries for them. And we make them actually not, in about an hour or two, instead of looking at, well what has everybody written about this space and how do we learn what is Niger, or what is Mali, right? You hear Mali in the news today; well, what is Mali? What do you know about Mali? Well how are you going to find out? Well I'm going to go to Google; I'm going to type in the world "Mali," and see what comes up and read the Wikipedia entries, right? But instead, how can I from the bottom up, assess a space, make a certain set of assertions, and then be able to use those to ask questions that I can then start to challenge as I'm looking at the flow of information. If there's a new space that somebody's interested, and what we'll do with them is first, let's take a look at the basic geography. And by geography I'm not talking about a political map. And I am definitely not talking about stopping at political boundaries, because geography doesn't stop at political boundaries; even Australia's geography doesn't stop at the coast. What does the space tell us? If I'm looking in, we did Chad recently with them, and there's a lake down at the bottom, and if you lay population density there's a population band at the bottom; there's a desert at the top; there's a straight line across the top, which lets you know also, usually a straight line on a map means somebody divided it at some point. You think about the straight line
Rodger Baker [00:17:52] and look at Libya up to the north and you look at Chad and Lake Chad to the south and you realize okay, population center, population center, somewhere about midpoint. You can make assertions that southern part of the Saharan Desert, well this is both an empty wasteland but it's a traditional transit corridor. The sedentary population down by the lake. Okay, then that's going to have a very different type of development. And then I can test those. We'll lay out, what's the geography, sub-surface, surface, climate, things of that sort. What's the population, what's the population density, age range and distribution. How would I look at where economic resources are, how are they being exploited? And in about an hour or two, build a mental model of a space to try to understand it. And that creates the frame to ask a lot of further questions but it also gives you a foundational starting point, not from an ideological perspective, not from somebody else's assessment or writing of the market value of the space, but rather, how do I measure this space? How do I think about it? And then I can start tasking my researchers against that. I can start looking at the flow of information that comes in through the media against that model that I've built. And I'm using that information both to challenge and test my model, and I'm using my model to challenge and test the relative value of the information. The second piece that this does for us, is then, for lack of a better word, what I like to call the "Information VIX."
Rodger Baker [00:19:23] If you think about stock markets, right, if you were to step back, you have kind of a daily trend line, but you have a volatility index, right? How much is up and down above your basic trend line? Well if you think about information today, there's not a piece of information that doesn't go on the news today that doesn't have a big red bar underneath it that says "breaking." It can be three-day-old information; still it'll be "breaking." Everything is the imminent crisis, in the news cycle. It doesn't matter. Today we're not bombing North Korea, two weeks ago we were, four weeks ago we weren't, six weeks ago we are. Everything has this sort of real noise space to it, and with geopolitics if I can build that frame it says, what is significant versus what's merely important? You know, 20 years ago, it was, what's important verus what's noise? Today there there is a lot of important, but I really need to focus, well, what's the few significant lines? And if I can think about those when I'm looking at information, in many ways I can bring my information down to a space about this wide instead of this wide. So if the volatility of information is moving here, and I can have a frame that eases it down to a much more reasonable stream, I can play the gaps. I can understand when I need to be worried about directionality or when I don't. I don't have to get caught up in the day-to-day, cyclical noise, so clear that noise out. When we work with financial service industries, a lot of them actually use geopolitics
Rodger Baker [00:20:50] in the sense of day-to-day and short-term activity, which seems odd because geopolitics seems to work best in, like, 10-year blocks, or big space. But they do it because what they're doing is they're playing the gap between the daily perception in media noise and the underlying reality. So every day, it may be, the noise tells us that Trump is going to throw away the entire nuclear deal with Iran, that means we're going to war in the Middle East, oil pricing, and you know ... But if you know that there is an underlying reality, know there's a certain set of constraints, it's going to pass to Congress, Congress is going to have this baseline set of constraints on it; it's not going to move into the extremes. There are some possibilities for it that you want to be watching out for, but not really. Suddenly, your space for operations is a lot more visible. If you want to play that gap space, it doesn't matter which side of the reality line it's on, the gap space is there and you can understand the difference and that gives you a competitive advantage against others. Looking at that, geopolitics helps us to see the future. And it helps us to see the future by understanding the past and the present and looking at the way they're flowing. Now again it's not deterministic, it's not perfect in telling about events, and it's really poor sometimes in the very short-term responsiveness, but nonetheless if we're stepping back and we're taking a much more strategic view rather than down into every possible tactical detail,
Rodger Baker [00:22:20] it will tell us about the flow of future history. And it will do so, we build off of the past, we look at the present, we lay against it, what are the constraints, what are the compulsions? What's the directionality? How do each of these pieces of the international system start integrating with each other? Now that sounds ridiculously complex, but remember that we used geopolitics first to oversimplify the world system initially. It gives you thin enough lines to be working with that when you're weaving them together and playing them against each other, you have a place in which to kind of step back and see. We did an experiment a few years ago in our company where we predicted the next 100 years. It was kind of fun and a little silly, but nonetheless what it did is it played off of a couple of basic assumptions. Number one, linearity is the least likely path forward, rather than the most likely, particularly as you get longer and longer out. That was one of the baseline assumptions. And number two, really trying to look at, okay, in the current state, what are the major constraints and major compulsions on the key players on the international stage; how do they interact with each other, and we threw in an entire section on what would technology do to that. How does technology change or alter geography? This is one of Mackinder's big things, was the idea of technology changing or altering geography. And then by the time he gets to the end of his career, he realizes that the Russians couldn't build as many trains and that airplanes are different,
Rodger Baker [00:23:40] and it starts to change his mindset. But technology has a huge impact, and in ways that are potentially unexpected. Technology in the sense of the development of sub-Saharan Africa. Nobody was going to put copper wires across sub-Saharan Africa. There was no business case for that. But cell towers made sense, and the cell towers then created an entire different economic structure that built on top of informal economic structures, that simply utilized a new technology that allowed a complete change in dynamics in there. If we were to move towards a world where you could actually perfect large-scale grid storage technology for alternative energy, northeast India suddenly is a place that can expand, where for years everybody's been trying to, but there's sort of no infrastructure capacity and no way to tie all of the pieces together. But if you can have disassociated, disaggregated, small spaces of localized power that can use whatever resources happen to be local, and store the power, again it's that storage which is the big limiter on alternative energies, you can really change the dynamics of where and what's important. You also change, say, the input materials. Let's say lithium is the most important. I think it's the end of this year that the court will finally finish its ruling on whether Chile or Bolivia owns the port, and Bolivia is currently a landlocked state. But 20 years from now, there could become heavy political, economic, and potentially even military competition in South America
Rodger Baker [00:25:08] over control of lithium resources and access to the sea between the Japanese and the Chinese who are trying to dominate the field of battery technology. Technology can have these big impacts on it. But it tells us the future. Well what does telling us the future mean in terms of business? Because again, we're thinking more in terms of longer term strategic planning and directionality of the future, not in next week or next month. And to be realistic, most business operates at best in a three-month block. As much as they tell you they're doing strategic planning and thinking forward and everything like that, anything that's got a shareholder is working in three-month blocks or shorter. And if you go into a lot of companies you'll start seeing that they have meetings with numbers every week, and you lose that ability to think strategically. But what it does, if you can think forward, is say, okay what are the places where in the international system, we're going to be seeing changes that can either positively or negatively impact my business opportunities? Or the way in which my business works, or the size of the consumer market or accessibility to a consumer market, or competition rising up somewhere. Or destabilization in a certain space that has a ripple impact on transportation infrastructure, puts friction on transportation infrastructure. Think of the Horn of Africa and the expansion of piracy, maritime piracy, that put a substantial amount of friction on maritime transportation. Then later there was the response to that
Rodger Baker [00:26:33] that brought in the Americans, the Europeans, the Chinese, in the maritime response, that you now have every single country in the world having a military base in Djibouti. And a significant reduction, though, ultimately, in the maritime friction in that space. But for a period of time you had a destabilization of an area of the world that contributed to friction in global maritime supply routes. If you can start to think about these, what you can do is then say, what are the precursor elements that I would expect to see, that tells me as I'm coming towards one of these likely inflection points, and identify two or three of these inflection points along this forecasting space, what are a few things I might see, I can set up a system of monitoring to see am I getting near to one of those inflection points and which way does it appear to be going? And also front-load strategic planning in how do I act or respond? Businesses these days are excellent at responding to crisis afterwards. They've gotten very adept at reacting, and simply use the excuse, well it was unpredictable, so I could only react. We argue that the world is not unpredictable. Events may be unpredictable, but the flow is not unpredictable. And therefore you can think about, okay let's say we anticipate that Russia is going to, for the next three or four years, really continue to be as expansion(ist) as it can around its periphery, because it knows it's hitting a major demographic crunch and is going to have to pull back in and focus on that, and it's trying to create a secure
Rodger Baker [00:28:06] buffer space around itself. Focus some of its resources on the east. Two or three years of continued significant friction in the Balts and down along the periphery all the way down to Ukraine, but then maybe a stagnation or a pullback of Russia. How does that change the behavior and the economic activity of Poland? And the focus of Poland? How much has Poland pulled towards Germany during the leading part of that, how much does Poland feel a little bit relieved after that, does that create new frictions between them and Germany, and pull away? You can start to think about those types of things that may have an impact on business or business opportunity, business continuity, and Poland's growing population, large industrial base, strong central position in Europe, et cetera, et cetera. And as you're watching for those, have a few plans or at least have spent a couple of days thinking about, well what would I do if it starts to go this way or this way, and you can pull the decision-making earlier. Because as you see, oh it looks like we're going towards this directionality at that inflection point; I'd better start putting in the first two or three of my plans or at least, now's the time to review my response plans, rather than after the event happens. In that forecasting, geopolitics helps people think in that longer term. If you think about macro lines for companies, when companies do their 10-year planning, and they build those beautiful macro lines, they bring in all of their economists and things
Rodger Baker [00:29:27] and they build a macro forecast, and it's almost always the little hockey stick, there's a little wiggle at the bottom and then there's this straight line up to 10 years, right? And their models work very well, economic models work very well at like years one through three, and then they don't work in years four through nine, and then they sort of work at an output at ten. And what geopolitics can help you do, is, for lack of a better phrase, put more wiggle in your macro line. Because if you think about, even if the 10-year outcome is what you anticipate and it's accurate, you know that it's not a linear line to that 10-year. There are going to be up years, there are going to be down years, based on the systems of global economy and accessibility. If you can use geopolitics to put that in, it may tell you two years earlier or two years later a particular capital investment. Delay it a little or accelerate it a little in anticipation, instead of trying to think along that pure, straight line path. Again, in the forecasting, it fits into both the strategic planning, and it fits into the responsiveness and through the identification, ideally, front loading early, of crises, and it helps you then avoid thinking every single day, every single new piece of information is a crisis, because it shrinks that space of volatility. Because again, the purpose is to say, geopolitics, which is normally the realm of strategic planning, military planning, and things like that, really does have, not only a day-to-day application for business, it has that strategic planning for business.
Rodger Baker [00:30:56] But it does have that day-to-day implications of business, particularly in our world where the information flow appears both excessively large and perhaps excessively unreliable as well.
Ben Sheen [00:31:20] That's it for this episode of the Statfor Podcast. If you'd like to learn more about Stratfor's geopolitical methodology, and how we use that to focus on what's truly important now and in the future, be sure to check out On Geopolitics. It's a collection of columns on Stratfor Worldview that speak to the very nature of our work, and how we put theory into practice each and every day. We'll include a link in the show notes along with some other related analysis so that you can see how individuals and organizations apply Stratfor's analysis to their work. And if you're not already a Stratfor Worldview member, be sure to visit us at worldview.stratfor.com/subscribe to learn more about individual, team, and enterprise-level access. Worldview members can also contribute to this conversation in our members-only forum. If you have a comment or an idea for a future episode of the podcast, email us at [email protected], or give us a call on 1-512-744-4300, extension 3917 to leave a message. And if you have a moment, also consider leaving us a review on iTunes, or wherever you subscribe. We'd love to hear your feedback. Thanks again for joining us, and for more geopolitical intelligence, analysis, and forecasting that brings global events into valuable perspective, follow us on Twitter, @Stratfor.