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posted on 25 November 2016

Building A More Efficient World

from STRATFOR

-- this post is authored by Rebecca Keller

At its heart, geopolitics is a study of relative advantages. Geographic features can hinder or empower a country in pursuing its imperatives such that, as Halford Mackinder put it, there is "no such thing as equality of opportunity for the nations." Nevertheless, geography is not deterministic; advances in technology can even the playing field or turn the tides for even the most geographically disadvantaged nation. Infrastructure offers a prime example of this phenomenon.

Throughout history, infrastructure has been central to a nation's cohesion and economic growth, connecting countries to themselves and to one another. In fact, despite their many bitter differences, the two major-party candidates for the U.S. presidency found a semblance of common ground in the need to update their country's aging infrastructure.

But though the need for interconnection has been a constant, it has manifested in different ways over time. As the global economy changes with the advent of new technologies, so, too, does infrastructure. Inland rivers, railways and highways have all played a role in increasing the efficiency of moving goods and people through the years, taking advantage of or augmenting existing geographic features. Even seemingly small technological advances, such as the container ship, can revolutionize long-standing modes of transportation. Now, as the fourth industrial revolution unfolds, the demands on infrastructure will shift again, and with them, the global order.

Rivers: A Traditional Advantage

For centuries, inland rivers were the lifelines of nations and empires. Cutting from the top of Minnesota to the Gulf Coast of Louisiana, the Mississippi River is (literally) central to the United States and its enduring influence in the world. Along with its rich historical and cultural significance, the Mississippi River Basin offers the United States a wide swath of fertile land and navigable rivers, allowing the country an inexpensive means to transport goods within and beyond its borders. Inland waterways also underpinned the success of Northern European countries such as Germany and the Netherlands, though, unlike in the United States, the rivers and the economic competition they inspired divided the Continent rather than uniting it.

Regardless of their differences, the waterways in Northern Europe and the United States share an important feature: their average depth. To efficiently carry goods, particularly in the era of large freighters and barges, rivers must be deep - at least 2.75 meters (9 feet) deep for craft of more than 500 metric tons. The United States and Europe each benefit from rivers deep enough to accommodate large ships, giving them a natural advantage over other countries. For example, because many of Russia's rivers are too shallow to be of use in transporting goods (and since many of them run to the Arctic - hardly a trade hub) the country has had to rely on railways and pipelines for economic growth. Similarly, Brazil's navigable rivers are either inaccessible - situated in the seemingly impenetrable Amazon rainforest - or inconvenient, flowing to other countries rather than to the coast. Consequently, the country has had to depend on inefficient and capital-intensive highways to transport the agricultural goods it exports.

Making Inroads

Nevertheless, rivers do not make or break a country's economic success. With time and the advent of new technology, even the mighty Mississippi River ceded its central role in U.S. infrastructure to some of the nation's other geographic and technical features. The rise of rail and road infrastructure redirected the flow of trade in the United States, linking its east and west coast by land and transforming North America's land-based supply chain. The container ship took the revolution to a global scale and ushered in a new era of international trade over the past 30 years.

Since the ascension of the container ship, the world's nations have had an alternative avenue to economic growth, no longer wholly dependent on their internal infrastructure but on their access to the global system. For some developing countries, such as China, this change has been a significant boon. Interior infrastructure has long posed a challenge for Beijing, whose major manufacturing powerhouses are concentrated on the coast. In recent years, China has experienced astronomical economic growth, thanks to booming maritime trade. Container ships enable Chinese manufacturers to ship their goods abroad without having to contend with the country's lacking transportation infrastructure. But China's newfound prosperity has not extended much beyond the coast; though maritime trade has linked its urban centers to the rest of the global economy, internal connectivity is still lacking. The Yangtze River, China's equivalent of the Mississippi, plays a crucial role in uniting China's urban and rural communities, an imperative for the central government. To ensure its social and economic stability down the road, Beijing will have to turn its attention to developing and connecting the country's interior.

Meanwhile, Southeast Asian countries from Vietnam to the Philippines are following in China's footsteps on the path to economic growth. These countries can take advantage of their small size, populous urban centers and deep-water ports, as well as sustained global demand, to increase their export revenue without fully developing internal transportation infrastructure. The window of opportunity is closing, however, giving way to another phase in economic and infrastructure development.

A New Era

Today, a growing portion of the economy is based on services and intellectual property, not goods. This sector, which includes digitization and automation, requires special infrastructure. Instead of roadways and waterways, software, for instance, relies on high-speed servers and internet connections for transport. As software and other intellectual property occupy a larger share of the global economy, the infrastructure necessary to process data will become more important, especially in developed countries. Traditional goods and infrastructure will not become obsolete, obviously. But for countries such as India - which has a large services sector but still struggles with infrastructural integration, quality and efficiency - this burgeoning industry could be a boon.

In the meantime, countries will keep making smaller adjustments to infrastructure at specific points in the supply chain. Consumers are putting more and more emphasis on fast delivery - something water-based transportation methods have never been able to provide - and the prevalence of e-commerce and on-demand shipping will necessitate changes to the last leg of the supply chain. To ensure that goods can be delivered quickly and efficiently, distribution centers will need to invest in technological improvements such as automation to help limit congestion, which remains a problem even in many developed countries. Already, new technologies such as drones are being considered to enhance or replace parts of existing infrastructure. South Korea, for example, has proposed to develop "drone highways" in the air to meet the growing demand for ever-faster deliveries. In addition to physical infrastructure, technological leadership, combined with open and flexible policies, will be equally essential for this kind of development.

Though the means have changed over time, infrastructure - whether water, rail, road or electronic - remains a critical component of a country's economic success, one that some nations come by more naturally than others. As the global economy continues its evolution from the current era of globalization to one of increased automation and digitization, new developments will supplement existing infrastructure, hindering or facilitating countries in their efforts at economic growth. Even the United States, notwithstanding its geographic advantages, will have to adapt to the new economy to maintain its position as a world leader. Geography may be a constant, but the demands and advantages of infrastructure are not.

"Building a More Efficient World" is republished with permission of Stratfor.

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