After explaining the uniqueness of China's path in his speech at the 2019 Global Investor Conference, Li Lu (Trades, Portfolio) then went on to tell his views on the story of the "West" - mainly Europe, because various locations in Europe served as the center of the "Western" world and political thought for the longest period of time.
An important feature of the geographical environment of Europe is that it is full of many small rivers zig-zagged across the continent. The whole region of Europe is not big, but it is divided into many small pieces by mountains and rivers, which are easy to defend and difficult to attack. Plus, for most of its history, Europe was covered with dense forests. Therefore, in the period of the Roman Empire, a large part of Europe was almost in the wilderness.
It was not until the fall of the West Roman Empire that primitive forests were slowly cut down and agriculture began to flourish. However, due to geographical constraints, the land of Europe could not support a unified empire, so all efforts to reunify Europe after the Roman Empire ended in failure. To manage all these small countries well, it was enough to rely on the blood relationships with kings and nobles as the core, and the blood and geographical relationships between countries. All political power remained hereditary due to the isolation into small groups. Therefore, until modern times (long past the industrial revolution), the political power in the West never even moved in the direction of egalitarianism and meritocracy like it did in China.
However, the West has one decisive advantage in geography which has proved to be crucial in the history of the past five centuries. The distance between Europe and North America is about 3000 miles, and the distance between China and North America is about 6000 miles. Considering ocean currents, the distance between China and North America is actually much greater than 6000 miles. Therefore, when European merchants began to sail in exploration, they were much more likely to arrive and discover the American continent than the Chinese merchants.
Before the emergence of modern science and technological innovation, it was almost impossible to sail from China to the Americas. Zheng He (a famous Chinese sailor during the Ming Dynasty) could only sail westwards, not eastwards across the Pacific Ocean to reach America. It was entirely possible to sail from Europe to America, and this "accidental discovery" of the geographical advantage of the "new world" was inevitable.
The significance of this great geographical "discovery" is extraordinary. First, Europeans escaped the Malthusian trap because the land of North America is bigger and more fertile than the plain between the Yangtze River and the Yellow River. Because North America had been isolated from Eurasia since the glacial period, its agriculture had not been developed to the same extent. Therefore, the population of North America was sparse and the civilization was primitive, with agriculture only taking place in small pockets.
After the Europeans set foot on the American continents, they easily conquered the indigenous people. Many of them died of the diseases brought by the Europeans, or due to their more advanced weaponry. All of a sudden, Europe "inherited" a vast, fertile land that could support a much larger population, thus creating centuries of trade and economic prosperity in the transatlantic sphere. This way, the West managed to avoid the Malthusian trap (though this happened at the expense of the native peoples of the Americas).
A new round of sustained economic growth triggered dramatic changes in both social science and natural science, which eventually led to the Enlightenment and the great scientific revolution. Since then, the combination of the free market economy and modern science and technology has led to the transformation of human civilization. This era is defined by the sustained, compound interest and unlimited economic growth. This phenomenon is unprecedented in human history.
As mentioned in Li's explanation of China's path, agricultural civilization is determined by the principle of photosynthesis, and the limit of photosynthesis on energy conversion is subject to the size of the land. The size of land has a natural upper limit, so the economy of agricultural civilization is a shortage economy. The civilization based on modern science and technology can release the power of sustained and compound interest economic growth and transform the shortage economy into a rich economy in the agricultural era.
This new system is the result of economic meritocracy. In Europe, people suddenly found that no matter who you are or what your background is, you have a path to rise on the economic level, and you can make great achievements through your diligent efforts. This system helped to release the potential of individuals and organizations. This is a phenomenon that only happened in the past few hundred years in modern history. The rise of individualism alongside meritocracy in the West is the product of all these factors.
This is why when the West looks at China and China looks at the West, it is often with tremendous biases. They always start from their own prejudices and their own successful experiences, and this extends to business and investing as well.
Read more here:
- Li Lu Explains the Case for China - Part 2
- Li Lu Explains the Case for China - Part 1
- The 5 'Rights' for Value Investors: Part 2​
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