How Ray Dalio's unique understanding of power can be used in everything from group decisions to trade wars
- Ray Dalio, billionaire investor and founder of Bridgewater Associates, is known for his "principles" for work and life.
- He recently developed a new principle on power, compelling people to think about power dynamics when experiencing or observing conflict.
- His analysis of power relates to both interpersonal relationships and international relations, and is fundamental to his worldview on both.
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For the past few years, Bridgewater Associates founder and co-CIO Ray Dalio has been winding down the amount of time he spends at his hedge fund, and has increasingly spoken on the state of global politics and economics. Living in this headspace has given him a new perspective on power, both on a large and small scale.
He's captured this in a new principle, one of the life adages he's been collecting since the 1980s.
It goes like this: "Have power, respect power, and use power wisely."
On its own, the statement remarkably simple. But taken within the context of a recent LinkedIn post as well as an interview for Business Insider's podcast "This Is Success," the maxim can be applied to as something as personal as making a group decision or as global as international conflict. Because while those two situations may seem disparate,, the way Dalio sees its, power is operating in each case.
Power on a global level
"A war is the testing of relative powers," Dalio wrote on LinkedIn. "Wars can be all out or they can be confined; in either case they will be whatever is required to determine who gets what. A war will typically establish one side's supremacy so that it will be followed by a peace because nobody wants to fight the clearly more powerful entity until that entity is no longer clearly the most powerful."
This is a distillation of the idea in Yale historian Paul Kennedy's award-winning 1987 history, "The Rise and Fall of the Great Powers," the book Dalio told us was the favorite one he's read in the past year. In it, Kennedy argues that every world power since 1500 has been defined by economic hegemony that fell when that nation-state became overstretched by its military presence and spending, which was accompanied by a lack of investment in other aspects of society, contributing to an overall decline.
Dalio said that he sees the tension between the United States and China as the natural result of China's rising influence in the world, and he's wary of negative results that can come from this shifting power dynamic. As he stated in his post, conflicts, which have the potential to escalate to wars, arise when one side is no longer clearly more powerful than another.
Power at play when making work-related decisions
Dalio's famous "radical transparency" approach emphasizes utmost honesty about work-related issues among colleagues, to a degree that would be uncomfortable at most companies. This technique - where employees rate each other's performance in real-time using iPad apps, and where almost all meetings are recorded either for future reference or for group-lesson material - is intended to keep power in check at Bridgewater.
In his post, Dalio wrote that while he could make decisions at his mutual fund "autocratically," he choose to not use those powers, instead opting for an "idea-meritocracy." With everyone's strengths and weaknesses laid out for all to see, you don't have to appease people for the sake of politics. Instead of just asserting authority from the top, Bridgewater is set up to reward ideas.
For example, Bridgewater employs a "believability-weighted decision making'" practice, where team members' experience and talents expand or shrink the influence of their vote when deciding something in a meeting. Similarly, any level of employee can criticize any of their bosses without fear of retribution.
These systems all help the best ideas - coming from the actual subject-matter experts - sway decisions, rather than simply the most powerful person in the room.
The fundamentals are the same
While Dalio's thoughts on power alternate between the micro and macro levels, with very different implications, both are based upon the same general understanding of how power works.
"Power is usually best handled like a hidden knife that can be brought out in the event of a fight," he wrote. "But there are some times when push comes to shove that showing one's power and threatening to use it is most effective in improving one's negotiating position and preventing a fight."
Whether there are conflicts between colleagues or nations, Dalio believes that the victor will be the side that best understands how its power will shift over time. "It is desirable to use one's power to negotiate an agreement, enforce an agreement, or fight a war when one's power is greatest," he observes. "That means that it pays to fight early if one's relative power is declining and fight later if it's rising."
You can listen to the full "This Is Success" episode on Apple Podcasts or Stitcher, or find it below: