Category Archives: A Piece of My Mind

The year of the vampire: 2017 is when political risk bites back

“I have never met a vampire personally, but I don’t know what might happen tomorrow.”

–Bela Lugosi

Perhaps the greatest single indicator that the West no longer rules the world is its constituent nations’ signal inability to solve any of their many festering crises. Gormless, wildly overrated Chancellor Angela Merkel epitomises this trend more than anyone else. She has made ineffectual policy failure into a sort of performance art, astoundingly convincing many that ‘managing crises’ is an acceptable substitute for solving them.

But of course it is not; it is merely a novel marketing tool for putting off the inconvenient truth that the West’s crises are structural, endemic, and are in the process of going septic. For the hard rule of history is that either you master crises, or they master you. 2017 will be the year of the vampire, when the myriad unsolved policy challenges confronting the West bite back, in their undead fashion.

The refugee crisis will rise to threaten Europe’s political order. While the hell of Aleppo is ending, the refugee crisis caused by the Syrian civil war is not. The EU’s patchwork immigration deal with Erdogan’s Turkey is coming apart at the seams.

The erratic Turkish President is furious the EU has failed to honour its promise of visas for Turkish citizens to travel in Europe in exchange for Turkey serving as the continent’s night watchmen, keeping the refugees from its shores. Erdogan’s post-failed coup crackdown has made honouring this pledge practically impossible. By the spring, if Erdogan fails to receive German satisfaction over the deal, look for him to open the gates, and the refugee crisis to reappear, seemingly from nowhere. The fundamental east-west divisions within the EU over this issue will bring it to the brink of collapse.

Europe itself is living on borrowed time. While the establishment will (just) survive elections in France, Italy, and Germany this coming year, this amounts to the last roll of the dice for the continent’s elite to find a source of significant growth to save themselves.

Centre-right candidate Francois Fillon will win the French presidency over the populist rightist Marine Le Pen and her Front National (FN) Party. But vampire-like—lurking just beneath the surface—the 2017 presidential election amounts to a triumph for her. Le Pen will roughly double the vote her father received in the second round of the 2002 presidential election, with the FN candidate receiving upwards of an alarming 30% of the total. If Fillon fails to fundamentally reform reactionary France, it is entirely likely that Le Pen wins the presidency the next time around.

Likewise, Chancellor Merkel will win the joyless autumn German parliamentary elections, proving once again that the tallest pygmy in the village is still considered a giant.

But the chickens are coming home to roost even here, in the form of further terror attacks that will be laid at the door of Merkel’s open immigration policy, sluggish domestic growth of under two percent (probably about the baseline target needed to be reached to hold European populism politically at bay), and the fact that the crises all around it will call for decisive German action which Merkel seems constitutionally incapable of providing. A few more years of this drifting and it will be risk on in Germany as well.

In Italy it is probable that Beppe Grillo’s insurgent populist Five Star Movement will actually win the most seats in Italy’s upcoming parliamentary elections, though it could well fall short of an overall majority. New voting rules will likely weaken the power of any sitting administration, meaning Five Star will either govern in a chaotic, weak manner, or be excluded by the other parties from forming a government in the first place. If it is the former look for its challenge to the European order to fade. However, if it is the latter, Five Star is just one ineffective Italian government away from a referendum on the euro.

The Iran nuclear crisis will rear its ugly head as well. In a very changed Washington, the strong anti-Iranian orientation of the new Trump administration—the President himself, National Security Adviser Michael Flynn and even stable Secretary of Defence James Mattis—will cause the seemingly settled Iran nuclear crisis to come back from the dead. Either the deal will be unilaterally abrogated outright, or the administration will harry Iran over every point of its implementation, hoping Tehran walks away in a fury. In either case, the flare-up will precipitate a transatlantic crisis as a hard-pressed Europe will see no reason to follow the despised Trump over the abyss.

Finally, the gormless Trump administration will unwittingly trigger a trade war with China, which could well precipitate the world’s next economic crisis. The year of the vampire is here with a vengeance.

Published in City AM London, Janaury 3, 2017.

What the Trump Revolution Means for the Rest of the World

 

“The revolution is not an apple that falls when it is ripe. You have to make it fall”

–Che Guevara

Introduction: How Trump Won

Boy, did Donald Trump make the apple of revolution fall from the tree. Despite the fact that his populist insurgency was universally discounted, the brash New York business mogul pulled off the most stunning political surprise in modern American political history, besting tired, corrupt Hillary Clinton for the presidency. The most galling point in all this for political risk analysts is that Trump hid a winning strategy in plain sight, without anyone taking him (or it) seriously. At the very least, this analytical humiliation should force all of us in the elite to think again about whether the world truly works as we think it does.

After endless internal campaign chaos, Trump settled at last on the highly capable Kellyanne Conway as his campaign manager, who provided needed ballast to the storms perpetually raging around her candidate. Conway had a simple—and in the end brilliant—strategy for victory. The future was not (at least not yet) the preserve of the shiny new Obama coalition—based on the country’s changing demographics—of the young, the urban, the well-educated, and growing minority groups, such as Hispanics and African-Americans.

Instead, at least for this election cycle, the future was the past; white, high-school educated men, the heroes of Bruce Springsteen’s music, would provide Trump with the winning edge, all polling data to the contrary. These were the voters from another time, and in terms of the East Coast Establishment assessing them, almost from another world. Yet their fears are not imaginary, even if in their search for victims, Springsteen Democrats have sometimes found the wrong culprits.

It is a too-often neglected fact that over the past two decades, half of all Americans—the most powerful country in the world—have become poorer. These Springsteen Democrats (for this group can be traced back to the earlier southern Democratic populism of George Wallace) are entirely right to fear that the world has passed them by and that the elites in both parties no longer give their plight overmuch thought. Trump’s ingenious campaign slogan, ‘Make America great again,’ was especially created for his Springsteen Democrat loyalists, catering to their sense of loss and betrayal. It was a masterful political stroke.

Trump shared several of the basic tenets of the Springsteen Democrats, seeing the uncontrollable ravages of globalisation as a primary culprit in both the decline of America (and the consequent rise of China and other Emerging Markets) in general and the Springsteen Democrats in particular (with globalisation’s emphasis on educational attainments). Flouting long-held Republican Party orthodoxy, Trump’s unfriendly takeover of the party with his Springsteen Democrat followers turned the traditional party of free trade into a protectionist one with bewildering speed.

East Coast finance, often the sponsors for Democratic Party candidates as is exemplified by Hillary Clinton beyond all—the very bankers who ran the world economy into a ditch, escaping from their greed and stupidity scot free—were the practitioners of globalisation, the unseen and unfriendly forces dooming the Springsteen Democrats to a declining lifestyle and position in American society. Again turning Republican shibboleths on their head, the party of business morphed into the party of the white working class in the blink of an eye, with its attendant (and not entirely unfounded) suspicion of the American business elite.

The third force to blame for the Springsteen Democrats’ diminution in social status in American society was the rapidly changing demographics of America itself, particularly the rise of Hispanics as the fastest growing and largest minority group in American life. In terms of rates of assimilation, Hispanics are generally joining American society at more or less the same speed as the Irish-Americans, German-Americans, and Italian-Americans who came before them.

The one very important exception to this is in terms of educational progress, as Hispanics have learned English (for whatever reason) at a slower rate than most of the other immigrant communities who have come to America. This has made Hispanics seem ‘different’ to Springsteen Americans in a way other groups, such as the recent rise of Asian-Americans, have not. Pressed from above in the American class system by globalisation and the bankers (and their political lackeys) defending it, and from below by Hispanics challenging the Springsteen Democrats for their jobs, it is unsurprising that Trump’s anti-immigrant tone fell on such fertile soil.

Most of the commentariat found Trump’s focus on the forgotten Springsteen Democrats highly amusing, as there was simply no analytical data to support such a bold throw of the political dice. But Conway convinced Trump that this demographic ought to be the basis of his populist campaign strategy for three reasons. First, given his specific pitch to them—and everyone agrees that Trump sounds like no other Republican presidential candidate ever created—Trump could connect with the Springsteen Democrats, many of whom had grown so demoralised by the ravages of globalisation (and the lack of anyone defending their interests) that many simply didn’t bother to vote.

But Conway saw that here was a core group ripe for Trump to woo—and win—in overwhelming enough numbers that it would swing the election. In the end, national exit polls show that Trump swamped Clinton among non-college whites by an astonishing 39%, an even larger margin than Ronald Reagan managed against Walter Mondale in 1984.

Secondly, the Springsteen Democrats—echoing Trump’s gleeful political incorrectness—hate the mainstream media which they (again at least partially correctly) see as hopelessly, dogmatically left-wing and elitist. As such, if a polling company calls up a Springsteen Democrat, the likely response is the phone is slammed down. Conway brilliantly deduced Springsteen Democrats were being significantly under-counted.

A third reason to focus on the Springsteen Democrats as the key to victory was that not all these voters wanted it to get around that they were going to vote for a presidential candidate scarred by accusations of racism and bigotry, even if they were drawn to his protectionist and anti-immigration message. Conway and her team fervently believed that these ‘shy voters’ would nevertheless emerge in sufficient numbers to sway the election.

This world-class strategy worked perfectly to the shock of the rest of the world, as Trump upended the heavily favoured Hillary Clinton to stunningly claim the presidency. Sure enough, these uncounted white male voters actually existed, and in large enough numbers in the upper Midwest (Pennsylvania, Ohio, Michigan, and Wisconsin) to shatter decades of Democratic dominance there and claim the presidency for Trump.

The last projected Real Clear Politics poll of polls judged that Clinton would receive 46.8% of the overall vote, while Trump managed only 43.6%. In reality, Clinton’s numbers were even better than this as she ended up with around 47.7% of the overall vote. However, Trump’s totals were a highly surprising 47.5%, a decisive four points higher than had been posited. This winning margin entirely justified the missing voter strategy, and proved Conway’s inspired hypothesis entirely correct. As Speaker of the House, Paul Ryan (no friend of Trump’s) put it, ‘He heard a voice out in this country that no one else heard.’

Don’t expect Trump to forget that the Springsteen Democrats won him the presidency. More than any other check on his power, the nature of Trump’s populist campaign—run without the usual political commitments having to be made to the Republican Party, big donors, or any specific interest groups—means that the full-throated continuing enthusiasm of the Springsteen Democrats is what he will be worrying about as he sets about governing. As such, trade and immigration policies—which in both cases mark a giant change from the settled elite world view of both parties—will be conducted on a radically different course. Trump won’t forget the Springsteen Democrats, as they did not forget him on November 8th.

Trump’s Jacksonian Foreign Policy

Nor are Trump’s overall foreign policy views the mystery the highly-discredited commentariat make them out to be. He largely hews to what Walter Russell Mead calls the Jacksonian nationalist strain of American foreign policy thinking, long a minority (if important) view in both parties.

Espousing a form of realism, the Jacksonians believe that the US should pursue a very limited but overriding view of the American national interest, seeing that every foreign policy strategy furthers American interests to the exclusion of other competing imperatives. For example, during the campaign Trump questioned whether global warming was objectively true, wondering aloud if this was merely a Chinese plot to economically castrate the United States.

What Trump is getting at is that he is not in favour—given the perilous economic condition of his Springsteen Democrat base—of shelling out significant American funds to pay the lion’s share of a global problem, if it is indeed a problem at all. The idea that America is somehow impelled to ‘lead’ on this issue as the global ordering power strikes Jacksonians dangerous claptrap of the highest order, just another example of global elites caring about esoteric issues (global warming, pandemics, nuclear proliferation), all the while ignoring the economic plight of workers everywhere.

As such, Jacksonians are deeply distrustful of alliances, fearing the US too often allows itself to be shackled to the wishes of others, who may have quite different interests from those of America. Here Trump (rightly) notes that Europeans failure to ever meet their defence commitments in NATO is scandalous, and that Americans should not continue to be taken advantage of, footing the bill so Europeans can retire earlier while Springsteen Americans suffer at home. While Jacksonians are not against NATO or any other alliance per se, they are only for such commitments in transactional terms, if America ‘gets a good deal’ out of them.

The idea of sharing values with Europeans (which the clueless Chancellor Merkel brought up in her statement congratulating Trump on his victory) would strike a Jacksonian as the height of hypocrisy, a way to either change the subject away from obviously deficient Europe defence spending or (even worse) to use such platitudes to ensnare America in an alliance to do other’s bidding.

In either case, Chancellor Merkel had better learn fast about Jacksonian thinking for her tired old rhetorical song and dance—perfectly, blandly acceptable for the old American foreign policy elite—is simply not going to work anymore. Jacksonians are not isolationists; they will do things in the world that they believe suit them and their interests. To ask them to do anything beyond that—as America regularly has as the global ordering power for the past 70 years—is not going to happen anymore. At its essence this is what Trump means when he talks about ‘America First,’ a laser-like focus on American national interests to the exclusion of all else.

Jacksonians favour using force, but only when it is clear that a winning strategy is at hand, and never in the interests of esoteric goals, such as ‘upholding the international community,’ ‘humanitarian intervention,’ or to ‘nation-build’ others. Any nation building that occurs ought to be for the Springsteen Democrats, rather than (rightly in my views) wasting literally trillions of desperately-needed dollars in swamps like Iraq around the world. Again, with his focus entirely on American nationalism, Trump—weirdly echoing the very different Barack Obama—wants nation building to begin at home.

However, should America decide that the use of force is in its interests, Jacksonians are for prosecuting the war, regardless of what others—including international institutions like the UN or the smug and hopeless EU—might say. As Jacksonians believe so fervently in American nationalism, they readily accept that other countries might wish to use force, and are not over-worried by that reality, as long as American interests are not threatened.

Hence, Trump’s blithe unconcern for whatever President Putin gets up to in either eastern Ukraine or Crimea. America has no primary interests in either place so Jacksonians like Trump—to the horror of the international rules-loving Wilsonian elite—simply don’t care. To put it mildly, this Jacksonian tilt will force the rest of the world to think about America again, in a way few have bothered to do over the past several generations, as its precepts, world view and policy prescriptions are so entirely novel to European eyes.

Trump’s likely foreign policy

So in reality there is far less conjecture about Trump’s likely foreign policy trajectory than many in the media would have you believe. First, the new president will be resolutely anti-free trade, dooming the two large trade deals pending, TTIP for Europe and the TPP for the Pacific Rim. As Europeans had all but given up on TTIP anyway—with the Germans in particular having not bothered to try to sway their increasingly protectionist population—that is no real loss. However, the demise of TPP in Asia amounts to a strategic tragedy for the US, greatly improving China’s position in vital Asia.

The jewel in the crown of the Obama foreign policy, TPP was far from just a trade deal; instead, it cemented American geostrategic dominance in Asia in the new multipolar era by economically more closely linking America to its Asian partners (and pointedly excluding Beijing) all the while setting the new trading rules that would be followed for the region as a whole. Years in the making and painstakingly negotiated, TPP was finally laboriously agreed to and was awaiting congressional approval.

With the advent of Trump, this brilliant initiative will never see the light of day. Even worse, the Chinese are sure to make the rounds of America’s Asian allies, pointing out to Japan, the Philippines, and the South Koreans that American politics is now so toxic that its broader strategic word is no longer good. This is nothing less than a geostrategic disaster of the first order.

Ties with Russia are bound to improve as the Jacksonian Trump shares President Putin’s nationalist, spheres of influence view of foreign policy. America has no significant interests in Crimea or Ukraine so this is going to be removed as a major source of friction. Likewise, America has no real interests in whoever runs Syria, so the Kremlin’s blood-letting there is also not a major impediment to US-Russian relations. Given this, there is a good chance that Trump, Putin, and Assad will decide to work more closely together in eradicating ISIS from Syria specifically but also try to combat global terrorism more generally as well. For the Eastern Europeans such a stance will be shocking, after years of dealing with neocons and Wilsonians, but focusing on better ties with Great Power Russia makes a lot of sense from the Jacksonian point of view.

Third, American alliances in both Europe and Asia are in for a period of real change, where long-neglected strategic choices will have to be finally made. There will be increased Jacksonian pressure in both regions for local powers to pull their military weight, to do more and not leave the US to foot the strategic bill.

Here the strategic alternatives for America’s allies will be stark and forced upon them quickly. There will either be an acceptance of the need to do more to retain the American alliance, a new accommodation by American allies in both Europe and Asia with local regional powers Russia and China, the withering on the vine of these longstanding ties with Washington (death by neglect), or an open, angry transatlantic crisis decades in the making over burden-sharing. Whatever the future holds, the era of drift for America’s post-1945 alliance system is well and truly at an end.

For the biggest and most important takeaway of Donald Trump’s improbable Jacksonian triumph is the world will now structurally move to a full multipolar system, without having the benefit of an ordering power to mitigate crises and keep the global show on the road. Due to his professed Jacksonian bent and strict focus on American nationalism, Trump’s revolution means the US is exiting its long-held role as the world’s ordering power, the leader of the global international order constructed after 1945. For better or worse, countries will be largely on their own again. The West as a concept is dead and buried; the post-World War II era is finally over.

As a codicil of this fundamental geostrategic change, the US alliance system is likely to come to an end as we know it, replaced by a more transactional world where countries work together only when it obviously suits them to do so. The idea of sharing values or fighting wars to bolster the international community will soon seem a quaint anachronism of another age, as the Wilsonian global elite passes into history, destroyed by its very otherworldliness, which forget that nations and nationalism remain the basis of action in the international order.

While some of this is to be welcomed by realists everywhere, and much of the rest is manageable, the economic illiteracy at the heart of the Trump phenomenon is easily the greatest cause for concern. For the world economy remains globalised, whether Trump and the Springsteen Democrats (or many Europeans for that matter) like it or not. Threatening China with massive tariffs is like throwing gasoline onto an open fire, reviving the prospects for the Global Depression that was just barely avoided following on from the Lehman crisis. Living in a more nationalistic, interests based world is just fine for realists, as it actually corresponds to reality as we find it. Living in such a world in the midst of a self-induced Global Depression would be ruinous.

But his unlikely fellow revolutionary Che Guevara I think would grudgingly acknowledge that Donald Trump has shaken the apple tree. For good and bad, the world that we have known is about to recede from view. It is time for political risk analysts to be the mariners of these new, unfamiliar seas, expertly charting a course to success in these perilous times. That is the challenge for all of us as there is no going back from this revolution.

Published in Limes, December 2016

Why everyone called Brexit wrong: Analysts have become too close to the elites they’re meant to analyse

I have long held heretical views about political risk analysis, which cluster around what I call the ‘plumber’s test’. However bejeweled or slick at marketing a political risk firm may be, what matters in the end is that they are analytically correct.

Just as I don’t invite back my local plumber if he fails to fix the pipes, nor should businesses put up with political risk firms who missed the war in Iraq’s predictable outcome, failed to see the coming of the Lehman crisis, or (more recently) failed to predict the Brexit vote. What holds for my plumber ought to hold for what I do for a living as well.

And yet, astoundingly, for all the million-dollar research departments in the City, and of all the major political risk firms out there, mine is the only one I know of to correctly call the Brexit vote. As far back as my prediction column for City AM in January 2016, we said Brexit would happen, to the general amusement of the commentariat and my competitors. Yet it is not an accident when the pipes are correctly fixed.

The main problem with Brexit political risk analysis revolved around the Pauline Kael fallacy. The legendary cinema critic of the leftish New York Times supposedly went wandering around, following Richard Nixon’s landslide 49 state victory in 1972, wondering how it was possible the incumbent won when everyone she knew voted for the hapless Democrat George McGovern.

There we have it in a nutshell. Top political risk analysts are always part of the elite they are supposed to assess. They all go the same cocktail parties, read the same books, inter-marry and share the same ‘right thinking’ views, all without wondering over-much about the wider world outside the cocoon of conferences at nice hotels. Intellectually trapped within an elite they are supposed to objectively analyse, political risk analysts have not covered themselves in glory recently.

Instead, both analysts and their clients have been shocked over and over again, a singular illustration of their lack of understanding of our changing world. They were gob-smacked by the recent Columbian vote against the Farc peace deal, just as they lapsed into incredulous, petulant rage over Brexit.

Like the mad, perpetually oblivious Roman Emperor Nero fiddling while Rome burned, gormless analysts seem somehow still unaware that–following on from the disastrous Iraq war and the equally calamitous Lehman crisis–most average humans simply don’t trust western elites anymore.

This is a tragedy on many levels. For after 500 plus years, the new world we are living in will not be exclusively dominated by a western ordering power. Following on from the Dutch, British, and American eras of hegemony, we are now entering a time when a rising Asia increasingly matters and where the West no longer calls all the shots. This means that the study of international relations is now truly global, and not just about what happens in Europe or North America. Political risk analysts that keep up with this sea change will do their clients a world of good.

Likewise, we are moving from the bipolar checkers game of US-Soviet great power competition to the far more complicated chess match of an era of many powers, where multiple interactions must be assessed. Standard international relations theory holds that such a complicated world is more dangerous, as there are simply more chances for great power miscalculation, and thus great power war.

On the other hand, there are more commercial opportunities in such a complicated place, if only political risk analysis can guide businesses to see the myriad glittering opportunities on the global chessboard. This world in transition means that there has never been a better or more lucrative time for political risk analysts to get their act together.

Published in City AM Money Magazine, October 2016