Category Archives: Emerging Markets

Mrs. May must be even bolder to make Global Britain a free-trading success

“Fear not, we are of the nature of the lion.”

–Queen Elizabeth I

There was just enough in Theresa May’s speech today to reassure those who campaigned to leave the EU. Crucially, she made clear we are definitely leaving the Single Market and taking control of our borders. She suggested only a great deal would keep us in the Customs Union in some form, a highly unlikely event. Her tone – and such things matter – was forthright and constructive. Blessedly, we all know where she stands.

At one level, all she really did was confirm that we are going to be leaving the EU. But such has been the paranoia amongst eurosceptics about the prospect of some sort of excessive accommodation that just hearing we are going to be leaving will be enough to have Tory backbenchers cheering.

It was a speech long overdue. Having been almost completely silent on the EU as Prime Minister, May had well and truly lost control of the debate. Eurosceptics, dominant in the Tory Party, feared the worst and the media questioned whether she had meaningful plan. As such, despite addressing EU leaders, it was mostly a speech for a domestic audience – designed to assert control over the debate and to reassure Leave voters that she is on their side.

From that perspective, it was a job well done. But it is hard not to come away from the speech thinking that we should be further ahead by this point. When May took over back in the summer, some Leave campaigners were worried that, as a Remain supporter and someone who has spent relatively little time thinking about the future of Britain’s role in the EU and the world, she would not be well placed to help create a new role for Britain.

To be fair, the physical backdrop to the speech called for a “Global Britain”. And there were many points within the speech where she underlined her aspiration for Britain’s global role – not least in a very upbeat, internationally focused introduction. However, by this time in the process it is not good enough to merely speak in generalities, even if the Prime Minister’s impulses are clearly on the mark. It is time to talk about the specific, glittering geopolitical possibilities that can make May’s Global Britain a success.

While all the world is now to be now Britain’s oyster in terms of securing free trade deals, obviously some bilateral arrangements matter more to London than others. Indeed, in the media’s obsession about the terms of negotiations with the EU, a much larger strategic point has been almost entirely missed: the success or failure of Brexit will have far more to do with whether Britain can secure free trade deals with the Commonwealth countries (Australia, New Zealand, Canada), the US, India, and China, than whatever are the specific terms reached with the economic basket case that is the EU. That is where Britain’s Drakean, swashbuckling, energies must lie.

The great news (it is far better than good) is that the May government is pushing on an open door. Australia, New Zealand and critically Donald Trump’s America (once again the Project Fear establishment should never leave their day jobs and attempt to become actual foreign policy analysts) are itching to quickly negotiate and secure trade deals with the UK. As these three countries all have a solid record of growth–certainly compared with a becalmed EU—this is the first step toward Global Britain. But this is just the low-hanging fruit. The medium-term test is whether India and China (probably in that order) can also reach trade agreements with the UK. This is what the May government should actually be worrying about.

There is a further Holy Grail to attain if Brexit is to lead to a new Elizabethan Age: the Global Free Trade Alliance (GFTA). This proposed trading group would be a coalition of genuinely dynamic economies, voluntarily committed to pushing the free trade envelope. A legislative initiative rather than a trade deal, Parliament would offer GFTA members (chosen by neutral numerical criteria relating to their economy’s openness) access to the UK market with no tariffs, quotas, or other trade barriers, on the single condition they offer the same to the UK and the other members of the club. Such a radical move would over time do nothing less than remake both the UK and the world.

May gave a very solid speech which should encourage everyone that believes in a new, global future for Britain. She gave a speech that even five years ago would have been unimaginable. But we are where are and now is the time to think big. We look forward to hearing a detailed vision along these lines in the next few months.

Written with James Frayne and published in City AM London, January 7, 2017

The Chess Player and his needy friend: What Putin actually wants from Trump

Chess players are a particularly rare bird in the political risk ecosystem. The only major aim of such chess playing—and it is certainly an important one—is the acquisition and retention of political power over the long term.

Chess players’ dogged, patient, rational, long-term pursuit of coherent strategic, political and geopolitical ends flies in the face of the fruit fly-like attention spans of most people in the modern world. In our own time, a mass media which gives me the constant choice of reading literally hundreds of foreign policy articles on any given day means that the endless churn of the short-term news cycle provides a perfect hiding place for political actors with more fixed policy strategies.

Russian President Vladimir Putin is the living archetype of the chess player as decision-maker, even as his new best friend Donald Trump epitomises all that is wrong with the modern era, in his preternatural neediness, mania for instant gratification, and lack of depth. While Trump is petulantly lambasting the American intelligence services for letting him in on the inconvenient truth that the Russian FSB tried to tilt the election in his favour (it is important to note there is absolutely no evidence this was determinative in any way), the Kremlin is eloquently silent.

But despite the difficulty in spotting them, it is well worth the time to game out chess players. For once analytically brought to ground, the fixed, rational patterns that chess players exemplify means a true analytical understanding of them is possible, as well as a far better understanding of the world in which they live. It begs the question, what does Putin actually want from the new American administration?

Putin’s aims are simple, though achieving them is not. He wants to, in Tsar-like fashion, utterly dominate and control Russian politics. Second, he wants to—much as De Gaulle did in France after the war—restore his proud country to great power status. Everything else is secondary, merely means serving these two overriding ends.

It is in this basic chess-playing context that the rise of a startlingly pro-Russian American president must be viewed. First and foremost, Putin wants to cajole the new administration into dropping America’s former rock-solid support for the sanctions placed on the Kremlin, following Russia’s successful meddling in Ukraine.

The sanctions have proven surprisingly effective, with the Russian finance ministry estimating they have cost the country $40 billion a year. With pro-Russian Francois Fillon likely to become the new President of France and Italy’s support for the sanctions flagging, the constellation of power is right for Putin to do away with this serious economic wound.

Second, Putin wants the Trump White House to codify what is already happening, be it the settlement of the Syrian War on Russia’s terms or the annexation of Crimea. Given the strong impulse in the Trump cabinet (emanating from both prospective National Security Adviser Michael Flynn and Defence Secretary designate James Mattis) for combatting ISIS as a priority, a deal over Syria—wherein the US accepts the retention of Assad in return for joint Russian-American efforts to eradicate ISIS in Raqqa—seems eminently doable. And while the taking of Crimea is unlikely to be formally recognised, neither is it likely to be much contested by the Trump White House.

Third, Trump—in line with the hapless EU and the Obama administration—must be kept from coming to the aid of a beleaguered Ukraine. As we have written before, Putin’s strategic interest in Kiev is not in taking over the place, but rather in seeing that it does not emerge as a successful, prosperous, pro-Western alternative to Great Russian nationalism on the Kremlin’s doorstep.

Given the venal, incompetent Ukrainian government this task has been made easier. But at all costs, Putin wants both America and Brussels to accept the present status quo in Ukraine, where a semi-failed, castrated state serves as a constant reminder to the Russian-dominated region of the fecklessness of western promises.

Lastly, and perhaps above all, Putin wants to stay out of the disastrous Trump’s way. The first rule of politics is that when an enemy is about to commit suicide, don’t stand between them and the bullet. As Trump provokes China over trade and tilts away from any form of cooperation with Beijing, and as he demeans the western allies (who admittedly have brought this largely on themselves over decades due to an immoral refusal to pay a fair share for the common western defence), Russia can merely stand by and watch, as Trump antagonises both the past (Europe) and the future (China). Chess players know how to be patient.

Printed in City AM London, January 9, 2017

Blame discredited elites for the decline and fall of the West in 2016

“The more I practice the luckier I get.”

–Golfing great Gary Player

In essence, Political Risk Analysis is like nothing so much as American baseball: there is an undoubted element of chance to the game and even the best player strikes out with soul-destroying regularity.

Saying this, it is not dumb luck that the legendary Ted Williams is the last man to hit .400, and that Yankee great Joe DiMaggio accomplished the unmatched feat of hitting safely in 56 straight games. The immortals in both political risk and baseball invariably do the best over time; there is a lot more skill than randomness driving both fields.

If the soothsaying perfection of the mythical Merlin is out of the question, mastering political risk–and putting it to use for the businesses and governments in today’s world–assuredly is not.

And yet I can say with no little amount of schadenfreude that the epoch-changing year of 2016 has confounded most of my competitors. Whether it is Niall Ferguson’s extraordinary mea culpa over Brexit (‘I left my analytical brain at the door to help my friends David Cameron and George Osborne’) or the perpetual shock of the Financial Times (‘We are surprised about the Dutch referendum on Ukraine, Brexit, Trump, the Italian referendum and everything else…’), one thing is for certain. Foreign policy and risk analysts have not covered themselves in glory this past year.

The reason for this is simple enough: 2016 was a year when the world actually and fundamentally changed. In other words, it was a year that will enter historical shorthand, like 1848, 1918, 1945, and 1989.

In this case, the obvious new global structure—a multipolarity, of a world of many powers—became clear. It is a world where the EU unspooled (Brexit, the Italian referendum), America stopped being the ordering power (the Trump phenomenon), Russia emerged as wounded (its GDP is now only the size of the state of Texas) but dangerous, and regional powers were more and more left to their own devices (Erdogan’s authoritarianism following the botched coup against him in Turkey, China’s naval build up) as there was no one about to restrain them.

All these dots on the map are part and parcel of the same phenomenon; the fully justified discrediting of the old, deeply flawed, and blithely unware Western elite. The decline of the West as the world’s ordering power came to fruition in 2016, but is the direct result of elite’s catastrophic failures to see how badly they had been discredited strategically (by the disastrous Iraq war) and economically (by the Lehman and euro crises), when they ran the world geopolitically and financially into a ditch and then walked away, seemingly scot free, leaving the rest of us to suffer.

Their fitting epitaph is what F. Scott Fitzgerald’s said of his villains, Tom and Daisy Buchanan, in The Great Gatsby, “They were careless people, Tom and Daisy—they smashed up things and creatures and then retreated back into their money or their vast carelessness or whatever it was that kept them together, and let other people clean up the mess they made.” Their demise, and that of the world they made, should not be lamented.

And what of my record? All in all, this column and my firm have had a pretty good year. We called Brexit correctly (unlike every single other major political risk firm), along with the Dutch referendum, the Italian referendum, the Farc vote, the radicalisation of Turkey and the victory of shale over the Saudis.

On the one big one we got wrong—the Trump victory—we still gave him a thirty percent chance (reportedly about what his campaign staff allowed for) and were told we were mad to do so. Even so, thirty percent is not fifty percent so it is a miss; we underestimated (if not nearly so much as our competitors) what a powerful force populism has been in the world this year. But, in American baseball terms, it has been a very good season.

In thinking about the reason for this—as my firm is having its end of the year analytical review—one thing stood out. The very first of our columns for City AM for the year was entitled, “The end of the West: 2016 is the year a new order begins to emerge.” And that is what has happened. In political risk, as in American baseball, if you get the big picture right, you will win a lot of games.

Happy holidays, everyone.

Published in City AM, December 19, 2016