Category Archives: UK

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

How decadent elites lost control of politics the world over

 

To outsiders, Columbia’s recent referendum on ending its 53-year war with the Stalinist revolutionaries of the Farc seemed the ultimate no-brainer. Putting a merciful halt to a conflict that has killed a horrendous 220,000 souls would seem to require little thought.

Yet when earnest President Juan Manuel Santos put his peace deal to a nationwide vote, shockingly he found that it was rejected (just) by a majority of his undoubtedly war-weary countrymen.

What is going on here? Why can’t elites, seemingly almost everywhere, manage to win referenda that they themselves call on the critical issues of the day?

In the case of Columbia, following an endless half century of conflict, the voters were not prepared to trade justice for peace, not just yet. The Farc leaders–men who had sanctioned bombings, enlisted child soldiers, participated in the drug trade and chained hostages to trees for years on end–were to be given a guaranteed 10 seats in the legislature and immunity from jail (provided they made a full and complete confession of their offences).

To see bloodthirsty murderers rewarded for their crimes—given that the Farc were losing their endless guerrilla war—was an intellectual bridge too far for a majority of the referendum’s voters. The government and outside pundits around the world both made a blithe analytical error in thinking that no value mattered more to the Columbian people than peace; justice, a competing moral good, was simply ignored as all right thinking people must surely value an end to conflict above all else.

Such wrongheaded arrogance has been repeated across the world in referendum after referendum this year, with the elites holding up one common good to the exclusion of all others. Worse, such a viewpoint has denigrated any other moral interpretation as only being adhered to by the stupid, surely playing entirely into the demagogic notion that elites everywhere despise the very people they govern. Despite his referendum failure, President Santos was awarded the Nobel Peace prize on Friday last week; the elite giving another of its members an award for doing what they’d like (never mind the stupid voters).

In the Netherlands—even following on from the likely Russian-backed separatist shooting down of Flight MH 17 which killed almost 300 people on board, including many Dutch citizens–voters rejected an EU trade deal with Ukraine, both because they had simply been asked a rare direct question about the unaccountable goings on in Brussels, as well as out of annoyance over the EU’s pretensions to foreign policy grandeur.

For the Dutch elite, the referendum was narrowly a question of process; for the voters of the Netherlands, it was a rare chance to strike back at an institution they know governs their lives, even as its byzantine workings leave Europeans with very little sense they have political control. Two common goods—process and democratic legitimacy—came into conflict, leaving the gormless elite perpetually surprised it cannot goad its people into doing the only ‘smart’ thing.

The Brexit vote is just another chapter in this larger story. For the cosmopolitan elite, it was self-evident that EU membership was in the UK’s best economic interests, and all right thinking people should support it. For a majority of the British people, self-government, the right for the people of Britain to make their own decisions about economics, immigration and trade, mattered more.

I was not shocked by the result—anyone reading my January 2016 prediction column knows my consulting firm correctly (and almost alone) predicted Brexit—but I was amazed by the temper tantrum of the elite that followed it. ‘We must vote again, as the idiots made the wrong decision.’ ‘Depression is likely to begin immediately.’ ‘The people didn’t understand what they were voting on.’ So it went, without the gormless elite remotely realising that it was their ugly, patronising, ill-informed words which contained the key clue as to why voters rejected both the EU, and them.

Italy’s early December referendum on political reform looms on the horizon. Rather than centring on that important (if somewhat esoteric) issue, instead the vote will be determined by the Italian people’s view of their own hapless elite (growth in Italy is staggeringly not expected to return to pre-Lehman crisis levels until far-off 2025) and an unfeeling German-dominated EU establishment that is making it next to impossible for Rome to recapitalise the country’s wobbling bank system. Do not be surprised if the Renzi government falls over a ‘shock’ defeat here, followed by the elite commentariat’s usual ignorant incredulity.

Until elites find their new Franklin Roosevelt—a man who calmly, stirringly and above all honestly explained to his people their problems and his proposed solutions for them—a man who trusted his electorate, expect this pattern of failed referenda to continue. Perhaps the greatest present political risk in the world is the sclerosis of democratic governments everywhere, who have lost their vital Jeffersonian connection with the very people they are supposed to represent.

Published in City AM London, October 10, 2016.

Creating a Transformative British Foreign Policy for the New Era

CREATING A TRANSFORMATIVE BRITISH FOREIGN POLICY FOR THE NEW ERA

“There must be a beginning of any great matter, but the continuing unto the end, until it be thoroughly finished, yields true glory.”

–Francis Drake, aboard the Golden Hind, to Sir Francis Walsingham, off Cape Sagres, Portugal, 1587

Following in Drake’s footsteps; The Benefits of Thinking Big

At present, the formulation and assessment of British foreign policy is largely left to a small number doers and thinkers; foreign policy does not form part of the national political conversation, even at the elite level. A small number of people are thinking small thoughts. This has been true for decades. But after the earthquake of the Brexit referendum, times have definitively changed and creative strategic thinking is desperately called for.

This inability to talk about a credible strategic vision for Britain in the 21st Century is a serious problem. The basic danger of the intellectual and political community thinking small – only arguing about British foreign policy at the edges – is that it dooms the country to managing gentle “Macmillanite” decline. Instead, Britain ought to be taking advantage of the truly exciting global options available, much as the Elizabethans did, as a transformative foreign policy could safeguard its place in the world for the next generation, securing Britain’s position as a great power, capable of both leaving its mark on the world, and of protecting its fundamental interests.

Without grasping the nettle and creating a joined up foreign policy regarding the changing structure of a world of many powers, then tailoring a foreign policy strategy that works in such a time and place, and finally crafting tactics that naturally follow on from such a strategy, British foreign policy is doomed to be reactive at best, nonexistent at worst.

In other words, it is time UK policymakers rediscover the shrewd swashbuckling quality of Sir Francis Drake, whose bold comment opens our argument. For it must be remembered Drake wrote this paean to thinking big before he became the first captain to sail with his crew around the world (Magellan died along the way).

He was a visionary first, fitting out his ship The Golden Hind to endure the privations ahead, and only then thought of the tactical navigation necessary to realize his dreams of glory. If the UK is to thrive in this new, dangerous, fascinating, and far more rewarding era of globalisation, such an unorthodox manner of proceeding is absolutely necessary.

For there is an alternative to the foreign policy establishment’s present gentle acquiescence in decline and failure. It lies in remembering the intellectual boldness of Drake and the other Elizabethans in changing the terms of the strategic game they were playing, in order to seize new advantages regarding heretofore entirely unthought-of opportunities. Rather than continuing to participate in a losing three-way strategic dance with France and Spain, Drake and his contemporaries creatively thought globally instead, and by changing the very nature of the chess board set the stage for centuries of British dominance. Oddly enough, in doing so the Elizabethans’ insatiable global drive to open up inviting markets and facilitating trade beyond everything else is precisely the remedy again called for.

A truly global foreign policy

Broadly speaking, we will articulate a foreign policy that expands upon old friendships, and takes advantage of new opportunities, all the while cementing ties with the centres of the globe – specifically in North America and Asia – that are likely to lead the world in economic growth for the next generation.

Britain specifically, and the western democracies in general, find themselves in a similar structural position to that of Victorian England in about 1890. Lord Salisbury found himself in a world where Britain remained central, first amongst equals, but with others rising and rapidly gaining global market share. It is well past time for today’s Britain to steal a page from this old, successful playbook.

For as was true for late nineteenth century Britain, while presently America and the West remain Chairman of the Global Board, there are plenty of new, powerful players at the table. These emerging powers are slowly but steadily gaining relative power year on year. As such, we live in a world entirely misunderstood by great power theoreticians. It is not purely multipolar in that America and the West are first amongst equals in the new era, while at the same time the other powers are steadily gaining global power market share.

Both these seemingly contradictory facts must be fully taken on board as a starting point if Britain is to genuinely comprehend the global structure of the strange new world we find ourselves in. Only after recognising the basic nature of the new era can a truly effective strategy be created.

We believe that Britain should have three clear priorities. These are: (a) a major, self-conscious shift towards building relationships and alliances with the emerging democratic regional powers around the world (especially in Asia); (b) cementing the longstanding, and hugely successful relationship with the United States; and (c) a clear-headed policy that stands up to the small number of countries (and movements) that seek to unmake the status the quo and actively challenge the peaceful, prosperous global order that we wish to create.

Refocusing on the emerging powers

There is a strategy already out there—forgotten and neglected as it may be—which places current British foreign policy in its proper historical context. If Drake provides the path to creative, bold, counterintuitive, globalised thinking, dwelling on nineteenth century Prime Minister Lord Salisbury gives us the outlines of a British foreign policy doctrine for our new era.
Late Victorian Britain managed to draw in the emerging powers of the day – principally the United States and Japan – into the British-created world order. Crucially, it was a mix of ever-closer economic ties with the pair (coupled with sorting out long-festering regional disputes) that over a generation turned these possible peer competitors into allies. This feat of statesmanship was rewarded in 1918, when both Tokyo and Washington came to the aid of a hard-pressed London, allowing for victory in World War I.

A similar challenge awaits the new British government in 2016. Rising regional democratic powers South Africa, Israel, Japan, Indonesia, Australia, Canada, Brazil, Mexico and especially India are the obvious new opportunities out there to be courted. With Delhi back on track to grow at more than 7 percent this year, faster than China, this obvious and necessary strategic gambit must be greatly accelerated and made a pillar of the new British foreign policy.

Closer ties with booming India, a country blessed with highly favourable demographics, old and enduring links with the UK, and the ability to serve as a counter-weight to China, ought to be a strategic no-brainer.  In fact, the single greatest geopolitical challenge of the next generation is whether the rising emerging regional powers can be successfully integrated into today’s transatlantic-inspired global system, based on both the attractiveness of its values and its enduring ability to provide security and prosperity for those who support it.

If the rising regional powers become status quo powers, guarantors of the broadly benign world order established by the West, all will be well. However, a failure to do so will see them rise as revolutionary powers, determined to unmake the present global system; we will then live in the jungle, without any system of global order at all. By focusing its foreign policy on the free-market, democratic regional powers throughout the world, the UK can provide a way forward in dealing with this absolutely central geopolitical challenge.

Fortunately, there are a number of important instruments to hand to help weld this new alliance together. First, and we should be far less shy about this; all the countries listed above are democratic, meaning that philosophically they broadly share a common way of looking at the world. While democratic peace theory can be overstated, it remains the empirical case that in all of recorded history, established democracies have never gone to war with one another. This shared belief in the dignity of the individual, of limited government, and of the intrinsic value of a representative political system and a free press, should be shouted from the rooftops, both on its own merits and because it becomes part of the glue that can bind this new world together.

Beyond these essential shared values, the practicalities of a prosperity based on free trade and capitalism are the essential tool that must be used to link the major regional powers of this new world to one another. As the great American thinker Ralph Waldo Emerson put it, ‘Every man is a conservative after dinner’. A prosperous world – wherein the major powers all have skin in the game for keeping the present system afloat – is a safer world, a better one, and an enduring one.

For presently, even more than is true of democratic values, it is the capitalist system that has conquered the world, and must be made a rallying cry for enticing the new regional powers to become defenders of the global status quo. Emerging Market elites are also now judged by their populations according to their ability to make market economics work, and these elites have a tremendous personal and collective stake in maintaining the working international capitalist system, as is of course true for western leaders.

This powerful tool – enticing the emerging powers to defend a system that has brought them dramatically increased prosperity – must be built upon, with free trade agreements becoming a far more central element in driving UK foreign policy. These increasing links will literally bind the new world together, making every major new ally a conservative after dinner.

Historically Britain has been the leading free trading power, a mantle it must pick up anew. Geography largely explains this. The sea has simultaneously provided Britain with what Shakespeare called a ‘moat defensive’ against the continent, while also serving as a ready-made highway to the rest of the world in Drakean fashion. Pursuing free trade deals with countries that already broadly accept the vital necessity of the project will have fundamental geopolitical benefits, further linking the old western world to the new.

So by looking back to the days of Lord Salisbury, British foreign policy can look ahead to the new multipolar world, developing a first strategic pillar based on the absolute imperative to construct a new global alliance of regional powers that are wedded together by the values of democracy (in most cases) and the practicalities of the free market (in all cases). Britain ought to make it a priority of its new foreign policy fit for purpose to take the lead in such a heroic endeavor, as the benefits are legion.

For the only way to make any multipolar system actually work is to focus intently on the regional powers, in this case the countries actually gaining in relative power by the day. The must be made defenders of the already-in-place western-constructed order. The good news is half the job is already done: South Africa, Australia, Canada, Israel, Japan, Indonesia, Brazil, Mexico and India are already all democratic states and are convinced believers in the global capitalist system.

In return, Britain will have – as Salisbury did so long ago – a global system of allies to turn to should times get rough, as well as dependable trading partners for the City of London and beyond, and closer ties with countries in the world which are actually growing. This shift will do nothing less than help guarantee prosperity and security for the next generation of British citizens.

Cementing Britain’s links with the United States

The second major piece of the strategic puzzle will be reinvigorating London’s ties with a surprisingly resurgent United States. Here Britain’s new foreign policy again weds its interests with its values. By re-focusing on links with the most powerful country in the world (with which it already enjoys the closest of ties based on shared values and interests), the new British foreign policy is exclusively geared toward the pole of power which will more than any other drive the new multipolar era; as such in terms of power politics the new strategy is fit for purpose in our new world.

As the shale revolution has proved once again, the American economy has a genius for reinventing itself. Having weathered the post-Lehman Brothers storm far better than any other western democracy (with the possible exception of Britain), the US – economically, militarily, and culturally – looks set to remain first amongst equals in the new era for the foreseeable future. Unlike the Foreign Office’s mantra regarding Europe, it is here that Britain – given its long-standing historical tradition of working so closely with the Americans – has genuine, lasting influence.

America remains the largest foreign direct investor in the UK (and vice versa), and Britain’s closest military and intelligence ally by a long way; rather than deriding these close ties as is all too fashionable, they ought to be seen as a fundamental source of maximising British power. Thinking through new measures at all levels – economic, military, and cultural – that renew this fundamental alliance must be the other major positive plank of British foreign policy.

Economically, given that investment is the name of the game in a globalised world, the US and the UK absolutely must strike a comprehensive free trade and investment deal, one way or the other. This could be accomplished bilaterally, through British membership in NAFTA, or through a more ambitious global ordering such as the proposed Global Free Trade Alliance (GFTA), a world-wide grouping of genuinely free trading states determined to push the envelope in terms of opening their markets to one another. By whichever route, London’s mantra in terms of increasing economic and trading ties with Washington must be free trade by any means.

Beyond cementing their already profound joint economic ties, Britain must be very careful to maintain its hard-won and justified reputation as a great military power, able to add value strategically throughout the world. Numerous rounds of budget cuts have left the UK precariously perched on the edge of losing its vital full-spectrum military capabilities; along with the US and France, Britain is the only NATO ally capable of supporting every sort of deployable mission, from full-out war-fighting to peace-keeping. This is a vital source of British power, especially in a shifting age of numerous localized and regional threats, where events in disparate, far-flung places like Ukraine, Somalia, Yemen and Iraq have reminded even the most dreamy that force – as it has since the dawn of man – continues to play a significant role in international relations.

As such, UK defence cuts must be halted and full-spectrum fighting capabilities preserved, to maintain Britain’s position as a complete great power – possessing political, economic, and military might. Such an initiative makes it clear to the UK’s primary American ally that London will continue to add immeasurable strategic value.

By adopting our foreign policy fit for purpose in the new multipolar era, Britain can help drive its close ally – the last remaining superpower – toward throwing its might behind the heroic and necessary project of securing a western alliance with the rising regional democratic powers of the world. In doing so, Britain will find itself in the familiar role of defending the global status quo that it has helped create, by reforming it. Britain must remind America that the only way to preserve the post-1945 order of the Bretton Woods institutions and NATO is to build on them, adapting them for this more globalised, Drakean world. There is no reason whatever London cannot make the intellectual running here, persuading its long-time powerful ally that here indeed is a joint project worthy of the most important bilateral alliance in the world.

Published in The Conservative, September 2016