At War

During the week I participated in a discussion with a group of insurance sector executives as to what defines ‘at war’ – in the context of various claims on the sector with respect to the invasion of Ukraine (i.e. ships stranded in the Black Sea, aircraft impounded in Russia). The question is an increasingly relevant one, notably for the evolution of security policy in Europe.

In recent days, at least two developments have underlined this. One is the elevation of Xi Jinping to a third term as Chinese leader, in a choreographed display of singular ‘thoughtcrime’. In my view the transition from a ‘one party’ to a ‘one man’ state may not necessarily make the invasion of Taiwan more likely, but it does increase the risk of policy mistakes by China (as an aside, capital is trying to flee China and, the Chinese stock market has delivered a 30 year return of precisely 0%).

The other was the repeated warnings from Russia that Ukraine is developing a dirty bomb – such crooked veiled threats can be unlocked by turning them upside down – Russia is signaling its intention to escalate the war in an even more ghastly way (interestingly this week’s Der Spiegel has an interesting article on veiled threats by Russia to attack Berlin with nuclear weapons). 

And, the Russians have been busy. Consistent with some of our earlier missives (From Great War to Total War) Russia has adopted a policy of aggravating and irritating Europe around its borders. They have now stepped this up to menace critical infrastructure – cyber attacks on banks, transport companies in large European countries, the (alleged) blowing up of gas pipelines around the Nordic states, the threat to vandalize telecommunication cables linking the US to Ireland (and thus Europe). It is a ruthless, near medieval siege type attack where Europe’s vital connections are targeted.

Not to mind that, but attacks are coming in other domains. In a recent note (The Man on Horseback) we noted the epidemic of coups d’états in African states, many of which coincided with the arrival of the Russian mercenary firm Wagner in those countries. There has yet to be a push back from the colonial power in many of those countries (France) but it could come once the outcome of the war in Ukraine is more clear.

In sum, Europe is under attack, if not at war. Insurers would argue that the technical conditions for war are not met, but the reality on the ground is that this is the case in a practical sense. This attack or aggravation by Russia may also mark the first time that Europe as an entity or more importantly, as a system of values, is under attack. How then might it respond?

First, in some European countries, where a coherent security policy has been willfully neglected because of historical factors, there is a rude awakening.

Germany is a good example and it has a long way to go in replenishing its military hardware and personnel. Indeed, one of the reasons for the relatively difficult relations between the German and French governments has been the German reluctance to buy French weaponry. If that’s not enough, Germany is also caught in a difficult position with regard to Russia’s ‘unlimited friend’ China, with a proposed Chinese acquisition of Hamburg’s port and a visit to China by Olaf Scholz stirring controversy.  

Ireland is another example, where complacency regarding its geographic location and a half-baked policy of neutrality have been conceived in a way that it is effectively defenceless – so much so that when a Russian plane flies close to Irish airspace, we need to call the RAF. Irish politicians may think that its location and neutrality render it safe, but viewed through Russian eyes Ireland is a tributary of the larger Anglo-Saxon countries (notably the US) and an easy candidate for a provocative act.

Second, at some point, Europe’s leaders will feel the need to respond to aggression, and in the pattern of the EU being forced to evolve by crises, it may for the first time undertake an offensive action in the name of the EU. This would take the EU into a highly ambiguous area, and such an act may take the shape of a coalition of the willing – perhaps a large scale cyber attack led by the Netherlands, France and Sweden. 

The awakening that Europe is under attack should really sharpen the view that cannot suffer attacks from within – I have written many times on the need to credibly sanction Viktor Orban’s Hungary. Additionally, the progress of countries like Serbia towards EU membership should be halted. Moreover, Belarus a weak point in Russia’s constellation should be more actively targeted in terms of sanctions and support for its pro-democracy movement.

This has not been an optimistic post, but to finish on a high, though stay on topic, I can recommend an excellent, amusing collection of the writings (between 1940-45) of Flann O’Brien, entitled ‘At War’.  

Katherine the Great

It is hard not to write about the end of the short political career of Liz Truss, harder still to say something funnier than the array of jokes already printed, and impossible to write about the dangerous political asteroid that is Brexit.

Truss’ exit is the logical outcome of the Tory party’s hatred of Europe on one hand and inability and unwillingness to arrest their country’s relative decline, that has consumed British politics, troubled the EU, permanently damaged the UK and likely destroyed the Union. This bonfire may only end when the Tory party itself is consumed by Brexit, and this day may not be far off. Even with a new prime minister, in the context of severe economic stress in the UK we cannot be far away from a general election, which based on opinion polls, would effectively wipe out the Tories.

Truss’ premiership will go down as the worst and shortest in British history, competing with the likes of George Canning who died after 121 days in the role, and Andrew Bonar Law who stepped down with illness after 211 days. Even, Edgar Æthling who ruled England from October 1066 till William the Conqueror stepped in in December 1066, lasted longer.

Equally, Truss will make Lord North (who lost the American ‘colonies’) and Anthony Eden (Suez) look like strategic geniuses.

That the current cabinet is now made up largely of ‘Remainers’ and the political-economic landscape in the UK is in ruins, support the sense that Brexit was a bad idea. That some Tory MP’s and party members still want Boris Johnson as prime minister suggest that pockets of denial remain, and that more ‘pain’ is necessary.

Brexit allowed the most ambitious, least able politicians to come to the fore, and it is time to now reverse this. One recent example of the clash of ability with politics comes in Kate Bingham’s recent book ‘The Long Shot’ where she details the race to find and distribute a COVID vaccine in the UK, and the political machinations involved in the process.

The implosion of the Brexiteers allows many people to say ‘I told you so!’, and I am going to clamber shamelessly onto this bandwagon. It could have been very different.

Some four years ago when I wrote ‘The Levelling’ I created a character called Katherine Chidley. She was based on a very impressive 17th century activist and businesswoman of that name. Born in 1616, Katherine Chidley was one of the most eloquent and prominent women in public life in mid-seventeenth-century England. She wrote widely, ran a business (selling socks to the army) and was the mother of seven children.

In the book (chapter six – much of what follows is directly from this) I imagined a modern politician in her image, newly elected, and thrown into the position of finance minister. As such her aim is to find a formula for sustainable economic growth that will also lead to a balanced society (Liz Truss could have taken this path but didn’t).

Chidley is determined, especially to avoid creating imbalances in debt levels, asset prices, and trade. Minister Chidley has many obstacles ahead; the first is coming to grips with her department and with the nuances of economics and finance.

‘As the new finance minister she might, if not careful, find herself being quickly carried along in the jargon of economics, speaking in terms of deficits and the code of GDP forecasts. Like most professions, finance and economics have their own codes, rituals, and language. To the outsider, most of this is dull and hard to comprehend (even Kwasi got it wrong).

In her first weeks in the job Chidley will see economics and policy making from the inside and will make a journey of discovery, learning to distinguish cosmetic drivers of growth from longer-term, more meaningful factors —such as a focus on investment in human development. They take time to show dividends but are ultimately the ingredients that make countries strong and resilient.

In her first few days in the job, she asks her chief civil servant or “Sir Humphrey” to give

her an honest view of the lay of the land: What is the outlook for economic growth, where does economic growth come from, and, optimistically, how can she improve her country’s level of growth?

An honest mandarin might point out that economic growth, as we have come to know it, is getting scarcer and more constrained. In order to soften that blow the mandarin might heave a great pile of research and policy papers from institutions like the IMF, the World Bank, and OECD onto the desk of Minister Chidley.

Already, Minister Chidley will see that a troubling pattern is emerging. At one level, we see the slowing and transformation of globalization. At another, the end of a very long economic cycle is in sight. There is also a sense of exhaustion, not merely on the part of households and businesses but also on the part of policy makers, especially central banks, who have gone to extraordinary lengths to sustain growth and prevent a deep recession (and who are now confronted by high inflation). This exhaustion may be attributable to the fact that at no point since the late 1990s has there been a full-scale reckoning or  clearing out of the imbalances in the world economic system.

Having listened to this long tale of lower growth, the economic handbrakes of demographics, and lower productivity, Minister Chidley is thoroughly depressed and wishes she had been made a minister of defense instead. Tackling low growth and its consequences will be demanding.

She has two, perhaps three, options. First, worried that there seems to be very little public acceptance that the future could be less rosy than  the past, she asks her mandarin for a quick fix, an economic magic pill.  An infrastructure program like Boston’s Big Dig might fit the bill. A second option is economic nationalism. With the level of growth likely to be lower than it has in the past twenty years, she might take to megaphone politics, point to growing competing economies and tell her voters that she will take back the growth that is theirs.

Third, and the difficult solution practically and politically, she might ask what drives national development and stability in the long term and set about creating a framework to implement those drivers. She is drawn to the idea of country strength, which relies on nations’ developing a policy mind-set that cultivates economic resilience and that invests in intangible infrastructure (education, an inclusive society, research/development, institutional excellence).

Katherine Chidley, and the economic vision that she developed, which I set our four years ago is the anti-thesis of Liz Truss. The only remaining question is how much chaos the Tories must visit upon themselves and their country, until a Chidley character takes the political stage.

In with the New!

I am being a little lazy this week in that I am serving up ‘one I made earlier’. Following a week where economic policymakers gathered for the annual meeting of the IMF and World Bank, Christos Cabolis (chief economist at the IMD.. in Lausanne) and myself have an article in the excellent Prospect magazine, where we look forward to the kinds of institutions that are needed to marshall the world order of the 21st century. 

It says much about the defunct nature of the IMF that they have little relevance in a world where markets appear untamed (equities had one of the largest turnarounds ever last week, whilst the volatility in gilts is mind boggling). It would be easy to spend time castigating the likes of the IMF and WTO (World Trade Organisation), but I have done that many times before (and also at last week’s Global Goals conference). 

Instead, its is better, we feel to try to start a debate on the kinds of institutions that will be required to police cyber warfare, give institutional structure to new forms of money and even, produce meaningful climate change. 

Hope you enjoy the article – I attach a link here and the text below. 

The Queen’s death reminds us that an era of stability has come decisively to an end. We are currently facing a number of global shocks—a sharp breakout in inflation and a corresponding rise in interest rates, a bloody war in Europe and rising tensions between China and the US, the two largest economies in the world. Longer-term issues such as climate change, declining productivity, rising indebtedness and extreme income and wealth inequalities in the wake of the financial crisis leave us in no doubt that the world has changed.

We now must focus attention on the institutional infrastructure required to marshal the world order of the 21st century. Many of the institutions that were established to mediate the post-World War Two order are now defunct. Even those that fulfilled the roles that were intended for them may now have nothing more to offer.

The World Bank is such an example, especially in the context of economic growth across Asia and the rise of rival sources of funding (e.g. the Asian Development Bank.)

[Also should draw attention to the fact that the “stability” of the 20th and 21st centuries was not necessarily relevant in most parts of the world – Yugoslavia, Eritrea, Congo, Syria, Iraq, Afghanistan etc – not quite relevant here in my view

Another Bretton Woods institution, the International Monetary Fund, is experiencing a decline in its credibility and influence. Notably, two of its major, recent funding programmes—for Argentina and Greece—have been severely criticised. The World Trade Organisation has been powerless and largely ignored in the face of trade wars. All three institutions have had multiple crises of leadership. The same is true of the World Health Organisation, which has allowed itself to be compromised by geopolitics during the most severe international health crisis of recent times.

These institutions are now largely obsolete, and any debate that seeks to resurrect them is a waste of time. More effort should be spent on identifying the policy challenges of the 21st century and mapping out the institutions that can address them.

We must consider which powers, actors and countries are likely to shape the new world order. During the most recent wave of globalisation, power was rooted in the role of the USA as the dominant player, and indeed many of the world institutions were themselves rooted there—the UN, World Bank, IMF, with others based in European cities (WTO and WHO in Geneva and the OECD in Paris).

The new, multipolar world will be one dominated by at least three large regions—the US, the EU, China (the India-Dubai region is a potential fourth pole)—who do things increasingly distinctively, from their socio-economic models to internet regulation. These will be composed of groups of small advanced nations (the Nordics, Ireland, Singapore, Switzerland, Netherlands, New Zealand, Belgium and Switzerland) that top a range of league tables from democracy to innovation to human development, then a group of disparate non-superpower powerful countries (the UK, Russia, Japan, Australia, and possibly India), [I don’t follow the order of these groups here – is there a reason the small nations would be followed by larger ones? – I think the super powers and the small states are the most coherent, focused ones that’s why I have prioritiesd followed up by a group of emerging economies with large, fast-growing populations (e.g. Ethiopia, Indonesia, Kenya, Nigeria, Vietnam).

The needs and aims of these groups and nations, together with the ways in which they respond to new threats to security, will determine what the next set of institutions will look like and where they will be based. The new challenges of the future—climate change, potential energy shortages, and economic volatility, coupled with new technologies—will necessitate collaboration between them and other stakeholders, such as corporations. This will in turn demand global governance, new standards and regulation, and coordination through new institutional bodies. New world institutions or collaborative arrangements will need to be hammered out. What should they focus on and what might they look like?


We now have the highest debt-to-GDP ratio in centuries. As inflation forces interest rates higher, it may be too late for an international institution (like the IMF) to gently persuade countries to reduce debt levels. But it is crucial that there is an institution that can oversee the chaos that may result from a new debt crisis. This body—a debt conference—would have at least two objectives: coordinating debt reduction and forgiveness across the major economies, and then putting in place a new set of “rules of the road” that will set in place new tenets of economic governance.

Meanwhile, questions over the “future of money” have gathered pace—turbocharged with the rise of crypto currencies and the steady advance of central bank plans for digital currencies. This new trend will necessitate the laying out of standards for payments and the technologies that drive them. It will require bodies that can oversee the intersection of centralised and decentralised money systems, and that help to order the spread of competing payment and money services across emerging countries.

Health and science:

Advances in medical research, in particular gene-editing technology, raise important ethical questions about the ways in which scientists can alter our genetic makeup. This could exacerbate health inequality, enabling the wealthy to live longer, at a higher health quality. In extremis, this may even raise the prospect of genetically edited athletes and soldiers. Where technological advances outstrip debates in law and philosophy, there is a need for global standards and laws to marshal this development.

The coronavirus pandemic has been remarkable for the innovations it has spurred in medicine and medical practice, and for the attention it has focused around mental health issues. This shift in emphasis is also percolating through national policy agendas, though mostly in smaller progressive countries— Iceland, Scotland and New Zealand have joined together to form a “Wellbeing Alliance”. With global poverty now significantly reduced from decades past, mental health is the next great frontier in health policy. It requires a global approach to co-ordinate best practice, diffuse this to the many countries that do not place mental health at the centre of their health services, and in particular to work with actors like corporations to improve the mental well-being of workers.


An increasingly common phenomenon is the disabling of healthcare systems, energy infrastructure and public services by cyberattacks. Many such attacks originate from Eastern Europe and especially Russia. The Baltic states, Ukraine, Syria, Turkey and Taiwan have all been targets for cyberattacks in recent years, not to mention the prominent cyberattacks by Iran as part of its “soft war” military strategy. Cyber-crime and cyber war occur in a grey zone in international law where there are no formal rules on how to punish cyber attackers who operate within a particular country. It is not clear whether a cyber-attack on a French hospital that originates in Lithuania that indirectly results in avoidable deaths, for instance, can be considered an act of war that permits a direct physical military response. Some corporations have already opened a debate on the need for legal infrastructure to deter cyberattacks, be they by state or private actors.


That the world is enduring severe climate change is now incontrovertible. The 2015 Paris Accord is a formal acknowledgement of what must be done to combat it. In our view, nation states have not yet solved the game theoretic problem of producing a framework that aligns the cost and responsibility for climate damage. An international institution with carbon and levying powers, or even a framework agreement between large international cities, may offer potential solutions.  

Rare places:

One trend that become more apparent in recent years is the contest over distant locations that are difficult to reach, such as outer space or the Arctic. The US, Europe, Qatar and China have all sent probes to Mars. Space commerce, space defence and space tourism are set to grow. The invasion of geopolitics into largely inaccessible places raises the risk that these areas become contested, and that subsequent competitive behaviour become disorderly. While bodies like the Arctic Council already marshal the various interests acting in the Arctic, we envisage that a constitution will be necessary to oversee space exploration, space combat and space tourism.

We speculate that these areas, and the potential new institutions that will shape and shepherd them, will form the contours of the “new world order” that many talk about. Unlike the 20th century, the engineering of these institutions cannot be left to governments alone but must involve corporations, cities, citizen assembly bodies and universities. At a time when the old world order is crumbling, these institutions offer an exciting opportunity to build something new.


One of the more remarkable places I have visited is the ancient fortress of Bam, in south eastern Iran – hidden behind high walls, there is initially little sense of the magnitude of this citadel, which in its full vista looks almost like a film set. I was lucky enough to see it just before it was destroyed in an earthquake, though it has now been largely reconstructed.

At the time, in the post 9/11 world, Iran had been castigated by George W Bush as part of the ‘axis of evil’, though it managed to use the war in Iraq and the eruption of the Arab Spring across Syria to deepen its tentacles across the Middle East.

My sense of Iran then was that for many of the things we believed about Iran from a Western point of view, the opposite was true, and I suspect that this is still the case, especially with respect to Iranians themselves. Iran has a very deep and rich heritage, matched by an enduring modern middle class and broad level of education across its population.

It is however, tightly controlled by a small, inward looking and harsh theocracy, aided and abetted by the Revolutionary Guard who exert de facto control over the Iranian economy as well as other sectors.

Iran has for many reasons been the centre of geopolitical intrigue – which is one reason why the Iranian state is structurally distrustful of Britain and America – and today, it is the locus of an increasingly open ‘secret’ war with Israel.

Against this complicated backdrop the protests across Iran by men and women, that were triggered by the death of Mahsa Amini, are important. In essence the protests were triggered by the new president Raisi’s desire to enforce strict Islamic decorum by increasing the number and vigour of the morality police.

In a country with a very large young population that has a hunger for a more progressive society and where there is a growing gender consciousness (the film the Stoning of Soraya M. is not only a good film but also a reminder of how the odds were stacked against Iranian women), such a repressive measure was a bad idea.

Over 100 people have now died in Iran since the murder of Mahsa Amini. While protests are widespread and frequent across Iran this one may have an enduring effect. One is that Iran’s supreme leader Ayatollah Khamenei is in poor health, and while a changing of the guard may not yield a reformist minded leader, he might be more pragmatic. Second, the ‘headscarf’ protests could feed broad public civil disobedience (women might stop wearing head scarfs altogether) that might then set in train broader social changes.

It is unlikely however, to produce what some call ‘regime change’ – the Iranian state is far too repressive to permit this, and there is sufficient paranoia and nationalism in Iran that any attempt at regime change would be perceived as an outside intervention in Iranian affairs.

The prospect of a slightly more modern Iranian state throws up an intriguing dilemma for those negotiating the Iran nuclear deal (JCPOA), which is now on its last legs. Do they do everything possible to ‘break’ the Iranian regime, or risk allowing a deal and the easing of sanctions that might open up Iran’s economy and society?

Whilst Israel will have a very powerful voice in these deliberations behind the scenes, recent events in Saudi Arabia may also become a factor.

Saudi Arabia’s very public cutting of oil production in tandem with Russia is effectively a ‘rogue’ turn by them, given the military and geopolitical support they have enjoyed from America over the years. Not only is Iran the polar opposite of Saudi Arabia socially, but it has hitherto been on the opposite side geopolitically. It is too much to say that Saudi Arabia’s alignment with Russia (Iran is a close partner) heralds a decisive shift in the geopolitics of the region, but this week there is a sense that long standing relationships are beginning to break down.  

Have a great week ahead,