Wednesday 29 December 2021

A buyer's guide to foresight.

"How do I know that it works?", is a common objection encountered by many foresight practitioners. In order to counter that objection, it would be helpful to be able to demonstrate to potential clients examples of where foresight has worked in the past and to explain how it could well work in the future. To do this, we need some form of framework that allows us to compare what was expected from a foresight project against what it actually delivered.

We can do this within three contexts. First, before a specific project is commissioned - almost as a feasibility project that explores the proof of concept. In this respect, the framework can act as a template for building a project at the conceptual stage. This is an ex ante foresight evaluation. Second, after project has been delivered, we can use the framework to explore how well the project performed against expectations, assess whether or not the project delivered value for money, and review how convincing we find the conclusions of the project. This is ex post foresight evaluation. Third, in between the start and the finish of a project, we can use the framework to evaluate the progress of a project. This is more of a management tool to either keep the project running to plan, or to change the plan because it is no longer appropriate. This is process foresight evaluation. 

While each of these contexts has a different purpose, the general use of the framework is broadly applicable to each of them. In this piece, I shall focus mainly on ex ante foresight evaluation. In following work, I will develop the theme a bit more to apply it to ex post foresight evaluation and to process foresight evaluation.

When constructing a foresight project, we need to be mindful of three things - the shape of the project (which is the larger decision frame), the depth of the project, and the staffing of the project. I should say at the outset that different practitioners have their own favourite frameworks that determine the shape of a project. No single framework is inherently better than another, they merely reflect the mode of thinking about strategic foresight by that particular practitioner. It reflects where they learned their trade, which elements they think are more important, and, to a certain degree, their attitude towards the future.

For my part, I prefer the framework set out in Andy Hines and Peter Bishop's 'Thinking About The Future'. As I said, there are other frameworks that are equally as useful, but we have been using this one for nearly two decades and it is as valid today as it was nearly 20 years ago. The framework breaks the process of foresight into six elements - Framing (working out what the foresight project is looking to achieve); Scanning (looking at what is happening within the decision frame); Forecasting (rolling forward the scanning into the future); Visioning (examining alternative futures within the decision frame); Planning (turning the abstractions of the visioning into things that could be done); and Acting (determining a course of action and then executing it). 

It should be said that the elements within the framework make no reference to the tools and techniques of foresight. These naturally help to gravitate the practitioner to one particular element. For example, the much used 2x2 matrix can be quite useful in the visioning process in teasing out alternative futures. It can also help in the planning stage, when competing alternatives are the focus of concern. Equally, the 3 Horizons model can serve in the framing process as it helps us to clarify what it is that we are looking at. It also serves well in the scanning and forecasting element, where we need to set a temporal dimension to the project.

It also has to be said that different projects might want to give differing emphases on different elements. For example, if the emphasis of the project is to explore possibilities for the future, then it might want to focus more upon the scanning and forecasting elements, even at the cost of not really coming to grips with the acting element. Alternatively, if the project is happy to have external visioning as an input in order to focus on planning and acting, then a consequence of that decision will be to accept the assumptions about the future that are baked into that external input. It is important to note that those undertaking the project do not have to undertake each element themselves. However, a well balanced project would contain each of the elements.

Once we have set out the foresight framework we are to be using, we then have to give some consideration to the depth of investigation we need to undertake. There is a model that we can use to help us here. The Foresight Maturity Model was developed to work in tandem with the Foresight Framework. It sets out five levels of depth to which a project can aspire. These are: Ad Hoc (this is a cursory review of the issue); Aware (where the review is more than superficial); Capable (where the a degree of consistency has been developed within the foresight capability); Mature (where a degree of advanced practice has been developed); and World Class (where the project might be considered a leader in the area). 

Needless to say, whilst we all might want to undertake world class work, this does have a budgetary implication. It is generally the case that the more depth that is given to a project, the more cost will be attached to it. It can be a delicate process of scaling back ambitions to fit the budget available. One way of squaring the circle could be to trim back the ambitions with regards to the framework to be used. This reflects a process of finding a compromise between competing alternatives. For example, if we trim back the trend analysis in our scanning, could we use that budget to push the result from capable to mature? Or if we used a set of external visions, could we use the budget saved to enhance the results from ad hoc to aware? These are the trade offs that the framework can inform. They set out the range of choices that are open to a project.

As most projects are labour intensive, the cost of staffing a project provides the third dimension to constructing a foresight project. Fortunately, there is a model that we can graft on top of the Foresight Framework and the Foresight Maturity Model - the Foresight Competency Model. This model establishes professional competence in three levels - Entry Level (someone starting to learn the craft); Associate Level (someone with a degree of technical competence); and Senior Level (someone technically competent and able to instruct others). 

Once again, there is a degree of trade off between seniority and cost. Whilst we may want a project to be undertaken by people at the senior level alone, we have to accept that as seniority rises, so does the daily fee rate which they can command. There has to be a certain degree of trade off between the staff cost of the project and the budget of the project. The preceding two steps can help to inform us in this area. If we are considering a part of the foresight framework that we don't find particularly compelling, and if we do not intend to go too deep into this area, then do we really need to hire someone especially senior on this aspect of the project? All foresight projects have to trim themselves to fit the resources available. This approach allows us to do this in a reasonably systematic way.

The three components are all designed to telescope into each other. The foresight framework is designed to answer questions such as what are we looking at? Over what time horizon? With what purpose? Using what tools and techniques? The foresight maturity model is designed to carry forward that discussion onto the depth of study we wish to undertake. It also starts to place a degree of resistance, normally in terms of a budgetary constraint, to our ambitions. Finally, the foresight competency model starts to address the question of who is to do what within the project. This will bring the question of cost to the front of the project planning exercise.

So far, we have discussed this in terms of ex ante foresight evaluation. The same structure, after the project has ended, can be turned around to consider the delivery of the project in terms of an ex post foresight evaluation. It also can be used to assess whether a project under way is still worth undertaking or needs some changes in an exercise of process foresight evaluation. The detail to all of this framework needs to be specified further, but is does provide the first steps towards a buyer's guide to foresight.


Stephen Aguilar-Millan
© The European Futures Observatory 2021

Thursday 30 September 2021

Does climate change threaten financial collapse?

It may appear to be a tenuous link, but it is worth spending some time thinking about the links between climate change and the world of finance, and on how the one could impact upon the other. It is generally accepted that the climate is changing. The atmosphere is warming, with a number of climatological consequences. Some parts of the world are suffering droughts, whilst other are experiencing abnormal levels of flooding. The overall level of rainfall has not changed to a large degree, but the number of rainy days seems to be diminishing. This has resulted in fewer rainy days, but those which do occur have more violent storms dropping larger than average amounts of rainfall in shorter periods of time. As the planet warms further, the Polar ice caps are likely to melt, having an adverse impact upon the levels of the sea. Some areas are likely to be abandoned, with the potential for creating surges of climate refugees. There are few who would dispute this picture. However, perhaps it is worth teasing out some of the consequential impacts upon the financial sector?

The impact of climate change upon the financial sector is likely to be felt from three directions. First, there is the direct impact of climate change upon the business models of existing firms. Second, there is the exposure of the financial sector to the hazards impacts of climate change. Third, there is the risk of wider economic damage that affects the financial sector. In each of these, it is worth examining what the risks look like, identifying the key uncertainties, and thinking about how they might be hedged against.

Climate change is likely to make some business models unviable. These are seen as 'transition risks' as the economy moves from one mode to another. A classic example here might be the move from an oil based economy to one powered by green energy. In this respect, the transition risk lies in the assets of the old sectors becoming stranded - i.e. having their value written down a long way in a short period of time. This, in turn, may lead to those companies defaulting on loans and possibly seeing their share price collapse. Companies in this category are mainly in the oil & gas and transportation sectors. They are currently hedging their position by expanding their green energy operations. It may be that this transition can be achieved successfully, but it is by no means certain that they have the technology and organisational culture to make this change. This is one area to watch.

The physical impact of climate change - heatwaves, drought, flooding, storms, and so on - is felt directly in the insurance markets. This may entail a key change in consumer mindsets because these providers may pull out of certain cover entirely. Flood insurance is particularly at risk here. However, this will have an impact further up the value chain. If flood insurance is difficult to find and expensive to acquire, who would buy a house on a flood plain or a water meadow? In this respect, the land banks of housing developers could become stranded assets if it becomes uneconomical to build on those plots. There appears to have been very little mitigation in this area to date. We shall watch carefully to see how the issue develops as and when climate change becomes more disruptive.

The question of wider economic damage is the least certain area in which climate change can impact the financial sector. No doubt there would be some impact, but whether or not is would be a serious impact is debateable. A number of central banks have conducted stress tests around this, to find a degree of resilience within the financial sector. However, stress tests tend to be a bit one dimensional and fail to capture the full volatility and uncertainty associated with very complex changes. This is the area in which the full impact of climate change is the most uncertain, and where the risks are the greatest. So what can we do? As always, in times of acute uncertainty, we can keep relatively high levels of liquidity - literally rainy day money - and a good capital buffer so that if we hit a bad patch, we can come out the other side. Illiquid and poorly capitalised businesses may suffer in this case.

The fear of disruptive climate change leads us to exaggerate the impact and the costs. If we are to manage these as we move forward into that time, we first need to identify them and take a view on their quantifiable impact. It is unlikely that we shall see the end of humanity. It is unlikely that we shall see the end of capitalism. It is far more probable that we shall muddle through and adapt to change as it comes our way. That confidence ought not to blind us to the risks and uncertainties associated with climate change. It does suggest that the first step is to accept that change is coming and that we now have an opportunity to prepare for it. Climate change does carry the threat of financial collapse, but it is by no means certain that it will occur. It is up to us, through our current behaviours, to prepare for it's onset.

Stephen Aguilar-Millan
© The European Futures Observatory 2021


Monday 13 September 2021

How would we cope with a Cryptocalypse?

Crypto-currencies are one of those features of modern life that tend to polarise people. To their supporters, they represent the future of payments mechanisms, a non-centralised currency in the making, and a means to move away from extractive capitalism by breaking the monopoly over money that the banks hold. To their detractors, crypto-currencies are nothing more than a Ponzi scheme, of no more value than a bag of magic beans. 

The supporters of crypto have been growing in recent times. This has, undoubtedly, been given a boost during the pandemic. A mainly younger demographic, new to investing, bored by living through a sequence of lockdowns, funded by public largesse, have discovered the attractions of casino capitalism. Egged on by investing 'tips' on sites such as Reddit, this demographic has piled into crypto. Today, there are about three times more digital wallets (the means by which crypto-currencies are held) compared with 2018. At this point in time, the supporters of crypto could be right. As could the detractors.

Despite small economies such as El Salvador adopting crypto as legal tender, there have been few signs of crypto replacing more traditional currencies. This is despite the market capitalisation of all crypto-currencies rising from $330 billion to $1.6 trillion in the past year. The detractors ascribe this lack of uptake to one key factor - the widely fluctuating value of crypto-currencies. This rather undermines the use of crypto as a means of exchange. In El Salvador, where Bitcoin is legal tender, prices are quoted in dollars and then converted to Bitcoin at the prevailing rate at the point of sale. The wild changes in the price of crypto also undermines it's function as a store of value and a standard for deferred payments. In the absence of an authority to stabilise the value of crypto - a central bank, in other words - it will continue to fail to perform the functions that are needed from a currency.

If that's the case, what are we left with? All that is left is an asset with little in the way of intrinsic value - it is not guaranteed by a monetary authority or secured by an underlying asset. It is an asset that rests solely upon trust. The investment case for the asset is the 'bigger fool' approach. I may be a fool for investing in crypto, but there is always a bigger fool than me who is willing to buy it from me. This is the dimension that allows the detractors to accuse crypto of being nothing more than a Ponzi mechanism. What happens if the supply of fools dries up? What happens if there is a crisis of confidence in crypto and the demand for crypto assets collapses? In the absence of a central authority to stabilise the value of crypto, in the face of widespread selling of the assets, there is nothing to stop the value falling to zero. What would happen then? Would it matter?

It is useful to divide crypto investors into three camps. First, there are the 'diehards'. These are the true believers in crypto who provide the most ardent support. Second, there are the 'fellow travellers'. These are the investors who see the rising trend of crypto values and who want to participate in this momentum. Third, there are the 'crazies', who simply want the gambling aspect of crypto investment. In the event of a crash, we can expect the diehards to stay with crypto. To sell would represent a fundamental challenge to their belief systems. The crazies would be very quick to leave the market and move on to better things, such as sports betting. For a crash to have a mild impact, the diehards need to persuade the fellow travellers to stay with it. If they can do this - perhaps by replacing the market weight of the crazies - then the fellow travellers will stick with it as their losses would be manageable. If they fail to do this, then the fellow travellers are likely to cut their losses and the value of crypto would fall a very long way, possibly to zero.

The impact of the value of crypto falling to zero would depend upon how long the investors have been in the market. The diehards - who have been invested for more than 12 months - would lose a great deal of unrealised gains (paper profits), but less so in relation to how much they paid for their assets in the first place. The crazies - those invested for less than 3 months - would be likely to be wiped out. If they are leveraged holders of crypto, the losses could well exceed their market capitalisation. The fellow travellers - those invested between 3 to 12 months - would fall in between the two. What is more concerning is that institutional investors (hedge funds, university endowments, mutual funds and a number of companies) are disproportionately situated as either crazies or fellow travellers. These investors are not noted for an overwhelming appetite for risk.

The Economist estimates that the first shockwave of a crypto collapse could be in the region of $2 trillion - about the market capitalisation of Amazon. The secondary impacts are not difficult to see. Loans secured by crypto assets would face calls for liquidity. Leveraged loans to purchase crypto assets would face margin calls. There would be a rush for liquidity leading to investors to cash in conventional assets - firstly financial instruments, and then property assets. At this point a cryptocalypse has the potential to bleed into the real economy. It is likely that interest rates would rise as credit would become scarcer because banks would face difficulties in valuing assets used as collateral in loans. The financial system would start to slow the operation of the real economy, which could lead to a degree of retrenchment on the part of consumers. It is hard to estimate how bad it could get, but it has the potential to give rise to a situation far worse than the financial crisis of 2008.

Of course, this doesn't all happen in a vacuum. The monetary authorities can currently take action to protect the real economy from a cryptocalypse from happening. The crypto system could be isolated from the monetary system by, for example, requiring that collateral on loans within the crypto derivatives market is restricted to conventional cash. The authorities could require the tighter regulation of crypto exchanges. The authorities could insist that crypto holdings are valued at zero in calculations of capital adequacy. There are a whole raft of measures that could be undertaken to make the world safe from crypto. It is comforting that this is the current direction of regulatory travel, even if the pace is a bit slow.

Stephen Aguilar-Millan
© The European Futures Observatory 2021

Wednesday 18 August 2021

What does regime change in Afghanistan mean?

We recently asked if small nations matter? Recent events in Afghanistan have shown that at times they can. The speed with which events have developed in Afghanistan raise a number of important questions. Could this turn of events have been foreseen? What are the causes of such a rapid turn of events? What does this mean for Afghanistan? What does it mean for the region? And what does it mean from a wider perspective? Each of these questions deserves some form of answer.

Let's start with the degree to which we could have anticipated this turn of events. Last year we played a game that looked at the geopolitics of Central Asia, in which Afghanistan had a central role. This underlined the importance of the country as a geographical pivot for the region. The Taliban in the game concentrated upon building civil society, whilst the Americans in the game tended to prop up a variety of corrupt administrations. Poverty, hunger, and a lack of basic justice and fairness in the system - coupled by a dislike of foreigners determining the fate of Afghanistan - led to the collapse of the Afghan government and the expulsion of US forces. This was the template set by the game, much of which has been reflected in recent events.

News from Afghanistan is currently sketchy and partial, but it appears that the collapse of the Afghan National Army is more in the nature of a mutiny than anything else. The Afghan soldiers haven't been paid for some weeks, and there are allegations that their paymasters in government have squirrelled away the military payrolls into untraceable overseas bank accounts. This is a symptom of a wider corruption within the country. The Taliban haven't met with greater resistance because Afghan civil society isn't particularly loyal to the Afghan government.

In the west we tend to think of the Taliban as a monolithic and unified religious and political force. This is a mistake. The Taliban, like most factions and movements, contains internal differences of opinion. There are the traditionalists, who are currently receiving the most attention at the moment, who tend to represented amongst the military leaders on the ground right now. However, there are also the modernists, who tend to represent the political leadership, which has been exiled within the Middle East and are now returning to the country. We can expect the outcome of this difference of opinion to dominate the future course of Afghan affairs. At present, it is not certain which view will prevail.

This will have consequences within Central Asia. Although Afghanistan is the centre of Taliban support, they also have a presence in Turkmenistan, Uzbekistan, Tajikistan, and Kyrgyzstan. These countries have a structure of civil society similar to that of Afghanistan and must be seen as vulnerable to Taliban influence. There is also the complication of them being hydrocarbon exporters. In our game, the government of Turkmenistan was seized by the Taliban following a period of poverty alleviation and the elimination of corruption. As things stand today, we ought not to rule out this possibility in the years to come.

The Taliban also have a presence in the eastern part of Iran and links to the East Turkistan separatists in the Chinese province of XingJiang. This widens the possibilities to include Iran - and the struggle between the Shia and Sunni worlds - and the global ambitions of China. A key potential overland route on the BRI transits across the region, along with significant mineral potential in northern Afghanistan. It is unsurprising that China has sought an accord with the Taliban. With the Americans withdrawn from the region and with Russia cautious about renewed involvement within the Hindu Kush, China has been presented with an almost uncontested space for influence in the region. America appears to have lost a pawn in the great game of the twenty first century.

Appears to, but may not have done. The factors that led to the withdrawal of American forces are now a strength for the US and a weakness for the Taliban. The Taliban need to win over the local warlords across Afghanistan - especially in the north of the country, which presents an opportunity for the US. In the coming years, we may well see what covert operations, special forces operations, drone warfare, and high altitude airstrikes with precision munitions can achieve. We must not think that because American forces have left Kabul, the war is over. It may well be continued in a different way in the years to come. In which case, what we are witnessing is the opening of a new chapter in the saga rather than an end to it.

How it all unfolds depends upon a number of factors, but the key uncertainty revolves around the struggle within the Taliban. If the traditionalists gain the upper hand, the we can expect a future that is confrontational and violent. If the modernists gain the upper hand, then we can envisage a future in which Afghanistan could be coaxed into becoming a functioning nation by the standards of the region. That event would involve a process of engagement right now. It is interesting that this is exactly what China is doing. More 'Jaw Jaw' and less 'War War'.

Stephen Aguilar-Millan
© The European Futures Observatory 2021

Wednesday 21 July 2021

Do small nations matter?

The collapse of the Soviet Union heralded the onset of an era that was seen as a unipolar moment. The United States was the global power without peers. And yet, that didn't quite mean that America could do as it pleased. Small and nimble nations could leverage their unique attributes to frustrate US policy. With a growing rivalry between China and the US, is the unipolar moment coming to a close? If so, what does that mean for smaller nations? Are they likely to matter more or less?

To start at the beginning, size does have its advantages. A large nation, such as the United States, will necessarily have a large population that sustains a large economy. Larger states are bound to be dominant economically by virtue of the size of their financial and commercial activities. These larger economies can support a larger level of governmental activity and a larger military. It also makes them an attractive destination for migration as a cultural magnet internationally. These are the sources of large nation power - economic power, military power, and cultural influence. In this sense, small nations are at a  disadvantage and matter less.

This, however, is not entirely the case. On each of these bases of power, it is possible for smaller nations to find a niche role. The global economy is one that is highly specialised and inter-dependent. If one part of the network ceases to function fully, the whole network becomes vulnerable. We have seen this in a number of cases in recent years. For example, flooding in Thailand in 2011 disrupted the production of key motor components that had a knock on effect to disrupt the production of motor cars on a global scale. This was the result of a natural disaster, but had it been the result of governmental policy, the effect would have been very similar. These vulnerabilities were made quite clear in the vaccine nationalism that occurred during the COVID-19 pandemic. In this sense, size does not matter.

Equally, a large military establishment does not always guarantee the effective use of military power. The various conflicts that have arisen in the Middle East this century amply demonstrates this point. The most recent - the Americans and NATO withdrawing from Afghanistan - suggests that hostile forces, whilst less numerous and not as well armed as their opponents from larger nations, can prevail over mighty military establishments. Whilst size generally suggests a path to victory, this is not always the case.

Cultural influence is a further concept where size counts, but not absolutely. There is a large degree of cultural influence from larger entities, but there is also a role for niche players. For example, American cinematic blockbusters tend to dominate, but European cinema has a role to play in producing films of greater artistic content. The Oscars serve one audience, whilst Cannes serves another. The dominance of the genre does not lead to a blanket monoculture and there are plenty of niche crevasses in which cultural variety thrives.

Even in a period that is seen as unipolar, there has been ample opportunity for smaller nations to exert a degree of influence that is not suggested by their size. If we are moving away from the unipolar moment, it is not unreasonable to expect this situation to change. It is not clear whether this change will favour smaller nations or not. On the one hand, the deft nation will be able to play one of the larger nations against the other, to it's advantage. Turkey provides an example in this case, where the United States is played against both Russia (for military support) and China (for economic support). This has the potential to become a feature of the immediate future as the larger powers vie for influence with the smaller nations.

On the other hand, it is also in the interests of the larger nations to ensure a degree of conformity amongst their client states. It is interesting to see this process in action though the funding arrangements of the various BRI projects. Recipients of China's BRI largesse are left in no doubt about their role as client states and their obligations to support a wider Chinese view of the world. In this respect, small nations do not matter as much as they might because they are expected to follow a given line. Some smaller nations find this conditionality unacceptable, whilst others see it as perfectly acceptable.

Looking ahead, it is likely that we shall see this process in operation at the COP26 meeting of nations later this year. There is a broad desire to construct some form of agreement, but little consensus over how that agreement should be structured. In the end, power politics will come into play and determine that eventual outcome. This will prove to be the key test as to whether or not small nations matter. For effective action, they need to. But will the greater powers be willing to surrender their interest to the lesser powers? That remains to be seen.

Stephen Aguilar-Millan
© The European Futures Observatory 2021






Thursday 10 June 2021

Could NATO fall apart by accident?

The point of running a game like The Belarussian Right Hook is to discern the potential contours of an emergent future. In my form of foresight, the point of studying the future is to outline these potential contours in order to take action to reinforce the futures that we like and to act to resist the ones that we don't. This makes the exercise necessarily analytical, but this act of cognition needs to underpin any action that may affect a future outcome. 

It should be said that many possible outcomes could result, not just the single outcome from a single game. When we previously played this game, NATO was able to destabilise Russia to such a degree that we could question whether the current Russian regime would survive a defeat in the field. Such are the uncertainties of military action. However, our focus is now upon the defeat of NATO in the field that resulted from this game. We ask the question of whether or not NATO is robust enough to withstand defeat in the field?

We identified three key areas of interest. First, does NATO have sufficient political cohesion to survive a defeat in the field? Much of the defeat can be attributed to a piecemeal approach to the conflict, along with varying degrees of commitment from the various NATO members. Second, there is the question of the point at which NATO ought to become involved to counter Russian aggression in Eastern Europe. Had NATO become involved earlier, then it could be argued that things would not have gone so badly. Third, to what extent has long term budgetary parsimony severely degraded the ability of NATO to act in the field? Budget restrictions are a recurring theme, everyone seems to agree that something should be done. Then other priorities emerge for the funding. This had quite an impact in the game.

NATO is essentially an organisation for mutual defence in Europe. It has only been used in anger once - in Afghanistan - which some might argue was a bit of a mistake. Western hubris gave NATO a role outside of Europe. Now that history hasn't ended and the Russian challenge has re-emerged in the 21st Century, the political effectiveness of NATO can be called into question. NATO suffers from three weaknesses. First, NATO is not the only security organisation in Europe. The Common Security and Defence Policy of the European Union blurs the issue. In the game, we had NATO members not in the EU, we had EU members not in NATO, and we had countries that were in neither the EU nor NATO. This fragmentation of authority and decision making made the NATO response hesitant, which proved to be a decisive factor. It would be interesting to play the game again, where NATO can mobilise in Turn 1 of the game, rather than sitting things our.

Second, NATO contains differing views on how warfare should be conducted. Some members are relatively war-like, whilst others tend to incline towards more peaceful solutions. This manifests itself in the willingness for the public in the NATO nations to engage in military action. We didn't model this into the game other than a political hesitancy on the part of some nations to become involved. This touches upon the third weakness - the activities of Russia. Russia has been involved in a campaign of political influence amongst the European NATO nations for some time. It uses a combination of propaganda and commercial interests to influence European opinion. This has an impact on the willingness of the nations affected to undertake and support action at the point of conflict. It certainly has an impact on the second key area of interest - the point at which NATO becomes involved in the conflict.

In this game, NATO only became involved with the triggering of Article 5 by virtue of the Russian invasion of the Baltic States. It was only at this point that NATO started to mobilise for action. By the time that the NATO forces - especially the German and Polish armies - had mobilised, Russia controlled Estonia and Latvia. This had the effect of placing the conflict zone in Lithuania. There were two points at which NATO - given the political will - could have achieved a better result. NATO could have mobilised and deployed in the Baltic States as Russia invaded Ukraine. This might not have deterred Russia, but it would have changed the basis of Russian calculations. We ought to play this game. Second, after crushing Ukraine, it seems obvious that an ambivalent response from NATO would encourage Russian ambitions in the Baltic States. Had NATO mobilised and deployed as the Russian forces re-positioned themselves, that would have changed the basis of Russian calculations. Again, this could prove to be an interesting game. 

However, this presumes the relative effectiveness of the European NATO forces. This is an assumption worth challenging. A decade of austerity across Europe can be believed to have had an impact on the combat effectiveness of the European NATO forces. Many senior officers, upon retirement, have written about the degree to which combat effectiveness has been degraded. Some of this, one suspects, might be vested interests pleading their case. However, some of this might represent an accurate warning of a very real shortfall. We won't know until the point of conflict arrives. A policy that relies upon the European NATO allies as first responders could be questioned on grounds of effectiveness. This is a fairly large unknown. In the game, the German and Polish armies were relatively ineffective and the whole NATO campaign relied upon them. This is from where defeat originated.

A defeat for the organisation would be a significant threat to its survival. It is interesting to speculate how a future NATO would evolve after a defeat in the field. This would make an interesting game in itself. Our game ended when Russia occupied all three Baltic States. We had it that Russia then offered peace terms to the European NATO allies. That peace conference, in itself, would make an interesting game as a precursor to the game about how NATO would evolve - if it survived - after the peace settlement. Those are games for another day.

For now, the conclusion that we draw from this game is that, under the right circumstances, NATO could fall apart by accident. Of course, this future is not a given. NATO can act in the present to avoid this. It can bolster its political cohesion, it can sharpen its defences, and it can act to counter Russian influence in Europe. It remains to be seen whether or not this will happen.

Stephen Aguilar-Millan
© The European Futures Observatory 2021

Friday 4 June 2021

NATO Falls Apart - The Timeline

The original object of this game was to derive a timeline that could be used as an input into an economic and financial wargame at a later stage. The actual result was something of a surprise for us. Our original thoughts were that Russia would occupy Ukraine. The Russian invasion of the Baltic States was unclear at the start of the game, but as Russia had done so well, and as it had received such little opposition from NATO, Russia could become emboldened to resolve matters in the Baltic States also. This is how the timeline wove itself.

Timeline: D+3
Geopolitical headline: Russia advances from south west Belarus to occupy Lviv and north west Ukraine, before moving southwards to threaten Kiev. Russian columns advance from southern Russia across southern Ukraine to occupy Kharkov and to threaten Kiev. Russian reinforcements arrive from the Central and Far Eastern Military Regions and are deployed along the Russia-Ukraine border.
Response in:
Washington: Outrage at events, diplomatic efforts to contain the situation.
Brussels: Outrage at events, diplomatic efforts to contain the situation.
Tokyo: Concern at events.
London: Concern at events, diplomatic efforts to contain the situation.
Beijing: Concern at events


Timeline: D+6
Geopolitical headline: Russia occupies Odessa and Kiev. The Ukrainian army is destroyed in the field and Russia occupies all of Ukraine.
Response in:
Washington: Concern at escalation of events. Warning issued to Russia about the integrity of territorial boundaries in Europe.
Brussels: Concern at escalation of events. Warning issued to Russia about the integrity of territorial boundaries in Europe.
Tokyo: Concern at escalation of events.
London: Concern at escalation of events. Warning issued to Russia about the integrity of territorial boundaries in Europe.
Beijing: Concern at escalation of events.


Timeline: D+9
Geopolitical headline: Russian forces regroup and are redeployed along the Russian border with Latvia and Estonia. Russian forces deployed along the Ukrainian border with Poland.
Response in:
Washington: Outrage at escalation of events. Warning issued to Russia about the integrity of territorial boundaries in Europe.
Brussels: Under the Common Security and Defence Policy, the Visegrad Battlegroup and the Nordic Battlegroup are alerted to activation.
Tokyo: Concerned by events, places armed forces on alert.
London: Follows US lead within the NATO framework.
Beijing: Concerned by events, places armed forces on alert.


Timeline: D+12
Geopolitical headline: Russian forces invade Latvia and Estonia, defeating their armies in the field. Tallinn and Riga are occupied. Lithuania is invaded and Vilnius besieged. Article 5 is triggered and NATO counter-attacks. German and Polish forces relieve Vilnius and push back Russian troops to Riga. The Visegrad Battlegroup advances across southern Ukraine to occupy Dnepropetrovsk and Donetsk. Romanian forces besiege Odessa.
Response in:
Washington: The United States is placed upon a war footing. Material assistance is provided for European NATO allies and US forces are mobilised for action in Europe.
Brussels: Under the Common Security and Defence Policy, the Visegrad and Nordic Battlegroups are committed to action. Germany supports collective action.
Tokyo: Concerned by events, armed forces remain on alert.
London: Commits RAF and Royal Navy to the conflict, along with land based forces when they are available. GCHQ commences cyber warfare against Russian targets.
Beijing: Concerned by events, armed forces remain on alert.


Timeline: D+15
Geopolitical headline: NATO airpower is committed to action. A small Ukrainian military force is gathered in Kharkov. Russian forces recapture Kharkov and Donetsk, pushing back the Visegrad Battlegroup. German forces besiege Russian occupied Riga and are repelled back to Vilnius.
Response in:
Washington: Congress approves Presidential action, US forces to be committed as they become available.
Brussels: Proposal to commit EU to NATO actions, no decision taken.
Tokyo: Concerned by events, armed forces remain on alert.
London: Commits to supporting NATO action.
Beijing: Concerned by events, armed forces remain on alert.


Timeline: D+18
Geopolitical headline: Air conditions are favourable to Russia, giving overwhelming air superiority. Russia retakes Dnepropetrovsk and largely destroys the Visegrad Battlegroup. Ukrainian forces recapture Kharkov. The German and Polish armies are destroyed outside of Vilnius, which is occupied by Russian forces.
Response in:
Washington: Diplomatic and material assistance to NATO allies, USAF committed to action.
Brussels: Wrangling over the degree of commitment to provide to NATO. Hungary, Greece and Cyprus begin to object to the EU becoming involved.
Tokyo: Concerned by events, armed forces remain on alert.
London: Commits to supporting NATO action.
Beijing: Concerned by events, armed forces remain on alert.


Timeline: D+21
Geopolitical headline: Russia destroys the remaining Ukrainian forces and reoccupies Kharkov. Odessa is relieved and the Romanian army is destroyed. Russian forces consolidate their position in the Baltic States and advance no further.
Response in:
Washington: Diplomatic and material assistance is given to the NATO allies.
Brussels: Wrangling over the degree of commitment to provide to NATO. Hungary, Greece and Cyprus object to the EU becoming involved.
Tokyo: Concerned by events, armed forces remain on alert.
London: Commits to supporting NATO action.
Beijing: Concerned by events, armed forces remain on alert.

As the game unfolded, the collapse of NATO was not readily evident. Germany and Poland were able to field armed forces of reasonable strength on paper. The Visegrad forces in southern Ukraine were able to threaten the Russian hold on that country, and there was a threat to Russian forces along the Polish-Ukrainian border. 

The turning point was the German siege of Riga. Had the German forces occupied the city, Sweden and Finland could have ferried troops into the combat zone, which would have made all the difference. The failure to retake the city, even with air superiority, was the high point of the NATO advance. As it happens, both Riga and Tallinn remained closed to reinforcements from Sweden and Finland. This proved to be decisive. It allowed Russia to consolidate its hold on Riga and provided a launching pad from which the German army could be defeated in the field and from which the Polish army could be expelled from Vilnius, to be destroyed in detail. At that point, 21 days into the crisis, NATO ceased to have any forces in north eastern Europe. It was here that we called a halt to the game.

This is such an intriguing timeline. It has a feel of 1940 to it. The Red Team launches a blitzkrieg offensive that conquers all before it. There are a quick succession of Allied collapses. And with that, the international order prevailing up to that point falls apart. As stated before, this game is the prelude to an economic and financial game. One can wonder what impact this sequence of events would have on the financial markets. I guess we will have to play that game to find out.


Stephen Aguilar-Millan
© The European Futures Observatory 2021

Wednesday 26 May 2021

NATO Falls Apart - The Game

My long term commitments have shifted a bit recently. so I found myself with a bit of time on my hands. This is a rarity that doesn't happen too often. However, it does occur from time to time, so I always have in mind a list of things that I would like to do if the tempo weren't so pressing. High on my list of things to do was to revisit The Belarussian Right Hook (more details). To recap, the premise of the game was to consider the possibility that Russia could use the cover of joint exercises in Belarus to launch an operation to tidy matters away in Ukraine.

When we played the game before, we generated some interesting results, but I was left dissatisfied with the game on a number of levels. I felt that the Russian forces grouped around Brest in Belarus at the start of the game should have been deployed at an earlier stage, and I also felt that the Russian reinforcements from the Central and Far Eastern Military Regions ought to have been brought into the game a lot sooner. This version of the game encompassed both of those features. The Russian 20th Army Corps, located in Belarus, was tasked to be the first Russian unit to move. The reinforcements from the Central and Far Eastern Military Regions were permitted to enter the game in Turn 1 (in the first three days), if the Russian player had sufficient movement allowance to effect that.

We retained the complications of the Blue Team player - a complicated structure involving NATO members, EU members who are not members of NATO, and Ukraine and Moldova, who are neither members of NATO nor the EU. We added the complication that elements of the EU Nordic Battlegroup - essentially Sweden and Finland - could only enter the game via the ports of Riga or Tallinn, if they were not under Russian control. We retained the rules regarding Belarus - for it to be on the winning side, regardless of who that might be. And we kept the rule that the nuclear threshold would not be passed.

The purpose of the game was to produce a timeline that we could use in our sequence of nested games. We will publish that timeline in a future post, including reactions from around the world to give us a global perspective to unfolding events in Europe.

Did we achieve something useful? It's hard to answer that question, but we did achieve an interesting result - by D+21, three weeks after the first Russian incursion into Ukraine, NATO imploded. The sequence of events were a lukewarm response to the initial Russian incursion into Ukraine. This encouraged Russia to undertake a Blitzkrieg in the Baltic States. Riga and Tallinn were occupied within three days. The European NATO forces were committed piecemeal, relying heavily on German leadership. First the German, and then the Polish armies were defeated in the field, and NATO couldn't survive the political fallout resulting from those defeats. Russian forces occupied Vilnius, and at that point we called a halt to the game. 

The game provided us with some hard questions that we will explore in a future post. For now, we can place a marker that three avenues of approach suggest themselves. First, how fragile is NATO politically? In the game, NATO fell apart through political squabbling. When things started to go badly, the less committed nations started to weaken their contributions to the collective effort. Second, at what point should NATO become involved? There is an argument that had NATO become involved when the Russian 20th Army Corps besieged Lviv, the blitzkrieg into the Baltic States would have been much harder to achieve. If either Riga or Tallinn had not fallen, then Sweden and Finland could have become involved. Third, just how corrosive is the European skimping on defence spending? How far has the desire for budgetary savings impaired the effectiveness of the European NATO armed forces? We shall look at these questions at greater depth in a future post.

This is one future that we hope not to happen. It suggests a number of courses of action that we can take in the present to avoid that future. It is of some comfort that some of those measures seem to have been taken, but that is a different story for another day.


Stephen Aguilar-Millan
© The European Futures Observatory 2021

Wednesday 19 May 2021

What happens when generation rent ages?

We are all growing older. We are growing older as individuals (people always have) and we are growing older as a society. What is different about the current trend towards ageing is that it is becoming a societal as well as an individual feature. As a societal feature, it contains all sorts of problems that we haven't encountered before and for which the welfare state is ill prepared. The welfare state is poorly prepared on two counts - for the volume of numbers of aged people in the near future and for the novel situations that they will bring with them.

Let's deal with the novel situations first because they are likely to be more pressing. In the UK, the number of private rental tenants aged between 45 and 64 has doubled in the past two decades. In the next ten years or so, many in this cohort will reach state retirement age. Their personal financial circumstances when they reach retirement age, are likely to be of concern. In its construction, the welfare state rested upon two assumptions. First, that elderly renters would occupy social housing rather than the private rental market. Second, that the private rental market would be used mainly by younger renters prior to them getting on to the housing ladder. These two assumptions can now be called into question.

To begin with, there has been a dramatic decline in the social housing rental market since 1980. Starting with the sale of the council housing stock and exacerbated by the reduction in social housing new builds, the stock of available social housing has fallen considerably in recent decades. From about 5 million units in 1980, the social housing stock has fallen to between 1.5 and 2 million units today. In the same period, the population of the UK has risen from about 56 million in 1980 to about 65 million today. There are far fewer units of social housing to accommodate many more people. Just as the population started the ageing process, the number of units of social housing has fallen, forcing larger numbers of elderly people into the private rented sector.

In the private rented sector, this ageing population of private renters are competing with increasing numbers of younger renters. In the two decades from 2000 to 2020, the number of 25 to 34 year olds privately renting has increased by two and a half times. The average age of the first time buyer in the UK has risen from 26 in 1980 to 31 today. This is all having an impact on the private rented sector. Housing is scarce and expensive. This trend is one seen across Europe and North America, not just the UK.

If these core assumptions of the welfare state no longer hold, then they have a consequential impact on other aspects of the welfare state. The way in which the actuarial profession structure their forecasts of how much is needed in retirement assume a pathway where a person buys a house on mortgage, which has been repaid by retirement. The core assumption is that the retiree has zero housing costs. On this basis, Royal London calculated in 2018 that a retiree would need a pension pot of £260,000 to maintain a median salary. If rental costs are added to the retiree's needs, then a pension pot of £445,000 would be needed. Britons are currently nowhere near the smaller figure, let alone the larger one.

This suggests a future in which the older private renters could clock up significant rent arrears, face eviction from housing, and could fall back on the state for assistance. The social infrastructure, outside of the adult care sector, just isn't there. The situation is worsened by the prospect of the other feature of societal ageing - the sheer volume of numbers of old people needing assistance at the same time. Not only will the state face an intractable problem surrounding the housing of the elderly it will also face the question of placating larger numbers of articulate and older citizens who are ready to exercise their vote.

All of this suggests a future in which there will be a much larger role for the state than we are accustomed to. Greater levels of financial assistance will be needed for housing, healthcare and adult social care. Not only will the levels of assistance be greater, but also the numbers requiring assistance will be much higher too. How this will all be paid for is anyone's guess. It does suggest a fundamental restructuring of the welfare state is likely this decade. So, what happens when generation rent ages? Public spending goes through the roof! (Pun intended).

Stephen Aguilar-Millan
© The European Futures Observatory 2021


Tuesday 27 April 2021

What makes a scenario persuasive?

If we accept that the future is undetermined, and if we accept that a plurality of futures can emerge from our present state, then how do we distinguish between competing visions of the future? We don't have perfect foresight, despite, on occasion, an 'official future' being given to us as a planning assumption for our future thinking. In which case, if there is no 'true' view of the future, then surely we have to fall back upon those futures which we find more persuasive as a technique to discern the signal from the noise. What is it, then, that makes one scenario more persuasive than others?

The futures cone might help us to order our thinking in this area. To start with, in order to be persuasive, the future has to be possible rather than impossible. There is a sequence whereby impossible futures become possible, but from the immediate future horizon, we have to accept the impossibility of some futures. For example, some science fiction writers talk of inter-stellar travel using 'faster than light' drives of some sort. Given the current state of our technology, and barring the possibility of humanity being gifted such technology, these futures seem impossible for the immediate future. That impossibility could change in the future, but from the perspective of the present, such futures are unlikely to be too persuasive.

If we travel further into the cone, we move from the realms of possibility to the realms of plausibility. If one future is possible because it might happen, another becomes plausible because it could happen. We are now starting to enter an area where we find some futures likely and others less so. We make no comment on the degree of likelihood in this zone, we just note, in an ordinal way, that some futures are more likely than others. The more likely the future is, the more persuasive we are bound to find it. Of course, the assessment of likelihood is a question of subjective probability, which accounts for different people viewing the same scenario with different degrees of persuasion.

The question of subjective probabilities pulls us from the area of plausible futures to the area of probable futures. In this case, we are a bit more certain about a set of future outcomes. Once again, the probabilities are likely to be subjective, but we are at the point where we can be fairly sure of ourselves because we see the set of future events as fairly likely to happen. The danger here is hubris, which encourages us to abandon any lingering uncertainty about the future. This is the zone in which 'official futures' are created.

The final category of futures we need to consider in this context are projected futures. These are futures that arise on the assumption of ceteris paribus, that things more or less progress as they are progressing now. There is a degree of persuasiveness about these futures, particularly in the very near term future, where it is not unreasonable to assume that most things are set. Change takes time to implement and to have an impact. In this moment, ceteris paribus is not a wholly unreasonable assumption. This can make some projected futures fairly persuasive.

What about preferred futures? We have separated preferred futures form the other categories because they blend a mix of likelihood and desire. These are the futures that we want to happen, which may or may not be influenced by their likelihood. These are the futures from which a compelling vision of the future may emerge. Or they may be the futures where we simply disappear in a cloud of wishful thinking.

As with all things, much depends upon out motives. If we are using futures as an aid to strategic planning, then we are likely to dwell in the area of probable and plausible futures, with the occasional excursion into the realms of possible futures as wild card exercises. If, on the other hand, we are using futures as a device for transformational change, then we are less likely to focus on the likelihood of a set of futures than their desirability. We will find some futures more desirable than others and that desirability enters into our appraisal of which futures we find more convincing. We can try to guard against this bias, but bias and choice are part of the human condition, so they can't be eliminated entirely. 

It is, however, an argument in favour of a diverse range of participation in transformative and normative futures. This is hard to achieve in practice because some interest group is bound to be overlooked. A set of scenarios derived from too narrow a base are unlikely to be too persuasive. So what does make a scenario convincing? A more likely and a more desirable scenario will undoubtedly be more persuasive than one that is neither. This is all part of telling a better story.


Stephen Aguilar-Millan
© The European Futures Observatory 2021

Monday 19 April 2021

How do you measure a return on investment for foresight?

Let's just suppose that we agree that foresight ought to have a return on investment. In that case, how would we go about measuring such a thing? It is entirely possible that we could devise new models of foresight evaluation, but a shorter route would be to take existing models of investment appraisal and to adapt them for the purposes of foresight evaluation. The financial community has a long history of doing just this. Would to be possible to commandeer some of their models to put to work in evaluating foresight?

We have stated before that one of the objections to using foresight as a better aid to strategic planning is the utilitarian nature of the methods used. However, in this case, they can also be a strength. We can readily see that it is worth undertaking a project if the benefits outweigh the costs. It is also true in reverse, an activity is not worth undertaking if the costs outweigh its benefits. In commercial language, it fails to meet the action threshold. There are problems with these approaches, but let's set those aside for the moment to focus on the core of the technique. It might help to examine the cost side of the equation before going on to review the question of appraising the benefits.

This approach is best suited to what the evaluator community calls project evaluation. When reviewing the prospective costs of a project, the starting point has to be what it is that the project hopes to achieve. What is it examining? Over what time horizon? With what deliverables in mind? So many foresight projects go astray because this clear vision of what the project is about is absent at the beginning. A degree of clarity is needed at the outset because that will dominate the structure - and the cost base - of the whole project ahead.

If you are certain what it is that you want to look at, the next question to resolve is who is to be involved in the process. In many respects, that is a question of determining which stakeholders have a voice in the process, and which stakeholders are not consulted. In some projects the core stakeholders appear obvious, in others less so. Those close to the subject being reviewed might expect a voice, whilst those affected by it remotely may not. This involves a balancing act for the project managers. On the one hand, a more diverse group will yield more robust results. On the other hand, including too many voices will reduce the effectiveness of the core of the project. In this sense, a camel is a horse designed by a committee.

At some point the project will have to take a view on tool selection. If we have defined the problem to be examined, if we have determined who will be conducting the examination, we then have to take a view on how the examination will be conducted. This is the point at which we encounter the question of uncertainty. We want to choose the right tool for the job, but we cannot know for sure a priori which is the right tool for the job. We can only say that, on a balance of probabilities that a given tool is likely to yield useful results. 

This is where the staffing question and the tool selection issue start to become inter-dependent. Some tools require a wider input than others, Some tools require a more intensive time cost than others. It is at this point that we may have to scale back our ambitions for the project because the budget won't support the initial scale of those ambitions. The process of adjustment may tend to be adaptive in how it rolls out. However, if the project is to go ahead, then eventually a compromise will be reached on the cost side. It is then we can turn to the prospective benefits.

We have already stated that the project will have a focus in the future. This could be a forecast of a future state or, more likely, the discernment of the broad contours of the future. The project is likely to aim at producing insights into the future from which we can profit by preparing for that future today. This is an area which can prove to be quite problematic. 

To start with, our view of how the future might unfold could be wrong. There is considerable uncertainty about future states. The prospective benefits to our actions are remote - they lie a long way off from the present - and may not be clearly defined. The benefits are likely to be less quantifiable than the costs and the impact of our actions might not be experienced in quite the way we previously anticipated. We could do the right thing for the wrong reasons and the wrong thing for the right reasons. There is no way of knowing a priori exactly how things will turn out. The future out-turn could be broadly in line with our original thoughts or it could quite equally be very different. The right foresight tools should enhance the likelihood of the former and lessen the chance of the latter, but nothing is guaranteed.

If foresight is a means to gauge a volatile, uncertain, complex, and adaptive world; then the tools it uses are likely to reflect that state of being. This means that when we measure the return on investment on foresight, we ought to include a statement to the effect that the process contains a wide margin of error. At the end of the day it will be up to the client to determine whether or not a specific project is likely to provide sufficient benefits to justify the cost. What the foresight professional can do is to help frame that judgement in a fairly systematic way.


Stephen Aguilar-Millan
© The European Futures Observatory 2021

Tuesday 13 April 2021

Should foresight have a return on investment?

This is a peculiarly phrased question, but it is one that is worth bearing with. It highlights a key issue in our motivation for undertaking foresight. There are various motivations for undertaking foresight. One motive could be that it would help to produce decisions that more closely align with where we want to be in the future - an aid to better strategic planning. Another motive could be to use foresight to build a better world - as a vehicle for a transformative future. There are more motives for undertaking foresight, but I want to focus on just these two because they have the feel of polar opposites from which we might learn something. Let's start with the former motivation before looking at the latter.

Foresight as an aid to better strategic planning is unfashionable in some quarters and very fashionable in others. It tends to be sought after in the corporate world, where the futurist is often asked to make the 'business case' for foresight. In terms of justification, we are entering the world of cost-benefit analysis. Where a return from an activity has to be shown in excess of the cost of undertaking it. In this sense, foresight needs to have a return on investment, even if we can't quite quantify those costs and benefits, and despite the eventual costs and benefits existing in an uncertain future. 

The underlying philosophy of this approach is utilitarianism - the social good is enhanced when the greatest benefit accrues to the greatest number of beneficiaries. It is the core philosophy underlying much theoretical economics and it has a number of flaws. To start with, the beneficiaries are not identified. One could argue that unborn generations ought to considered as beneficiaries with an equivalence to current ones. There has been a move in this direction in recent policy developments. However, the most damaging criticism of this approach is that is does not factor in individual rights and has the potential to be the source of grave injustices. The partiality of whose voice counts - and those who are excluded - is the core argument against this approach.

By way of contrast, foresight as a transformational device starts with the individual as the core of its focus. This approach tends to be seen more in community and governmental settings, usually by those who wish to effect profound change. In this case, a project will be endorsed if it can be shown to lead to a better world. It needs to show an absolute positive impact to be worth undertaking. In this sense, a project doesn't necessarily need to show a return on investment. It only needs to show a positive impact.

The problem with this approach lies with how the positive impact is ascertained and in whose interest the positive impact accrues. This is a fairly serious issue. The transformational approach is being adopted to the issue of climate change, which can help to expose some of the flaws arising fro this approach. It is generally accepted that climate mitigation is a good thing and that we need to act today to ensure a better tomorrow. 

Laying aside the issue of whether or not that is true, it does create a distributional problem over who bears the costs of mitigation. So far, where mitigation policies have been implemented, it is the poorer elements in society who have had to bear the greater cost of climate mitigation. This exposes the problem at the heart of the transformational approach. Unless each and every person affected by the policy is consulted, the approach is delivered as a top down policy that has a tone of authoritarianism about it. The 'Guardians' deliver policy to the masses. It exposes the connection between Futurism and Fascism that futurists strive to deny. 

This leaves us in an unhappy place. On the one hand we have an approach that is infused with a corporate bean-counters mentality. On the other hand we have an approach where the great and the good tell the rest of society how they ought to live their lives. In practice, most of us try to find a pragmatic compromise in order to avoid an extreme position. A more balanced approach might be the best way to deal with the question. Should foresight have a return on investment? In a corporate setting it probably should. In a community setting it probably shouldn't.


Stephen Aguilar-Millan
© The European Futures Observatory 2021

Wednesday 31 March 2021

How Can We Game A Future Economy?

We have previously written about the possibility of joining together a sequence of games to generate a set of nested games (see here for more detail). In pursuit of that objective, we have now played one of the middle games to see how it all unfolds. The basic premise is that a set of geopolitical events drives movements in the financial markets. There is a set of actors who can influence outcomes within those markets, and that provides the basis for the game. To complete the description, the game then provides a set of market outcomes which can be used as inputs into a game examining how individual firms respond to rapidly moving markets. 

We played the middle game where geopolitics is driving market movements and where actors can respond and influence those market movements. The geopolitical frame we chose was 'The Belarussian Right Hook' (see here for more detail). To recap, the setting is that Russia uses the cover of wargames in Belarus as a launch pad to complete an invasion and absorption of Ukraine. Initially, things go well, but then they start to go off plan. NATO becomes involved, highlighting a tension between NATO and the institutions of the European Union. Eventually the US becomes involved. As that happens, China becomes a bit more aggressive in East Asia. The scenario ends with Russia expelled from Ukraine - but not Crimea - and European (but not necessarily NATO) forces in Smolensk, along the line of the Dnepr River. This represented a 30 day time frame of geopolitical drama.

Within that framework, the markets fluctuated wildly. We played with five actors, representing an amalgam of the Central Banks and Treasuries of the US, the ECB, China, Russia, and Japan. Each player was given a set of indices that they had to defend and a range of instruments to use in defending them. Collaborative play was encouraged and the players took to supporting each other in their game play. The players are gamers and not Central Bankers, so they brought to the game a more general knowledge than that of subject experts. The first four turns were played as part of a session delivered to the Edinburgh Futurists, with the remaining six turns played by e-mail after the event.

The broad results of the game were both interesting and instructive. The players rather rapidly formed two groups. The US, ECB, and Japan on one side (the Allies); Russia and China on the other side. If anything, China and Russia did a bit better than the Allies. To a certain extent, the game deepened the dependency of Russia on sales of hydrocarbons and minerals to China through long term contracts for supply at favourable rates, whilst driving the spot prices for hydrocarbons and minerals on the world markets to prohibitive levels. The Commodities Metals Index rose from 100 to 124 and the price of oil rose from $50 per barrel to $80 per barrel. Further along the value chain, the Chinese Overseas Trade Index rose from 100 to 107 and the Shanghai Composite Index rose from 3,500 to 3,579. From the Russian and Chinese perspective, the geopolitical adventure was good for business.

Russia beggared it's customers in Europe and the US. This was reflected in the falls in the stock indices over the 30 day period. The S&P 500 fell from 30,000 to 19,425; the Stoxx 600 fell from 400 to 191; and the Nikkei 225 fell from 27,750 to 17,610. This had repercussions in the bond markets and the global currency markets. The 10 Year US Treasury went from 1.00% to 0.83%, reflecting it's safe haven status; the 10 Year German Bund went from -0.50% to -0.83%, representing a loss of confidence that induced large doses of QE; whilst the 10 Year Japanese Bond went from 0.25% to 0.17%, representing a loss of faith in equities. As for currencies, the WSJ $ Index rose from 100 to 133, again highlighting the safe haven status of the US Dollar, whilst the Euro moved from €1.25 to the $  to €0.91 to the $. There was a lot of selling of Euros. From the perspective of the Allies, war in Europe was not at all good for their economies.

I think that we can draw some tentative conclusions at this point. The most obvious conclusion is that war is an expensive business, not only in human and financial terms, but also in terms of opportunities forgone. It is much better to stay out of a conflict than to rush into one. That isn't always possible and in the game the US was drawn into this conflict rather reluctantly. However, once the conflict was started, the Allies readily acted in concert and Russia acted to gain support from China, who was more than willing to provide it. This is a conclusion we have drawn from other games, to an extent that we now see this as something of a default future. Towards the end of the game, US involvement in Europe created room for a bit of Chinese adventurism in East Asia. A Chinese expeditionary force had set sail into the East China Sea, possibly towards the Senkaku Islands, possibly towards Taiwan. This is one potential continuation point for the game.

The end of the game left us in a position where the economies of the Allies needed a cessation of hostilities. The unresolved questions of Kaliningrad and Crimea had been left on the table. There was also a question over Belarus that we didn't really tease out. In terms of development, I think we can take this game in two possible directions. The first is to play out the Hedge Fund game - the final tier in the nested game system. That would be a fun thing to do. The second possibility would be to game the peace conference and throw in the thorny questions of Kaliningrad, Crimea, and Belarus. That would make a great matrix game for the future.

On the whole, I'm pleased with the progress that we have made. We are starting to generate sets of games that dovetail into each other quite well. They are generating some interesting ideas for spin-off games, and we starting to reach a wider audience. I guess that's a cue for more of the same.


Stephen Aguilar-Millan
© The European Futures Observatory 2021

Wednesday 24 March 2021

Why are some foresight tools more equal than others?

My work has recently brought me into contact with the world of academic foresight. The group I am working with includes not only futurists, but also people from other disciplines. The focus of the work is on foresight, so those from other disciplines are asking the not unreasonable question of foresight is about? One answer placed me in contact with Popper's Foresight Diamond (see picture), which, I have to admit, I had never encountered prior to this work. I'll leave why that is as a question for later. My first reaction to the analysis was one of deep unease.

This was followed by reference to a piece that suggested that the point of foresight was to predict change (don't agree with that) and how foresight tools are useful for thinking about the future (agree with that). In this particular piece, the author then goes on to reference the Three Horizons Model and Causal Layered Analysis. This left me deeply dissatisfied and extremely uncomfortable. It is worth tracking the source of this discomfort.

The second piece gave me a better clue to the source of the discomfort than the first, but let's start a bit further back. What is the point of foresight? For the insights into a range of emergent futures that they can provide. How do we unlock those insights? By using a range of foresight tools developed for that purpose. The key point is the range of tools because that suggests an intention worth uncovering. Tools are used because they are useful. A tool that has little utility is a fairly poor tool. It follows that if the purpose of foresight is to be useful, then it needs to embrace tools that have a high degree of utility and to discard tools that have little utility. This is right to the point.

The second piece was binary. Only the 3H Model and CLA were mentioned. The two are not equivalent in practice. The 3H Model is encountered more frequently in practice nowadays, but, outside of the public sector and a few voluntary agencies, CLA is hardly encountered at all. In the private sector it is extremely rare to encounter CLA. Why is that? I think that it can be ascribed to three factors. First, there is the relative complexity of the competing models. CLA intentionally delves into complex layers of meaning and intention. This is intuitively difficult to grasp and needs a great deal of explanation just to arrive at the starting point of a project. The 3H Model is simple and intuitive as a descriptor of change. There is the present (Horizon 1), the future (Horizon 3), and the transition between now and then (Horizon 2). Nothing more complex is needed to understand the model and it can start straight away.

The second problem area relates to what the models are looking at, their strategic intent. CLA aims to examine deeper layers of meaning that most commercial organisations are uninterested in exploring. They take the view that Jungian archetypes and bedrock stories might be interesting conversations, but they aren't exactly on message for the future running of the organisation. The 3H Model, by way of contrast, has the strategic problem as the centre of the exercise. It focuses on the problems that are worrying those who commissioned the investigation. That speaks to the third problem area - the cost of project. Because of the developmental time involved and the breadth of the staff whose input is needed on a project, CLA is far more expensive to deliver a project than the 3H Model. If resources are constrained, then the uncertainty over whether or not a tool will deliver a useful result can be minimised by using the less expensive model. The cost of writing off a project that delivered no appreciably valid or impactful results is lessened.

This is why the foresight diamond makes me feel so uneasy. It identifies a large number of foresight tools, but then ascribes to them a degree of equivalence that I consider false. I appreciate that an academic work has to include all possible outcomes for the sake of completeness. I imagine the peer reviewers looking carefully at what had been excluded. However, the final result is misleading because not all tools have an equivalence. Perhaps that's why I hadn't encountered the foresight diamond before? As a practitioner, it has very little of use for me. 

If the foresight diamond were to be reworked as a word cloud, with the size of the entry determined by the frequency that it is encountered in practice, then I wouldn't mind betting that virtually all of the diamond would be occupied by the 2x2 Matrix. The 2x2 Matrix is by far the most commonly encountered foresight tool. It is easy to understand, it is quick to deploy, and useful results can be derived with fairly minimal cost. Whereas the 3H Model might yield useful results over an afternoon, the 2x2 Matrix can yield useful results over a cup of tea. If a 2x2 Matrix doesn't yield useful results, you will have lost a tea break. If a CLA project doesn't yield useful results, you will have lost a much greater sum of resources, be they time or money. This is why I am rebelling against the foresight diamond. It creates a false equivalence between foresight tools.

Coming back to the original question, why are some foresight tools more equal than others? One reason is that some foresight tools have a much lower cost to generate more useful results than others. These are the ones more frequently encountered in practice. This helps managing the uncertainty around the ability of different tools to generate useful results because the cost of a write off of results that aren't useful is much lower. I'm afraid to say that, at the end of the day, money talks.


Stephen Aguilar-Millan
© The European Futures Observatory 2021