The End Of The Asian Century

The rise of Asia is almost a cliché in current futures work. But what happens if this assumption is wrong? The development of Asia has been a feature of the past half a century, but that spectacular rise has blinded us to the risks that this progress could first halt, and then reverse. A more nuanced approach to Asia would accept this possibility and embrace it. After all, the future is not pre-ordained and we cannot take anything for granted.

The author outlines the case against Asia. In many ways, the vulnerabilities of Asia have their origin in the success of Asia. The more successful the Asian economies become, the more likely their weaknesses will come into view. Professor Auslin identifies five key risk areas:

1. The risk of economic failure owing to crony capitalism and the misallocation of resources, especially investment resources. I found it helpful to divide the Indo-Pacific area into three risk categories - the sluggish (e.g. Japan), the soon to be sluggish (e.g. China), and the vibrant (e.g. Indonesia).

2. The demographic risk of growing old before growing rich. In this case, he usefully divides Asia into three risk categories - the old (e.g. Japan), the becoming old (e.g. China), and the young (e.g. Indonesia).

3. The risk associated with unfinished internal political reform. This risk is viewed as the extent to which the various nations have moved to become liberal-democracies. The range is from the 'democratic' (e.g. India) to the 'autarchic' (e.g. China).

4. The lack of a cohesive international political community. The question here is viewed in the negative - why is there no Asian equivalent of the EU? Why is there such a divergence of nations in Asia? Why is there a general lack of cohesion?

5. The risk of war. This is a recurring factor in the international politics of Asia. There are a number of border disputes, disputes over sovereignty, and historical grievances to keep this risk high in our thinking.

Each of these could, in itself, prove very disruptive to the wider international community, but together, they would have a significant effect upon global affairs.

It is fair to say that these risks are largely hidden from current analysis and ought to be given a higher profile. The recent events on the Korean peninsula demonstrate how fragile the current order could become. The author does make a number of suggestions to manage and reduce the risk in the area, but I found them largely unconvincing. His view appears to be that if the Asian nations were to be more like America, then it would be easier for America to guide the risk. That's almost a truism, but it does not account for a situation where the United States is, itself, a dysfunctional risk factor.

The book was written prior to President Trump's inauguration. It is almost out of date before being published. The author presumes the continued certainty of American policy towards Asia, and did not account for the possibility of a complete change in policy. For example, he takes for granted the passage of the Trans-Pacific Partnership. I agree with him that this would have been a key element in shaping Asia in the image which suited America. However, by making this assumption, the book does not consider the possibility of the US surrendering the strategic initiative to China. It does not give space to America's Asian allies wondering how reliable their security guarantee might be. It does not alert us to the possibility that the risk in Asia might be increased through the effects of American policy.

The book does, however, give us a framework to view events in Asia and a model by which we can assess how risk increases and decreases. The issue of North Korea is dominating our current thinking, but there are all sorts of unresolved disputes over the sovereignty of various rocks, islands, and reefs that could suddenly become volatile. This could be exacerbated by the twin forces of ethnic conflicts and nationalism, which overlay various historical grievances. Just because the past 50 years have been relatively conflict free does not mean that we can assume that the next 50 years will be conflict free as well.

The book is a useful corrective to a blindspot in our current thinking. The analysis of the causes has much to commend it, as does the analytical framework to interpret events and the model by which risk can be assessed. The prescriptions leave a lot to be desired, but at least we have a vocabulary by which we can discuss the various options.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

The Magic Money Tree

For the first time in years there are two competing and different visions of the future on offer to the British electorate. On the one hand, we have the Conservative Party, who offer a vision of a country where people who work hard can enjoy the fruits of their labour. This is a vision of a small state, with low taxation and low levels of public spending, where fiscal discipline is enforced by austerity politics. On the other hand, there is the vision of the Labour Party, which starts at the point of markets failing to deliver a fair outcome and needing corrective measures to ensure a fairer society. It is a vision of an expanded fiscal policy with greater roles for state intervention. The Conservative criticism of Labour policy is that there isn't a magic money tree to pay for all of this. Is that quite true?

To answer this question, we need to go back to the financial crisis of 2007-08. Those were desperate years. The banking system was on the verge of collapse, the money supply was falling sharply as banks stopped lending to each other, and there was a real prospect of an acute depression in the real economy. Desperate times called for desperate measures. Two such measures were adopted that had a long term significance - the bail out of the banks and Quantitative Easing.

The banks were bailed out through the purchase of equity by UK Financial Investments Limited - an arms length holding company that manages the government holdings of RBS along with those of UK Asset Resolution Limited (the vehicle created to unwind the Northern Rock and Bradford & Bingley mortgage books). At present, UKFI holds 72.1% of the equity of RBS, which is worth about £23 billion at current market prices, and 100% of UKAR, which has an outstanding loan book of about £19 billion. In addition to that, the Bank of England intervened in the UK bond market to purchase £375 billion of gilt edged stock. This still sits on the Bank of England balance sheet. Together, there is well over £400 billion of liquid assets sitting in public sector balance sheets, almost literally doing nothing.

UKFI and the Bank of England are public sector bodies, subject to public accountability. If a Labour government is elected, then it would be within the realms of possibility that these bodies would be subject to political review. What could happen? It is entirely possible for an incoming Labour government to set up a National Investment Bank (NIB), which is a pledge under the current manifesto. It is entirely possible for a Labour Treasury to direct UKFI and the Bank of England to transfer their asset holdings into the NIB. It could also require the Student Loan Company to transfer into the NIB their £100 billion loan book. It would be entirely possible for the NIB to re-allocate those assets in different ways.

How could it be different? Take the issue of Private Finance Initiative (PFI) assets. These are assets such as schools and hospitals which are built by the private sector and leased for use by the public sector. They have a reputation for delivering poor value to the public purse. Labour has stated that it will issue no new PFI contracts during their term of office, and will seek to reclaim the assets of existing PFI contracts. It would be entirely possible for a Labour government to enact legislation that seeks to swap out the PFI assets held by private corporations for gilt edged stock held by the NIB. The capital value of PFI contracts is estimated at just over £60 billion, which ought to be a manageable sum for the NIB.

As we hear future discussion about Labour's spending proposals, the question of the magic money tree is bound to recur. From a purely financial stand point, it would be entirely appropriate for an incoming Labour government to swap around some of the assets in the public sector. It would also be appropriate for the NIB to fund additional capital assets - bridges, roads, schools, hospitals, prisons, the list is quite large. It could also fund the human capital of the country by reaching a different settlement for the education sector.

When the critics of Labour say that the money isn't there, that statement is untrue. It is there, but isn't currently being put to any good use.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Using Megagames To Unlock The Future

All quiet on the Taiwan front!

I was recently asked to act in an analyst role in a megagame undertaken by professional wargamers. Normally I would participate as a player, but this invitation gave me an opportunity to stand back and consider the use of megagames as a technique to generate stories about the future. The game we played was 'Dire Straits', a megagame set at the beginning of 2020, that sought to explore some of the diplomatic and military possibilities that might unfold in East Asia at that point in time.

A megagame is a non-linear representation of a complex system in which the actors interact to generate a narrative about a future state. In Dire Straits, we had about 120 players, representing most of the nations on the Indo-Pacific axis, advancing what they thought to be their national interests. The game wasn't at all deterministic, which allowed the players to roam over any form of policy option. It is satisfying that, in the scenario generated, war didn't result. However, in a number of flashpoints the participants moved up to the jump point, but then backed away again. This had a refreshingly familiar ring to it.

In considering why we might want to use megagames as a tool for unlocking the future, five analytical points came to mind:

1. A ‘game’ represents a ‘system’. In the case of Dire Straits, the system being represented is the web of international relations in East Asia and beyond. This compels us to think systemically about international relations.
2. If we have a system, then we will need actors to operate the system. This compels us to identify the key actors within the system and their motivations to act within the system.
3. The system consists of a series of relationships between the various actors. The game compels us to define the relationships between the various actors and examine the modes by which they interact with each other.
4. The interactions between the actors permits us to examine the strategies they adopt in their interactions. The game compels us to adopt a strategy to play the game and to monitor the outcomes of the strategies adopted
5. From a systemic perspective, this then opens the possibility of wind-tunnelling various potential strategies from within the game framework. This can be used to identify, consider, and experiment with various policy options. 

It is my view that megagames are a valid tool for generating future narratives. They are best suited to large questions because, as a technique, they are not an inexpensive exercise. By definition, they involve a large amount of staff time. In order to yield interesting results, they need to be conducted several times. However, they can provide a way to cut through the complexity that is inherent in many systems. 

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Putin Rolls The Dice ... And Throws A Six

The Russian victory parade in Odessa.

We previously wrote about the game 'Putin's War', and how it might be pulled apart and reconstructed as a multi-player game which could be used to examine some of the issues affecting Russia's neighbours in the near future. We were recently given an opportunity progress this idea at a gaming conference. 

One of the aspects of the vanilla game that sat awkwardly for us was the uniformity of the Blue team. To recap, the Blue team contained both Russia's neighbours (the Baltic States, Belarus, and Ukraine), along with a selection of other nations within eastern Europe. We wanted to split this team into something that more closely resembled the current state of affairs.

In the vanilla game, the United States does not play a large part because of the logistics of sending a significant force to eastern Europe in a short space of time. We wanted to model this differently. We added a political game to the vanilla game that included the process by which Article 5 of the North Atlantic Treaty is invoked, adding delay upon delay before America could engage in operations. For the United States to become involved, Article 5 needs to be invoked, the North Atlantic Council needs to approve action, and Congress needs to ratify the decision for action. In a game modelling 30 days, the potential for delay is significant.

We didn't want to ignore recent developments in Europe either. As the United States appears to be lessening it's commitment to the defence of Europe, the European Commission is developing a Common Security and Defence Policy outside of the NATO structure. We wanted to give that a fair wind and to incorporate that idea into the game. The European arrangement organises member states into various battlegroups. We decided to use two such battlegroups - the Nordic Battlegroup (Estonia, Latvia, Lithuania, Sweden, and Finland) and the Visegrad Battlegroup (Poland, Hungary, Slovakia, and the Czech Republic). The battlegroups would only be activated once the Common Security and Defence Policy is activated. This would come after the North Atlantic Council approved the invocation of Article 5, and required the approval of the European Council of Ministers.

As the United States appears to retreat from the defence of Europe, Germany naturally becomes more important in that defence infrastructure. Germany was represented by a single player, whose brief was to maintain the rating of the 10 Year Bund. We added a little financial aspect to the game, modelling the impact of conflict in eastern Europe on the bond market. 

Two further key elements to the Blue team were Ukraine and Belarus. Not part of NATO, not part of the EU, already a victim of Russian aggression, Ukraine occupies a difficult position. We structured the game so that the Russian players could focus their attention on Ukraine without the direct intervention of NATO and the EU. We did try to encourage a little bit of Polish adventurism through the occupation of Ukrainian territory. Belarus, on the other hand, sat between the two sides. In reality, Belarus tries to maintain good links with both NATO and Russia. By assumption, we inserted a neutral Belarus into the game. We could equally have included Belarus in either the Blue team or, more realistically, the Red team. It would be interesting to run the same game three times, each with a different assumption about Belarus.

Although we talk of the Red team, this is actually Russia. We wanted to make Russia less monolithic, so we spilt the team into two - the Southern Military District and the Western Military District. Following current deployments, the intended focus of the Southern Military District would be Ukraine and the focus of the Western Military District would be the Baltic States. We gave the Red team players the opportunity to play co-operatively or competitively with each other. The mechanism for this was the allocation of action points and the allocation of reinforcements from the Central and Eastern Military Districts.

The briefing to players was:

The purpose of the game is to consider how eastern Europe could look if the Russian Federation were to take military action to restore a land buffer between itself and the European NATO nations. By assumption, the scene is set for the spring of 2020. Europe has been through a series of acrimonious negotiations over Brexit, with the various Member States arguing over the post-Brexit landscape. President Macron has failed to re-vitalise France, leaving Germany the undisputed dominant force in the EU. The people of Europe responded by voting heavily for Eurosceptic politicians in the European elections of 2019. On the other side of the Atlantic, the US Presidential elections are under way, with the incumbent polling well on an ‘America First And Only’ platform. Meanwhile, there are reports of large troop movements in the Russian Federation …

The game unfolded more or less as we expected it to. The Russian players acted co-operatively and decided to focus on the occupation of Ukraine. The reinforcements were allocated to the Southern Military District and the area of Significant Ethnic Russian Population in Ukraine was occupied in the first turn. In a single move, the state of Malorossiya came into being. There was little response from the Blue team. As Ukraine is not part of NATO, it cannot start the process of invoking Article 5, which also means that the Common Security and Defence Policy could not be invoked. In terms of the game, Ukraine acts alone.

That did beg the question that if this would prove so easy, why hasn't it happened already? I think that the answer to that question highlights the weaknesses of gaming as a technique to view the future. All sorts of assumptions were made in the game about the behaviour of the players (which were written into the rules) and other key nations who weren't players (China springs to mind here). These assumptions are worth teasing out. For example, what if the United States, outside of the framework of NATO, had armed and trained the Ukrainian forces, making them much more effective than originally thought? What if western sanctions had caused far more caution on the part of Russia? What if Russia feared the possibility of a more adventurous Chinese response in Central Asia? None of this was covered in the game, but in real life it has to be taken into account.

We allocated an hour and a half to the game. This wasn't long enough. During that time, we only managed to brief the players on the game mechanism, the political game, and the working aspects of the Bond Market. This left us time for just a single turn. It was a long turn, with quite a lot happening, but the action was confined to Ukraine. The non-Ukrainian Blue team players had little to do because the Red team players avoided the trap of involving NATO at an early stage. I quite liked this as a model of real action, but I accept that it didn't include the Blue team players as much as we had hoped that it might.

Looking to the future, I think that the experiment was sufficiently positive to continue with the game. We now know that it needs a good day to play through and that it has the potential to offer some useful insights into the near future history of eastern Europe. I believe that very few of the mechanisms need further tweaking, and that it would be good to roll it out over all of the ten turns to see how far it goes. All we need now is a group of willing volunteers and a venue.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Four Futures: Life After Capitalism

I am often astonished at the power of a really simple futuring technique - such as 2x2 matrices - to generate such interesting results. This book represents one such exercise. There are many of the conclusions that I don't agree with, there are some parts where I feel that the model is ill-defined, but the overall product is one that ought to commend our attention.

The basic premise of the book - that the liberal order established by the Washington Consensus has moved beyond it's shelf life. It's very difficult to argue against that belief. However, that in itself is uninteresting because it fails to consider what comes next. A futurist would keep one eye on what is likely to replace the Washington Consensus. This is what the author tries to do.

The analysis has two critical uncertainties - the axes of the 2x2 matrix - a world of hierarchy as opposed to a world of equality and a world of abundance as opposed to a world of scarcity. This gives rise to four possible worlds - equality with abundance, hierarchy with abundance, equality with scarcity, and hierarchy with scarcity. Underpinning each of these worlds are the twin issues of automation and climate change. These rather colour the approach to each of the futures.

Each future is characterised by the dominant features that the author believes will be apparent. Equality and abundance is characterised by communism. Not the Soviet communism to which we have become accustomed. More the communism described by Marx, where the state withers away and we can all live our lives in relative harmony. Many have described this rather utopian vision, but the author sees it as possible if the singularitarians and transhumanists are any where near correct.

Hierarchy and abundance is a different matter, however. In this case, automation leads to material abundance, but the protection of intellectual property rights leads to the benefits of automation accruing to only a few. The 1%, if you like. This scenario is dubbed as one of Rentism, as a fortunate minority benefits from the rents accruing to technology. These are 'Rents' in the Ricardian sense. In modern times, we would call this passive income.

The world of equality and scarcity is characterised as one of socialism. In this case, the scarcity of climate change has outweighed any benefits accruing from automation. However, the scenario has a sense that society sees itself as being in it all together, and the climate induced hardships are shared out on a widespread basis. There is a lot to commend this view of the future.

The final scenario - hierarchy and scarcity - is perhaps the darkest. The author labels this a world of exterminism. In this world there isn't enough to go round, and those at the top of the hierarchy secure the lion's share for themselves. It leads to a widespread reduction in population numbers, a scenario characterised by the dominance of security issues and, ultimately, genocide.

As with all futures, there are elements of each of these which are evident in the present. For example, one dimension of exterminism could be seen as the apparent indifference towards the poorer nations displayed by the richer nations. One could argue that the recent moves towards co-ordinated climate action represents a socialist solution - the pain is distributed amongst those most able to bear it. Equally, it could be argued that the world of Rentism is evident in the technology sector today, where the winner takes all, protected by barriers of intellectual property law. The world of communism is less evident today, but one could argue that the NHS exhibits elements of that world.

If each of the scenarios are present today, it is not unreasonable to take the view that elements of each scenario will be present in the future. In many respects, this is how we ought to approach 2x2 matrices. They highlight potential dominant themes rather than produce a specific blueprint for the future.

This is all to the good, but there were points at which I felt a little short changed. This was over both the critical uncertainties and the dominant issues. With a focus on two critical uncertainties - social relations and material abundance - I felt that the book missed more than it caught. For example, I would have liked to see more prominence for the mechanism of distribution (market based or centrally planned?) to complement the issues of social relations (ownership and control). I feel that the author missed something important here.

One major omission in the book was a time frame in which all of this was to happen. A sharper focus on this would, I feel, have shed better light on the dominant issues. For example, if the book had a time horizon of a couple of hundred years (it was sub-titled 'Life After Capitalism'), then perhaps climate change might not be a dominant issue because the climate damage would have already been done. Equally, in two hundred years time, ought our current concerns about automation seem quaint?

By not grasping the issue of time, the author opens himself to all sorts of challenges in the realms of dominant issues. I would imagine that most futurists would be able to identify five off the top of their heads (mine would be war, security, space exploration, the funding of public services, and the re-invention of humanity). By omitting a time frame, the author opens himself to the criticism that he ought to have talked about 'those' issues instead.

I quite liked the book. It is short and to the point. It is readily readable. The author has an engaging style of writing which makes the prose just flow along. It is an important work on an important topic that is not a hard read. If only academic texts could follow this lead.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Peak Boomer

One of the features of contemporary society is that it is ageing. What this means in practice is that the percentage of older people as a proportion of the total population is rising. It is cited as the cause of the current pressure on health systems in Europe and North America. Adult social care is absorbing more and more resources in what appears to be a bottomless pit of open ended commitment. The unfunded pension promises made to the elderly population threaten to beggar public finances over the course of the next decade. This cannot continue indefinitely. At our spring retreat we decided to look at this issue a bit more closely.

Most of those people who are now entering the ranks of the elderly are those who were born in the 'Baby Boom' after 1945. They are a large and significant generational cohort and have been the subject of much analysis over the years. From a demographic perspective, they are reasonably easy to predict as much of their behaviour exhibits a shared experience. It helps being a 'Boomer' myself.

The growth of this cohort amongst the ranks of the elderly (which we have defined as aged 65+ - the old state retirement age) can be easily predicted from the existing demographic data. According to ONS data, the proportion of the population of the UK aged 65+ was 15.9% in 2004, rose to 17.7% in 2014, and will rise to 19.9% in 2024 and 23.3% in 2034. Age UK forecasts this group to be 24.2% in 2040. We have defined the point at which the growth of this cohort slows as being 'Peak Boomer', and, on current projections, we estimate it to be in the period 2035-40.

There are a number of factors that might blow this estimate off course. The most significant one is that the death rate has risen since 2015. This might be a temporary blip, but it could portend something far more significant. Social progress in the UK, as measured by a falling death rate, has advanced at a fairly steady since 1919. Signs of this changing were evident in 2010, when the death rate started to level out, and from 2015 it has risen.

The causes of the rising death rate are many, but the prime suspect is the political austerity imposed by the Coalition Government from 2010. Financial constraints hemmed in spending on the NHS, just at the point when the demands placed upon it started to rise. The reduction in local authority funding from 2010 has actually shrunk adult social care provision across England. The rise in demand for dementia and Alzheimer's care have outpaced the capacity deal with it. It has to be said that there are cross currents here. Cancer survival rates are at record highs. The Boomers, as a cohort, smoke less and exercise more than their parents, leading healthier lifestyles. It could be that the death rate starts to fall again, but this worsens the situation for care rather than eases it.

The estimate of Peak Boomer at 2035-40 has the right feel to it. If it is correct, then that would have a number of important consequences. To start with, the pinch upon public finances is set to last another generation. Pensions are still unfunded, social care is still inadequately financed, and the demand for services is set to rise for a further generation. Good news for care homes but bad news for taxpayers. There is very little incentive to introduce significant changes because the electorate - dominated by Boomers as voters - will punish those politicians who suggest doing so, as the recent fiasco over the 'Dementia Tax' demonstrates.

There are, however, far more subtle, and malign consequences of Peak Boomer. The August 2017 inflation report from the Bank of England highlights the historically low savings ratio (at 1.7%, it has not been this low since 1956). Part of this is explained by households protecting their living standards in the face of a fall in disposable income (inflation is increasing and wages stagnant), but part of this is explained in generational terms as Boomers use their savings to fund their lifestyle in elderhood and the Millennials find it hard to save owing to the squeeze on their living standards. This is a bit of a cartoon approach to stylise the situation, but it has more than a grain of truth.

The consequence of this is that the pool of savings to fund business investment, if not provided domestically, will have to be provided internationally. The corollary to the record trade deficit are record inflows on the capital account. More and more of the UK is owned abroad. Sadly, this money is being used to fund unproductive assets, such as high end property in London, rather than productive business assets to generate future growth.

And that is where we are today. There is little to suggest that the 'Age of Stagnation' will end in a hurry. In the absence of any systemic changes, our current malaise is likely to continue for some years to come.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

The Implosion Of China

The rebels and Taiwanese secure South China
and cross the Yangtze.

Our little study group recently considered the question of the implosion of China as a state. This may sound a bit odd at first, but it does have some foundation and is a potential future that is worth thinking about. China, as a national entity, has been around for thousands of years. During this time, it has waxed and waned, it has grown and it has shrunk. It has been subjugated and it has conquered all before it. China, as we currently understand the political entity to be, has been in existence only since 1949. It would be wrong to assume that the current boundaries are entirely stable, given the perspective of thousands of years.

We have written before about the boundaries of China expanding. It is now time to think about the possibility of the boundaries of China contracting. There is a certain method to this way of thinking. It was a nineteenth century Chinese historian, Wei Yuan, who first identified a series of cycles which Chinese politics appears to follow. Starting arbitrarily in the cycle at a period of 'chaos and humiliation' (the quru), this is followed by a period of 'rejuvenation' (fuxiang), and then followed by a period of 'wealth and power' (fuqiang), before returning to a period of quru again. The narrative is that the nineteenth century represents a period of quru, the Communist revolution and the post-Mao reforms represent a period of fuxiang, leading to the current situation of fuqiang. If any of this is true, then the future of China will be one of continued fuqiang, followed by a period of quru. It is this boundary between fuqiang and quru that interests us.

The question of how to tackle this came into focus when we came across the magazine 'Modern War 19'. It contains a nice article on the subject, but more importantly, a game by Ty Bomba to frame the scenarios. As always, we started by playing the vanilla game to see how things might work out. In the run through, the Rebels took the opportunity to place their capital in Hong Kong and to work outwards from there. I thought this to be a nice touch because of all the places where a revolt might originate, South China has to be at the top of my list. In the run through, the rebel forces enlisted the support of Taiwan and drove most of the government forces back north of the Yangtze River.

It was an interesting game, but really does need some modifications. To start with, the forces of Taiwan are over-estimated. I think that we may clip their wings in future run throughs. I wasn't at all comfortable with a scenario set that just had two sides. I think that future games ought to be set at the level of the Military Region, with the politics set to invite the players to set themselves up as modern day warlords and fragmenting China on a regional basis. They could have a degree of autonomy within their regions and compete over the distribution of resources, a political mechanism that has to be added to the game. We could almost pose the game as one of regionalism against nationalism. We also need to work on a mechanism which induces the various regions to rebel against Beijing. The bond market might be a likely place to spark a sequence of events leading to civil disorder. It is certainly a point at which the prosperous coastal regions might baulk at subsidising the less prosperous inland regions.

The game still has a lot to offer in an area which is not widely considered. It is on our agenda to develop a series of scenarios around the disintegration of China in the coming months.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Living With Climate Change

A recent edition of New Scientist contained a special report on the theme of how to live with climate change and how to beat it. I thought this an interesting development in how we approach climate change. Previously, climate change has been treated as something which is avoidable, if only we can act to prevent it. This series changes the base assumption. It starts from the premise that disruptive climate change will happen, and works towards the consequences of it happening. The special report certainly had my attention.

The special report consisted of seven pieces, with a number of side boxes, that set out the basic case. The first article - 'The New Normal' - establishes a number of speculations about what the climate would be like if the earth were to be appreciably warmer. For example, we can expect spring to begin earlier than it has in the past, or that nights are warming faster than days. These all act in conjunction with natural swings in weather patterns, and it is too early to discern which are due to human activity and which are due to natural variation that would have occurred in any case.

The second piece ('Can We Limit Warming To 2˚C?') and third piece ('Is Runaway Change Likely?') are essentially different sides of the same coin. The second piece outlines what it is that we will need to do in order to limit warming to 2˚C. It seems to be a tall order given that it would require unprecedented levels of international co-operation and an unprecedented commitment of resources. If we do nothing, the article forecasts temperature rises of 3˚C to 5˚C, relative to 1850-1900, by the end of the century. That then begs the question as to whether runaway climate change is likely. The third piece addresses this question, and suggests that it is probably too early to tell. There is much about the climate that we don't know, and this is one of those points at which we are pressing the boundaries of our knowledge.

We are, however, not doing nothing. The fourth piece asks 'Have We Reached Peak Emissions?' This is an interesting question. It does suggest, with an evidential base, that the carbon intensity of our economic activity has started to plateau. The developed economies are polluting less, and the emerging and developing economies are moving to green technologies without an intermediate phase of using fossil fuel technologies.

The fifth ('How To Cope In A Warmer World'), sixth ('Will We Have To Geoengineer?'), and seventh ('Can I Make A Difference?') pieces move on to address the consequences of disruptive climate change. In short, we are urged to cope with a warmer world by a more vigorous process of risk assessment, we don't really have the technology to Geoengineer at present, and we can make a difference, but very few of us choose to do so. We are quite comfortable in our existing way of doing things, and we are resistant to change our ways.

I found the special report disappointing. I was hoping for a deeper analysis than I received and I was hoping for a greater focus on the consequences of disruptive climate change. I do think that it would be an interesting exercise to consider what the consequences of, say, a 5˚C warming might be, and then to consider how we might live within that constraint. I see this as an important piece of work because, armed with these ideas, we could then assess what technologies we will need in the future but presently don't have, and then deploy investments into attaining those technologies.

We are currently stumbling along in the hope that something may turn up to ease the climate pressure, but it may turn out that is a future without us. If we don't like that possibility, then we might like to do something to change it. I'm afraid that this special report doesn't really help us in this task.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Brexit In A Single Picture

This picture, which appeared in The Economist of July 29th 2017 under the title 'Northern Uproar' (p. 24 UK edition), caught my attention because it explains the Brexit vote in England in a single picture. The picture shows that public transport investment spending per capita between 2016 to 2021 in London is roughly the same as that for the rest of England combined. It shows how skewed transport investment is towards London. Other areas feel that they are not receiving their fair share of the cake. This story is repeated across the public sector. It is the same for schools, social services, the NHS, elder care, and housing. It helps to foster the belief that the regions are being left behind. This is where the people left behind live.

It is really toxic. The benefits of globalisation have been enjoyed by London over the past two decades, whilst the regions have been allowed to decline. Some politicians have talked about regional renewal, but not a great deal has been delivered. We are now in a position where a good part of the costs of Brexit will fall disproportionately upon London - especially in the financial services sector - much to the indifference of the rest of England.

We should note that the chart shows future spending plans as well as past expenditures. If it remains as it is, then the divide between London and the rest of England will simply increase. Ordinarily that would not matter too much, but as the regions have recently discovered, there are more voters living in regional England than there are living in London.

Now that muscle has been flexed, can we expect more surprises like Brexit?

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Is America's Decline A Myth?

Until recently I had been of the view that the narrative of American decline was more myth than reality. After all, in terms of hard power, the United States can deploy overwhelming military force anywhere in the world. In terms of economic power, the US is still the largest economy in the world and the threat of being excluded from American capital markets remains quite a powerful threat. Equally, American soft power - the cultural power to make others think your way of thinking - is still a leading source of advantage in the world. From a near term perspective - say, the next 10 years or so - American decline is unlikely to manifest itself.

From a longer term perspective - say, from the middle of the century and beyond - I am starting to have my doubts. My pause for thought has been caused after reading two books by Edward Luce - 'Time To Start Thinking: America And The Spectre Of Decline' and 'The Retreat Of Western Liberalism'. The first book makes a fairly good case for American decline, even if it is a bit off in terms of timescales.

'Time To Start Thinking: America And The Spectre Of Decline' outlines a model of American decline. It starts with the relative impoverishment of the American middle class. In addition to the question of growing inequality and social ossification, it makes the fairly innocuous point that the middle class is also the consuming class, and that falling middle class incomes imply falling rates of middle class consumption. We now know that since the dot com crash in 2001, US levels of consumption had been maintained by growing levels of debt. The liquidity crisis of 2007 exposed just how vulnerable American consumers had been. To stylise Warren Buffet, the tide went out and an awful lot of them were swimming naked.

In itself, this might not be a cause for concern. However, it does have a consequence that could have been reasonably foreseen. Growing inequality, the loss of manufacturing jobs overseas, and slow economic growth have all contributed to a squeeze on the American tax base, which has served to squeeze the American education system. This education squeeze has caused the stagnation of productivity growth in the US. Improving productivity is the key to improving salaries, and is underpinned by improving educational standards. In fact, the reverse has happened. Falling educational standards (at an international level) have led to falling productivity, which has brought about the sluggish growth that has restrained wage rises.

The consequence of this vicious circle is that innovation rates in the US have fallen as well. In this sense, America has started to lag behind more dynamic economies, especially those of East Asia. Reduced innovation rates have been compounded by the development of a governmental bureaucracy that the author claims is stifling American competitiveness. The Asian economies are outcompeting the US, which is why American companies have shifted their production to Asia.

Within American society, the winners are looking to cement their gains - with the result of tax cuts further eroding the tax base upon which the American educational system rests - whilst the losers (the people left behind) becoming far more angry. This is polarising American society and is making America more ungovernable, particularly through the rise of the Tea Party in Congress. Mr Luce finally caps his model by drawing attention to the sheer corruption of Washington, at all levels, which ensures that nothing significant will change. The model is now set in concrete.

'The Retreat Of Western Liberalism' continues the theme outlined in 'Time To Start Thinking', which is not just the decline of America, but expands to include the decline of the whole notion of Western Liberalism. There is definitely a theme developing.

The book is an easy read, consisting of an introduction to frame the issue, and then four arguments on the theme. The first argument - the demise of the 'Washington Consensus' and the rise of the 'Beijing Consensus' - is the one that I warmed to first. It continues the argument of the previous book in holding that the political classes in America and Europe have failed their constituents, allowing for the rise of the easy populism of the Brexit and Trump varieties. In the view of the author, they are both likely to damage the prosperity that underwrites the liberal order, making things worse rather than better.

This is the argument of the continued decline of the Western order. Counter-balanced against this is the rise of the rest of the world - mainly of Asian nations, with the primus inter pares being China. How should the West - principally America - accommodate the rise of China? This is the question addressed by the second argument, and it provides an uncomfortable experience for Westerners. The main conclusion is that a confrontation between America and China is inevitable. Sadly, the direction of policy is heading in that direction.

This theme is developed further in the third argument, which is all about how to avoid springing the 'Thucydides Trap'. "How does the established power react to the rise of a potential challenger?" (p,156). The Athenians went to war, and lost. Mr Luce believes that a similar result will be obtained if America violently confronts China. The answer, according to the author, is the reinvigorate Western Liberal Democracy. To reverse the direction in which it is heading.

Mr Luce presents his ideas on this in the fourth argument. The main contention is for the West to renew it's main strength - Liberalism. The belief is that free markets deliver prosperity, which is what underpins a liberal democratic order. It provides a counter against the protectionism and mercantilism that currently has hold of us. It counters the nationalism and xenophobia from which we currently suffer. In order to achieve this, we need to combat the chumocracy and cronyism in which we live. By developing a more open society, we will enhance our prosperity and renew our democracy. The book ends with a rallying cry that could serve as a call to action.

One question that the reader might have is whether or not action is needed? The main premise is the decline of America and Europe and the rise of China and Asia. What happens if that doesn't occur? It may be the case that China becomes old before it becomes rich. It may be the case that China falls in on itself under the pressure of it's own internal contradictions. It may be that there is a confrontation between China and America, and China loses. There are many working parts that might cause this vision not to happen.

However, the trends exposed by the two books do give us a great deal to think about. Each one has the potential to give rise to an interesting set of scenarios. For example, one on which we are currently working is the possibility of an implosion of China. I may comment further on this in a future post. It certainly does provide some interesting material. My point is that American decline is not inevitable, and that renewal is a distinct possibility.

Of course, that does mean moving away from the fatalism that wants to 'Make America Great Again!'

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Donald Trump's Baltic Challenge

I was recently given the opportunity to play Donald Trump in a wargame that examined some near term futures for the Baltic States. The operational brief was fairly loose, in that I could determine my own objectives, so I thought that I would have a look at how 'Offshore Balancing' might unfold as a policy option for the US.

I set myself three objectives as Donald Trump - one long term and two short term. The long term objective was to ensure that Europe took a greater responsibility for it's own defence. The first short term objective was to get Finland and Sweden to become more engaged in the European common security architecture; and the second short term objective was to encourage the European nations to pay their way within the common NATO framework. Perhaps we might unpack those objectives?

The policy of Offshore Balancing is one in which the United States draws back from it's international obligations, and leaves it's regional partners with primary responsibility for their own defence. In the shape of a transactional President - such as President Trump - this means holding greater amounts of fiscal resources within the continental United States. It is a marked change of policy for America, and creates a degree of uncertainty on the part of the allied nations as to whether or not the United States would adhere to it's security guarantees.

Sweden and Finland are not NATO members, but are part of the European Union common security framework. I thought that it would be interesting to try to drive Sweden and Finland away from their implicit neutrality and closer to the NATO framework through the European Union structures. How would Sweden and Finland respond to a less engaged United States?

I have been reading about the problem of burden sharing in NATO for over thirty years. No effective solution to the problem has been found in that time. There is a target of NATO members to spend 2% of GDP on defence, but very few do. Instead, they rely upon the American taxpayers to fund a common defence structure. This is a classic case of what economists call the 'free rider'. By defending it's interests in Europe, the United States also defends the interests of the European NATO nations at the same time. A more transactional President might seek to change that situation, and that was what was wrapped up in my objectives.

In the game, I sought to achieve my objectives using two strategies. The first was to relax financial sanctions upon Russia. To encourage Russia to be a bit more aggressive towards the Baltic. This happened as we moved up towards the nuclear threshold. I don't quite think that the European NATO allies quite understood that the US under President Trump wouldn't underwrite their aggression with an American nuclear umbrella. I don't think that it had sunk in fully that Europe would be on it's own unless they accepted the demands of President Trump, and that wasn't a particularly good place to be.

My second strategy was aimed at Germany. In particular, the German twin surpluses - the trade surplus (currently 8.0% of GDP) and the fiscal surplus (currently 0.5% of GDP). I was using a post-Keynesian sector balance argument to the effect that Germany needed to operate a fiscal deficit in order to redress the trade surplus, particularly the trade surplus with America. Putting this into English, I was arguing that the German government should debt finance a programme of rearmament, which ought to purchase military equipment from American suppliers. This argument wasn't especially successful, but it was a long fuse that had started to burn slowly.

In the end, in the game, we retreated from the nuclear threshold. That, quite clearly, is in nobody's interest. I think that I did manage to plant some seeds of doubt in the minds of the European NATO allies about how responsive the United States would be to a more aggressive Russia. I think that I did encourage Russia to be more aggressive towards the Baltic States. This did result in a certain movement of Sweden and Finland towards the European security framework. However, my one takeaway from the game is how long it takes to bring a policy anywhere near fruition. In my view, Offshore Balancing is a long game, requiring a great deal of patience, persistence, and skill. I doubt whether the current incumbent of the Oval Office has these.

I now have a template against which I can measure events as they unfold. Will truth be stranger than fiction?

Stephen Aguilar-Millan

© The European Futures Observatory 2017

UBI Caritas?

Once again, the idea of a Universal Basic Income has entered onto my agenda. I have to say at the outset, that the greater exposure to the idea I have, the less I like it. I have been spurred to action by the publication of a policy brief by the OECD on the costs and benefits of adopting a Basic Income as a policy option. As always, it is instructive to consider the assumptions made in generating the scenarios. However, we are getting a bit ahead of ourselves.

A Universal Basic Income is a payment made by the government to every eligible adult living within it's jurisdiction. Those supporting this policy point to the advantages that it could generate in unleashing the innate creativity of a population, freed from the chore of earning a living. People would be free to pursue their leisure interests and to develop creative new businesses free of financial pressures. It is advocated as a measure of social justice.

As a general principle, the idea has some innate attractions. The point about social justice is well made, but is UBI the best way to achieve those objectives? On a more practical turn, how do we decide who is included and who is not? What about UK citizens living abroad? What about overseas citizens living in the UK? What about children? What about pensioners? Each proposal for UBI answers those questions in a different way, which makes comparisons of the different proposals difficult to make.

The OECD policy brief excludes pensioners but includes children, albeit at a lower rate. In this study, working age benefits and tax thresholds would be replaced by a UBI. No new money would be applied to the scheme, so it would be a simple redistribution of existing benefits, including savings on administration costs. In this case a UBI of £230 per month would be paid to all adults and £189 per month to all children in the UK. The problem is that the OECD calculates that the UK poverty line to be at £702 per month. As a means of social justice, it would leave many of the people currently dependent upon benefits below the poverty line and without any further recourse to state assistance.

This highlights a fundamental flaw in the idea of UBI. The proposal would take state assistance, which is currently targeted at those most in need of assistance, and give it to everyone. Without any new money to add to the initiative, it would increase poverty rather than reduce it. We would all still need to work, even those who are incapable of work - the sick, the infirm, those approaching retirement. This doesn't sound like an act of social justice.

The proposals that do address the issue of social justice, such as the proposal of the RSA for a Basic Income, do recognise the need for more money to be injected into the proposal. How much more is often very vaguely couched. The RSA proposal places the hit on Income Tax for those earning over £75,000 a year. Other proposals have placed a burden upon Corporation Tax. I have reservations about much of this being collectable.

People and finance are fairly mobile nowadays. When Francois Hollande was elected on a policy of soaking the rich, the rich upped sticks to go and live abroad. It is notoriously difficult for American governments to get US corporations to repatriate their profits and make them subject to US Federal taxes. In the absence of capital controls and restrictions on emigration, a policy of soaking the rich would be very hard to enact.

This, again, is a fatal flaw in the idea of UBI. A UBI is, in terms of economics, a transfer payment. It represents the transfer of value from one person to another without any corresponding transfer of value. Getting something for nothing, one might say. For this to work, there has to be a transferor as well as a transferee. The question arises of why the transferor would want to give value to the transferee. We do in our daily lives when, for example, we give our children their pocket money. However, extending this into adulthood does seem to stretch the point.

There have been other societies dominated by transfer payments. One thinks of the Rome of Nero and Caligula, the France of the Bourbon monarchy, the Russia of the Romanovs. None of these ended happily. Perhaps that is where we are headed? Our sense of entitlement is now so great that we believe that everyone else owes us a living? What happens if we find out that this isn't the case?

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Four Futures: Life After Capitalism

Four Futures: Life After Capitalism

by Peter Frase (Verso Books 2016)

ISBN: 978-1781688137

I am often astonished at the power of a really simple futuring technique - such as 2x2 matrices - to generate such interesting results. This book represents one such exercise. There are many of the conclusions that I don't agree with, there are some parts where I feel that the model is ill-defined, but the overall product is one that ought to commend our attention.

The basic premise of the book is that the liberal order established by the Washington Consensus has moved beyond it's shelf life. It's very difficult to argue against that belief. However, that in itself is uninteresting because it fails to consider what comes next. A futurist would keep one eye on what is likely to replace the Washington Consensus. This is what the author attempts to do.

The analysis has two critical uncertainties - the axes of the 2x2 matrix - a world of hierarchy as opposed to a world of equality and a world of abundance as opposed to a world of scarcity. This gives rise to four possible worlds - equality with abundance, hierarchy with abundance, equality with scarcity, and hierarchy with scarcity. Underpinning each of these worlds are the twin issues of automation and climate change. These rather colour the approach to each of the futures.

Each future is characterised by the dominant features that the author believes will be apparent. Equality and abundance is characterised by communism. Not the Soviet communism to which we have become accustomed. More the communism described by Marx, where the state withers away and we can all live our lives in relative harmony. Many have described this rather utopian vision, but the author sees it as possible if the singularitarians and transhumanists are any where near correct.

Hierarchy and abundance is a different matter, however. In this case, automation leads to material abundance, but the protection of intellectual property rights leads to the benefits of automation accruing to only a few. The 1%, if you like. This scenario is dubbed as one of Rentism, as a fortunate minority benefits from the rents accruing to technology. These are 'Rents' in the Ricardian sense. In modern times, we would call this 'passive income' - money for doing nothing.

The world of equality and scarcity is characterised as one of socialism. In this case, the scarcity of climate change has outweighed any benefits accruing from automation. However, the scenario has a sense that society sees itself as being in it all together, and the climate induced hardships are shared out on a widespread basis. There is a lot to commend this view of the future.

The final scenario - hierarchy and scarcity - is perhaps the darkest. The author labels this a world of exterminism. In this world there isn't enough to go round, and those at the top of the hierarchy secure the lion's share for themselves. It leads to a widespread reduction in population numbers, a scenario characterised by the dominance of security issues and, ultimately, genocide.

As with all futures, there are elements of each of these which are evident in the present. For example, one dimension of exterminism could be seen as the apparent indifference towards the poorer nations displayed by the richer nations. One could argue that the recent moves towards co-ordinated climate action represents a socialist solution - the pain is distributed amongst those most able to bear it. Equally, it could be argued that the world of Rentism is evident in the technology sector today, where the winner takes all, protected by barriers of intellectual property law. The world of communism is less evident today, but one could argue that the NHS exhibits elements of that world.

If each of the scenarios are present today, it is not unreasonable to take the view that elements of each scenario will be present in the future. In many respects, this is how we ought to approach 2x2 matrices. They highlight potential dominant themes rather than produce a specific blueprint for the future.

This is all to the good, but there were points at which I felt a little short changed. This was over both the critical uncertainties and the dominant issues. With a focus on two critical uncertainties - social relations and material abundance - I felt that the book missed more than it caught. For example, I would have liked to see more prominence for the mechanism of distribution (market based or centrally planned?) to complement the issues of social relations (ownership and control). I feel that the author missed something important here.

One major omission in the book was a time frame in which all of this was to happen. A sharper focus on this would, I feel, have shed better light on the dominant issues. For example, if the book had a time horizon of a couple of hundred years (it was sub-titled 'Life After Capitalism'), then perhaps climate change might not be a dominant issue because the climate damage would have already been done. Equally, in two hundred years time, ought our current concerns about automation seem quaint?

By not grasping the issue of time, the author opens himself to all sorts of challenges in the realms of dominant issues. I would imagine that most futurists would be able to identify five off the top of their heads (mine would be war, security, space exploration, the funding of public services, and the re-invention of humanity). By omitting a time frame, the author leaves himself open to the criticism that he ought to have talked about 'those' issues instead.

I quite liked the book. It is short and to the point. It is readily readable. The author has an engaging style of writing which makes the prose just flow along. It is an important work on an important topic that is not a hard read. If only academic texts could follow this lead!

Stephen Aguilar-Millan

© The European Futures Observatory 2017

It's Trump Time

It is proving to be something of a bumper year for subscribers to Foreign Affairs. In January, we had a special edition on the future of the international order. In March we had a special edition on what 'Trump Time' might look like. In July, we are to have a special edition on what Trump might do in practice. In many respects, this is a reflection of the degree to which President Trump has surprised the Washington elite. In a state of shock, it is, in effect, an exercise in catch up.

The March edition contains a series of articles looking at the meaning of the Trump victory and how it may impact a number of areas of concern. The first article - The Jacksonian Revolt by Walter Russell Mead - places the Trump victory in historical context. He argues that Trump could be viewed as an American populist of the Jacksonian variety. I wonder if it is considered bad form to point out that President Jackson inhabited a very different world to President Trump? President Jackson didn't sit astride the most dominant nation on earth. There was room for American Exceptionalism then, there is less so now. Current conditions require a greater degree of responsibility from the US, which has, to date, been lacking.

This is followed by an article on 'Trump and the Economy' by John Paulson. The aim is to jump start economic growth. The method is by reducing the US corporate tax rate, adopting a territorial tax system, reducing red tape, boosting energy production, and attaining better trade policies. Mr Paulson claims that this will double the growth of US GDP. I doubt it very much. The US is suffering from a deficiency in aggregate demand, and there is very little in this plan to boost that. The argument rests on a belief that, by increasing corporate profitability, corporate investment will take off. This is unlikely unless there is a way to put more money into the pockets of those with a high propensity to spend (economist-speak for poor people). I was unconvinced by this short article and still retain the view that Trump will do more harm than good to the American economy.

There then followed a pair of articles on 'Trump and Russia' (by Messrs Rumer, Sokolsky, and Weiss) followed by one on 'Trump and China' (by Susan Shirk). I see these as the two key relationships of Trump's presidency. We started the presidency with Trump accommodating Russia and confronting China. I still see this as a default position, but I do believe that the story has become more nuanced as time has worn on. Obviously, the role of Russia in the presidential election, if any, will have an impact on how things play out. Both articles set out a programme for better relations between the US, Russia, and China. I remain to be convinced of this.

There then followed three articles (Trump and Terrorism, Trump and the Holy Land, and Trump and North Korea) which we may safely discount. The set of articles finishes with 'Trump and the World Order' by Stewart Patrick. This really does have my attention. It starts to flesh out the process by which a policy of offshore balancing could be achieved. It hints at which nations could be left to look after themselves and speculates upon how a power vacuum might be filled. The irony that America is walking away from a world order that was created in it's own image seems to be lost on the author. If it does happen, then the world will become a more dangerous place.

Not part of the collection on Trump, but well worth mentioning, are two more articles. There is 'How America Lost Faith in Expertise' by Tom Nichols, which charts the disconnect between many ordinary Americans and the governing elites. Also, there is 'The Dignity Deficit' by Arthur Brooks, which considers how the governing elites could reconnect with ordinary Americans. In the context of the rise of a Trump styled Jacksonian populism, I wouldn't hold too much hope for this re-acquaintance.

Looking at the body as a whole, it does provide a great deal to think about. I have to admit that I see Trump's economic plans as having very little chance of success. If he pursues them aggressively, then he risks confronting both Russia and China at the same time. This has the potential not to end well for us all. Of course, there is the possibility that President Trump is an undiscovered genius and that he will herald a renaissance in American fortunes. Time will tell.

A far more interesting exercise would be to consider what would happen if Trump fails. Could the US head towards a more extreme populism? Could it become a failed state? Or could the nation pull together to present a more unified front to the world? For my part, I can fully understand the panic now being experienced by the Washington elite because, if Trump fails, I see things becoming more extreme rather than less. All I can say is that the American elite has brought it upon themselves.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

A Note On Automation

The integration of the future tax system.

"We all started somewhere else." Whenever someone asks how we became futurists, this is normally how the explanation starts. There is almost a sequence of events. We start out fairly junior in our chosen profession. Through a combination of exam success, hard work, and, often, just luck, we become more senior at what we chose to do. As we become more senior, the numbers become larger and the time horizon of our projects becomes more distant into the future. Eventually, the techniques we learned when training don't quite adequately serve us in our roles and we find ourselves using futures techniques. Before you know it, you have become a futurist.

In my case, I entered the world of banking in 1976, starting out with Midland Bank, now part of HSBC. I wasn't temperamentally suited to branch banking so we parted company after a few years. By that time, the die had been cast. I stumbled along my way through economics, the law, and back to finance again. During this time, I had accumulated a number of professions, one of which was as an accountant.

If you are to be an accountant, you need to stay on top of developments in the world of accounts preparation and taxation. This is achieved through a compulsory programme of CPD (Continuing Professional Development). I found myself at a CPD study day last week, which was looking at 'Making Tax Digital', the latest idea from HMRC to bring the world of tax into the modern age.

Some of the presentations were a bit slow, but that allowed my mind to wander, and I found it wandering over how the technology of the finance function had changed over the course of my working life. When I first started in 1976, accounts ledgers were being transferred from paper to digital format. Small accounts were run on a mainframe computer the size of a large bedroom. By the time we reached the 1980s, we were working on PCs where the size of the storage media was 20Mb (I think that I might still have some of those floppy disks).

The next big evolution was in the software we used - dedicated accounting packages and spreadsheets. I can remember this first spreadsheet we bought in 1984 - Lotus 123. We were working on a trajectory where the computing power was becoming smaller, faster, and cheaper. With the advent of laptops first, and later the internet, by the 1990s we were mobile as well. By that time, I had struck out on my own, but we were still operating with a staff.

The next wave of change was institutional. The Inland Revenue (HMRC as it is now) first introduced self assessment. In those days we had to complete the tax returns on paper and deliver them to HMRC for input onto the mainframe of the tax authority. Eventually the penny dropped. We were drafting the tax returns on computer programs, printing them, and HMRC were then re-typing them into the mainframe. On-line filing followed next.

In a progression that has a clear path, the next step is Making Tax Digital. This is where all of the computers in the system (client computers, our computers, and HMRC computers) are all linked up using the cloud, over the web. There are many fearful about this next step, but they are mainly expressing a fear of change more than anything else. The automation and mechanisation that has occurred to date has allowed me to dispense with a staff, and I see the concern of others that we might be the next to be dispensed with.

I don't share that fear because I ask my clients one simple question: Do you want to give HMRC a blank cheque over the tax you are liable to pay? If they say not, then there is a demand for me, or someone like me. Someone who can make the numbers sing in a way that is pleasing to them whilst satisfying the requirements of HMRC. Our work has a functional aspect, but it also has a creative side as well. My clients are hiring this creativity.

Frey and Osborne reckon that we have a high probability of technological redundancy through automation (98%), although I can't find a time horizon for this. That might be true. Ours is a profession where some resist computerisation. Some prefer to retire rather than embrace change. Some may be just unlucky. Myself, I have no fear because there will always be a demand for someone who can make numbers sing.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Putin Rolls The Dice ...

'Blue on Blue' as the Coalition player forgets that Poland is now

a member of NATO and orders the air suppression of the Polish

army outside of Riga, which is occupied by the Russians.

We are currently working through a series of geopolitical futures centred around a more expansionist and aggressive Russia. The time frame is the near future - possibly the next ten years or so - and the focus is on what might encourage or discourage President Putin to gamble on a swift seizure of a number of former Soviet Socialist Republics. This is the sort of exercise that is well suited to gaming.

It would be entirely possible to design a bespoke game to explore the issues here, but I naturally gravitate towards a number of commercial games that could be modified to fit the purpose of the exercise. One such game is 'Putin's War' by Ty Bomba. The political premise of the game is that President Putin decides to roll the dice and to move from hybrid war to a full scale military operation to recover the 'lost' former Soviet Socialist Republics in eastern Europe. This fits the bill, so we decided to give the game a try out.

The initial try out was designed just to examine the game mechanism. From a purely military perspective, the game seemed to work reasonably well. The Russian forces made great progress over the 30 day window for the scenario, but didn't have sufficient impetus to achieve their military objectives. That's the sort of result that we felt intuitively would be a fair result. In our try out, the Russian forces became bogged down in Kiev and didn't have enough impetus to over-run Vilnius in Lithuania. The 30 day window is significant because it is estimated that would be the length of time needed for US reinforcements to arrive in appreciable strength to have an impact upon any military confrontation, should Article 5 of the North Atlantic Treaty be invoked and America honour it's treaty obligations. Of course, this has the effect of moving the review from the military arena to that of the political.

The game lends itself to being deconstructed from the political perspective. It contains a number of political assumptions that can be changed. For example, the game assumes that the Baltic States, Belarus, and Moldova are equal and willing participants of the anti-Russian coalition. I would characterise things as slightly different. The Baltic States are NATO members, with the right of protection under Article 5. Belarus is more closely aligned to Russia than NATO, although it admittedly has a foot in both camps. Moldova has close links to the US, but also has a breakaway region of Transdniester, which has close links to Russia and represents a frozen conflict zone. The point here is that there are quite a lot of working parts within the framework to render a number of scenarios useful.

The political dimension of the commercial game is inadequate for our use. However, it does lend itself to having a matrix game grafted onto it to account for the political dimensions. For example, what if the starting point is a joint Russian/ Belarussian military exercise on the borders of the Baltic States? This is one scenario that does have credence with NATO planners. Alternatively, what if the Baltic States invoke Article 5, but, say, Germany refuses to honour the commitment? This is one scenario that the governments of the Baltic States have in the back of their minds. Yet again, what if Russian aggression is limited to a full scale invasion of Ukraine, which, not being a member of NATO, is unable to invoke Article 5? Would NATO be prepared for a full scale military conflict with Russia for the sake of Ukraine? It is quite possible for the game to be replayed, each time varying the political assumptions that are brought to the game.

There is no allowance in the commercial game  for a nuclear exchange. An interesting question arises over whether or not to introduce it. Having played the commercial version, I do feel that there could be grounds for including a nuclear option, especially when the Russian forces reach the high water mark of their advance. The temptation for a tactical nuclear strike to keep the Russian advance rolling forward was quite strong. It would be interesting to model that option into the game. It could provide an additional political dimension to an accompanying matrix game played alongside the commercial game.

I would question the extent to which the Russian forces can be seen as monolithic. It would be interesting to introduce a set of rivalries and jealousies between the various Russian army groups, and have those feed back into the game through the availability of replacements of personnel and resources. The game is designed for a four week period, but the Russian military keeps a three week inventory. With supply lines extended across Ukraine to Moldova, across the Baltic States to the Polish border, I do think that questions of Russian resupply are likely to arise in the final three or four turns of the game. Rivalries within the Russian side are likely to manifest themselves over the availability of supply, and it would be interesting to model these into the political game.

One final point of interest concerns what is happening elsewhere while the game is going on. An actual or potential conflict between Russia and NATO is a newsworthy item. What is China doing? What is happening at the UN? How does this impact on the Middle East? East Asia? Africa? The commercial game looks at the conflict abstracted away from the rest of the world. When producing scenarios, this is something that cannot be overlooked easily. For example, would the reaction of the bond market cause the NATO nations to seek a negotiated settlement at the earliest opportunity? There are a large number of moving parts, each important in their own right, and each systemically important. A political game would need to accommodate these.

In our run through of the commercial game, Russia secured control of Moldova, Estonia, and Latvia. Most of Ukraine was occupied, with the exception of Kiev. From this perspective, Putin rolled the dice and lost. However, the game did allow us to question the political assumptions of the game and some useful scenario building can come from this. For example, the willingness of other NATO nations to honour the commitment under Article 5 did come into question. This underlines the importance of the NATO enhanced forward presence programme. Not only does it reassure the frontline nations of the commitment of the more distant nations, it also sends a message to potential aggressors of that commitment.

Of course, there can be a game within a game here. One in which the leader of a NATO nation, who may or may not be beholden to Russian interests, who suggests that the commitment to Article 5 is purely transactional, and who undermines the basis on which the North Atlantic Treaty is founded. That, as they say, is anther story.

Stephen Aguilar-Millan

© The European Futures Observatory 2017