The Chickens Come Home To Roost

One of the features of modern commercial life is the way in which the boundaries between the private sector and the public sector have become blurred. The thinking behind this approach is that, whilst the public sector may commission work to be undertaken on its behalf, it by no means follows that the work needs to be delivered by the public sector. It is often asserted that the private sector is in a better position to deliver public services more efficiently.

It is worth unpicking this host of assumptions to look at the constituent parts. To begin with, is the private sector more efficient than the public sector? Efficiency and productivity are elusive concepts in the context of the public sector. By definition, productivity is the relationship between inputs and outputs. However, many of the outputs in the public sector are quite elusive.

For example, take the military, how do we measure the output of a battalion of soldiers in peacetime? Or to take the NHS, how do we measure whether or not it has delivered a healthy population? It is normally the case that, where outputs cannot be defined other than conceptually, we either resort to surrogate measurements (for example, grades attained as a surrogate for an educated population) or we revert to measuring inputs as a surrogate for outputs (for example, the numbers of nurses employed as a surrogate for a healthy society). 

Efficiency is the obverse of productivity. As productivity rises, ipso facto, so will efficiency. However, this is a major flaw in our way of thinking. If we can only measure public sector productivity in input terms, then we are tempted by the view that a more efficient public service is one that costs less. This is the conceptual under-pinning of austerity - ever more productivity savings to ensure less money is spent on public services - which is now starting to get us into a mess.

In a short statement, wrapped in econo-speak, and largely unnoticed in the November 2017 budget statement, the Chancellor announced that the OBR had revised the trend growth path of the economy downwards by 0.5%. This went unchallenged by the Opposition. What does it mean? In plain English, it means that our ability to grow the economy, to increase our prosperity, is lower now than it was in 2007. We needn't look too far to see why that might be the case. Funding restrictions in the NHS are leading to a less healthy workforce. Funding restrictions to transport budgets increase the time it takes to get to work and to undertake our work, if it includes travel. Funding restrictions are delivering a less well educated workforce. It is hard to avoid the conclusion that our reduced productivity has something to do with austerity.

The outsourcing of public services to the private sector has not escaped this trend. We now have a situation where the economy is more stagnant than it has been for a decade, public services have been awarded to the least cost supplier, and the suppliers of public services are now starting to run out of money. The collapse of Carillion, rather than being an isolated event, might be better seen as a portent of things to come. To date, many private sector providers of public services, mainly in the care sector, have been forced to cease supplying the public sector owing to budgetary pressures. We get a different picture if we consider Carillion as the largest to happen to date. The recent profits warning issued by Capita doesn't inspire us with a great deal of confidence.

Just under half of central government services are now outsourced to the private sector. The possibility of a good portion of that going out of business in the next few years is a scenario that we cannot afford not to consider. What will happen if the structure of outsourced services collapses? What will happen if the PFI funded infrastructure bankrupts the companies financing it? How will we cope if the state retreats away from it's core areas?

Stephen Aguilar-Millan

© The European Futures Observatory 2018 

The Future And The Multiverse

One of the more outlandish theories of modern science is that of the multiverse. This is the idea that we only inhabit one of an infinite number of universes, and that, somewhere, right now, there is an alternative version of us that hasn't made all of the mistakes that we have made in our lives. As I said, this is an outlandish idea, one more appropriate, possibly, of the realms of science fiction rather than science fact. And yet, over my lifetime I have seen a good deal of science fiction become science fact, so perhaps we ought not to dismiss the idea just yet.

The concept of the multiverse derives from the possibility of alternative futures. In the physical realm, it derives from events that didn't happen. For example, what would the world be like if the asteroid that collided with earth to render the dinosaurs extinct, actually missed the planet? However, intriguing as these might be, my attention is drawn more to the human realm, thinking abut what might have been, but didn't happen. The road not taken, if you like. There is now a well established realm of fiction - alternative histories - that deals with such cases. For example, 'The Man In The High Castle' deals with a world in which the Axis won the Second World War, or 'Bring The Jubilee' in which the Confederates won the American Civil War. My interest arises from the possibility of alternative pasts being the corollary to alternative futures.

We are accustomed to the idea of alternative futures, that the choices we make today determine the options we have in the future. But what if we could explore the choices we didn't select? Explore them in the sense of living them rather than as an academic exercise? In order to do this, we would need to tap into the multiverse. Obviously, at present, we are unable to do this. But if it is possible in theory, then it is a matter of time before it is possible to actually do so.

There are some scientists who claim to have evidence of the presence of the multiverse - the cold spots at the edge of the observed universe. The veracity of this evidence is beyond my knowledge, but assuming it to be true, the question becomes one of how to access the multiverse. It would appear that the best hope currently is through the quantum. Apparently, the quantum permits a state of being and non-being, and all stages in between, simultaneously. These ideas are currently being used to develop a quantum computer, but the idea has resonance elsewhere. If we can be and not be at the same time, the geographical space in which this happens must, by definition, be the multiverse.

This type of thinking is quite useful in developing scenarios. It is not revolutionary to think in terms of alternative futures. One way to express those alternative futures is through the construction of timelines that map events as they radiate out from the present. The timelines are a useful device to manage the future because they provide a roadmap of where we are heading, and, if we are not happy with the course of events, we can take remedial action to switch onto a timeline more to our liking.

I do feel that the development of timelines is a useful research agenda. We have started to develop some around the issue of Brexit, which we may unveil in later posts. What is most exciting, for me, is that, if we get it right, then we have taken a step towards Hari Seldon's 'psychohistory'. It is paradoxical that these ideas themselves originate in science fiction.

Stephen Aguilar-Millan

© The European Futures Observatory 2018 

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