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

Shifting Sands

The January edition of Foreign Affairs contained a series of articles on the future of the international system. The series consisted of six articles. Richard Haas considered whether globalisation is irreversible, and if it isn't, whether we would need what he called a 'World Order 2.0'? Joseph Nye asks whether the liberal order - what is known as the Washington Consensus of liberal democracy and free market economics - can survive? Robin Niblett considers what might replace the liberal order if it is in retreat. Michael Mazarr what might come after hegemony if the American unipolar moment has passed? Evan Feigenbaum examines how the US should respond to accommodate a rising and expansive China. Finally, Kori Schake considers the implications of America embracing a doctrine of offshore balancing - a form of isolationism last seen in the 1930s. All of the authors are well respected experts in their areas. They certainly represent a body of authority that commands our attention.

The reader might be forgiven for asking what are they saying? Why are they saying it? And why are they saying it just now? The answers to these three questions provide an interesting set of answers. One that highlights the contours of an emergent future.

A common premise to the series of articles is that the election of President Trump has changed something. Exactly what has been changed remains to be seen. However, the last Presidential election is seen to have represented one of those pivotal moments when a distinct change can be identified. The Trump administration appears to have heralded a change in US policy. It seems to be based more on a transactional basis than on a value based policy. In this regard, if the early showings are continued into the future to form a new trend, then there has been a significant change.

If the rhetoric is converted into action, then we can expect a greater focus on trading relationships in US foreign policy, less emphasis on the promotion of liberal democracy, and a much reduced willingness for America to act as the world police force.

Let us suppose that this happens. The implication is that a vacuum is likely to form in the international system and some feature will expand to fill that vacuum. We might expect the autocracies of the world to feel emboldened. Russia might attempt to bully Eastern Europe a bit more, China might feel empowered to be expansionary in the South China Sea, North Korea or Iran might be tempted to actually complete their nuclear weapons programmes.

On the other side of the table, American allies around the world are likely to be wondering exactly what their American security guarantees are actually worth. This might not have a wholly beneficial effect for the United States. If the American allies conclude that their security guarantees are not worth a great deal, there would be an incentive to distance themselves from Washington in favour of a closer relationship with the local hegemon. To a certain extent, we can already see this happening in Asia.

President Trump walked away from the Trans-Pacific Partnership. He did so because he felt it to be a bad trade deal. What was not explained to him clearly enough is that there is more to it than trade. The TPP would have allowed the US to determine the trading architecture of the Pacific Rim for the best part of this century. By pulling out of TPP, President Trump has left the American allies in the Pacific wondering about the reliability of Washington. The US withdrawal created a policy vacuum which China is now seeking to fill with it's 'One Belt, One Road' policy. President Trump has handed to China the strategic initiative in East Asia in less that half a year.

In that sense, something profound has changed, and the future of the international system does need to be considered.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Strange Bedfellows

I like to run two parallel book lists at the same time. They reflect the way that I read and the amount of time that I can commit to reading. I like to have one list which I read over lunch and into the early afternoon. These are my hardcore work related books. They tend to be fairly heavy and occasionally pretty turgid. To lighten the load, I also like to have a series of books which I read in the evening and at bedtime. These tend to be lighter books, which are well written, and help me to wind down before going to sleep. On occasions, a pair of strange bedfellows enters my reading list by accident. Now is such a time.

I am currently reading 'What Next' by Daniel Hannan as my work related book, and 'Atlas Shrugged' by Ayn Rand as my bedtime book. It has come as a surprise to me how the one book fits into the other. What attracted me to Mr Hannan's book is that it outlines a positive vision of Britain after Brexit. It was often said that the Leave side in the Referendum didn't have a plan for Britain after Brexit. The purpose of this book is to address that criticism.

In reading Mr Hannan's book, I was struck by how much of the criticism of the European Union - more specifically the European Commission - parallels the corporatist and statist word described in Atlas Shrugged. Ayn Rand describes a world in which individual endeavour is stifled by collective rules, where intellectual honesty is captured by vested interests who only peddle what we now call 'fake news', and where humanity is gradually drifting backwards rather than moving forwards. These are exactly the reasons why Mr Hannan argued for Brexit.

It is possible to wax lyrical about life following art, but I do find this an interesting co-incidence. It is almost as if I am currently reading a theoretical treatise alongside a practical application of the theory. I guess that it's one way to use my time.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

A Beginners Guide To Brexit

We recently held a retreat to think about issues that are likely to impact upon the future of the UK out to 2050. Naturally enough, Brexit appeared as one of those issues that would be very significant. We decided to give our thoughts some shape in order to help frame our conversations around these issues. In doing so, we felt that the best tool to help us here would be the Three Horizons Model, simply because it allows us to think in terms of a "before" (Horizon 1 - H1), an "after" (Horizon 3 - H3), and a "transition" period (Horizon 2 - H2). We decided that the output would be a timeline onto which our thinking could be placed. We could then use that timeline as a backdrop to some more specific scenario work following on from this review.

In stylising the three horizons, we thought that H1 would be dominated by determining what it is that the UK doesn't want from Europe. This process has been under way for some years and was given a sharper edge in the process leading up to the referendum vote in 2016. It would seem that there is a desire to assert the sovereignty of Parliament and to derogate from the four freedoms that are an essential part of the European Union. In particular, there is a desire to derogate from the free movement of labour in order to begin to control the flow of immigration into the UK. In our view, the bulk of H1 would take place in the years up to 2017. It forms the essence of the British position in the negotiations to withdraw from the EU.

The negotiations to leave the EU are the trigger for H2. We have stylised this as the "WTF Phase". It contains the complex interactions between the EU nations and the UK; the EU nations with each other; and between the EU nations, the UK, and third party nations. We have already seen some of the issues that could arise in this phase. Could Spain use this as an opportunity to resolve the question of Gibraltar? Could Greece use this as an opportunity to insist upon the return of the Elgin Marbles? Could the European Commission use this as an opportunity to create a united Ireland? There are some really difficult questions to be settled during this phase.

We took the view that the period of two years 2017-19 is not long enough to resolve these questions. Even if all sides were willing to negotiate in good faith, the matter is too complex to yield a stable solution. In our view, H2 is likely to split into three phases: (a) the negotiation phase - where the Lisbon Treaty is adhered to but not much progress is made, (b) an hostility phase - where each side tries to act to gain an advantage over the others, and (c) a resolution phase - where each side actually finds common ground to reach an accommodation with each other. In our thinking, the negotiation phase would dominate the period 2017-19, the hostility phase could occupy the period from 2019 to the mid-2020s, and the resolution phase would take the second half of the next decade to work through.

The outcome of the resolution phase of H2 is likely to determine the shape of H3. We alternately called this the phase where the dust settles and the phase of the new world. We see this as a period beyond 2030. The exact shape of the contours of this period are a bit hard to discern at this moment because we need an appreciation of how other key actors have developed in this period. For example, will the Euro have collapsed? Will the Schengen area continue? Will other members of the EU decide to leave as well?

Despite these uncertainties, of some things we can be certain. Britain will find it almost impossible to live without Europe, which suggests that some form of accommodation - with the attendant price - will be reached. Equally, Britain is such a sufficiently large European nation that the EU nations are likely to thrive better if the UK is engaged rather than isolated. This relationship, taken away from the institutional framework of the EU, is rather important to both sides. The sooner this is appreciated by both sides, the sooner we can move away from H2 to H3.

If this broad sketch of the Brexit trajectory is anywhere near correct, then it is likely to have considerable impacts upon the UK economy, especially during the hostility phase of H2. To a certain degree, to be forewarned of its likelihood allows us to hedge against its possibility. We are going to pass through some highly uncertain times during the next few years. Hopefully, enjoining conversation around those uncertainties will help to make them less opaque.

Stephen Aguilar-Millan

© The European Futures Observatory 2017

Finding A New Career In Another World

"1843" April/May 2017

I am often asked about the impact of automation on the jobs market. The fear that is expressed to me is that, with advances in robotics and AI, there will be a certain degree of displacement as people are replaced with machines. Historically, this has proven to be an unwarranted fear because new occupations and careers arise to absorb the labour displaced by new technologies. I am told that this time is different, and that we need novel solutions such as a Universal Basic Income, to solve this problem. I am fairly unconvinced by this line of thought, but, to date, I have very few examples to hand of the process I am describing.

It would appear that someone has given me a subscription to 1843 - the lifestyle magazine from The Economist stable. Normally, I don't pay much attention to the magazine, but one article in the current edition did catch my eye. Entitled "Escape To Another World"*, it tells a tale of young people today. Apparently, young people today are over-qualified, under-employed, under-valued, and underpaid. They tend to have minimal consumption aspirations, live with their parents, and haven't really started to build a life. From the perspective of an older generation, this might be true. However, it is also worth looking at this differently, from the perspective of the young people.

The rejection of the lifestyles of an older generation is nothing new. However, in order to do so successfully, the younger generation has to determine how it wants to live. What I find interesting is that work is now seen as the servant rather than the master, and this plays out in a number of ways. The way it plays out in terms of this article is to develop a new career stream - professional gaming.

The concept of gaming as a profession is at its formative stage. A number of enterprising young people have found ways of monetising their activity. For example, the companies that develop games pay gamers to showcase their games through a You Tube channel. As the article notes, the gaming public are more likely to buy a game if they have seen it successfully played beforehand. Many professional gamers use their channel to link through to marketplaces where various products can be bought, and earn a referral fee through an associates programme. Those who achieve a modicum of stardom have even monetised the sale of their own branded merchandise.

How can a depressed, demotivated, young person get by? They can make money through social media. This might not be a 'real' job in terms of their parents, but on their own terms, they are earning enough to get by. The article makes a fair point that there is a difference between earning pocket money and earning enough to fully participate in society. However, this career opportunity is at its early stages and some young people are earning enough money to buy houses and commence household formation. This is a trend that is only set to continue.

In some respects the article is absolutely correct. We ought to be concerned at the extent to which young people are attracted to the world of gaming if we want current work patterns and aspirations to continue. However, as that world is currently not working for the young people, and society is not providing the means for them to participate in that world, ought we to be surprised when the young people redefine their lifestyle to find one that does suit them? In my view we are seeing a new career in the making, in just the way that pilates instructors, image consultants, and Feng Shui advisers, came out of the last major bout of labour displacement in the 1990s. This is Schumpeter's creative destruction in action.

In future, when I am asked how people will earn a living when they are replaced with a machine, I will answer that they will play games all day and get paid for it!

Stephen Aguilar-Millan

© The European Futures Observatory 2017

* The article referred to can be found at: https://www.1843magazine.com/features/escape-to-another-world