6 A Caveat in:

Clement Guitton

Unlikely Allies, page 131 - 152

How Group Leadership Shapes International Afffairs in the 21st Century

1. Edition 2018, ISBN print: 978-3-8288-4278-6, ISBN online: 978-3-8288-7189-2, https://doi.org/10.5771/9783828871892-131

Tectum, Baden-Baden
Bibliographic information
A Caveat ‘He who predicts the future lies even if he tells the truth’, proverb 2012–2013 was a decisive point. In 2012, the political scientist Ian Bremmer published his book about the G0 world, a world without leadership. Unfortunately for Bremmer, what followed did not support his argument. Countries started bundling up together (AILAC, LMDC, for instance); China announced its Belt Road Initiative and, unrelatedly, bestowed a $200 million gift to the headquarters of the African Union; the BRICS announced the New Development Bank; and the Union of South American Nations (UNASUR) was created; UNASUR could show its relevance in the crises related to Paraguay, the Falkland Islands, Julian Assange, and Snowden. And this was just the beginning, with a trend that has continued. What is interesting about a theory of international affairs is much less the theory per se than the consequences that actors and businesses can draw from it. In light of Bremmer’s wrong assessment, it is equally important to manage expectations as to what any theory can deliver for the future. The book shouldn’t make false promises of what can be deduced from group leadership theory. Therefore, before delving into what a world order shaped by group leadership theory will mean, a digression is necessary: if group leadership theory has been representative of the past couple of years, to what extent can it really tell something about the future? Or, in other words, to what extent does it run the risk of being as wrong as Bremmer’s G0 world? This simple question raises a bunch of other ones. Predicting where politics is going in order to manage better the change that it could create is what political risk units and consultancy firms are busy doing. Are they successful at all? If yes, how? Can we follow this recipe for group leadership theory? This chapter will make a very specific argument: yes, it is possible to predict political changes and risks to some extent, and analytic tools 6 131 are one way of doing it. But as necessary is the capacity to rely on emotions, and much more controversially, on luck. Many unfortunately downplay this luck factor when considering predictions. Although luck takes away some of the credit that companies and their analysts would like to receive, delving into a few case studies makes it quite apparent that it has been sometimes a significant factor. But let’s start with the less controversial tool of scenarios. Analytical tools: scenarios Scenarios are an all-time appreciated tool in political risk analysis. The oil giant Shell stands as a prime exponent of the tool: it has been very vocal in disseminating the use of scenarios. This is probably because they started so early, in 1965, with a new unit called ‘Long Term Studies’. They were, however, not the first ones. As the two former Shell employees Angela Wilkinson and Roland Kupers relate, having researched the topic and explained it in a book, Shell executives had just had a lunch with their Exxon peers. The Exxon executives explained to the Shell executives how they were looking at the year 2000 and trying to work out what the consequences of a nuclear war would be. Shell decided to follow their line of thinking. To do so, they pulled over to their headquarters a French man with a very strong personality, Pierre Wack, who would come to be known as the forefather of scenarios. Wack contributed a lot throughout the years to scenarios becoming more accepted, and even popular. When Wack started, Shell employees were in a way trying to forecast, but using quantitative methodologies. They regarded Wack and his team as a bunch of lunatics. Throughout the years 1971 to 1973, they refined their way of reaching management with their warnings, until they struck a correct prediction. In early 1973, the team warned ‘of a sharp rise in prices resulting from increasing oil scarcity, which may take place at any moment in the next few years’. They thought this would occur in 1975 – but it came even earlier, in October 1973. This seemed to have strengthened the credibility of the group. It allowed them to be more listened to when they would go around the company and talk with managers. As Wack claimed later, the 1973 correct pre- 6 A Caveat 132 diction helped the company be ready when slow growth hit Shell in the 1980s. Since then, the cult of scenarios has been second to none with many companies adopting this ‘method’. The cult around Wack is also noteworthy, with even a library at the University of Oxford under his name, the Pierre Wack Memorial Library. Wilkinson and Kupers wrote that ‘many of the earlier published materials on Shell scenarios support the claim that Shell has performed better because of its scenario work’. And yet, there are a lot of reasons to doubt this success and the myth that has surrounded scenarios. Firstly, Shell is a huge company; convincing managers to change a course of action for an important measure requires a strong argument (which scenarios do not provide) and internal political capital in order to garner support. Steering the company away from projects because a few analysts believe that the future is going to be one way or another will be hard to justify. Especially as scenarios present a set of possible outcomes, management may find it difficult to take a decision when presented with three types of scenarios: ‘more of the same, but better; worse (decay and depression); and different but better’ – all is possible, in other words. A quote from Wilkinson and Kupers’ book is rather illustrative of how difficult it is to be convincing. The scenario team once put out a memo describing that ‘oil would shift in favor, dramatically, to the Middle East producing countries’. The team heard back from the recipient: ‘This is very interesting. We are convinced (heavily underlined) that the producing Arab states will never get together, and therefore, thank you very much’. If the scenario team got this one right with the creation of OPEC, they also had many other misses. As a former economist for 20 years at the company, Michael Jefferson, describes, they thought that OPEC would not stay around for long (Jefferson also questioned further the consistency of the warnings). Peter Schwartz, Wack’s successor at Shell, who also went on to try his luck with his own consulting firm, also registered a number of important misses, giving us a valuable peek into how much the method could have been useful. In 2003, he published a book, Inevitable Surprises, in which he sought to identify what would be predominant forces that could shape the future. He did foresee a coup in Egypt (which happened in 2011), but he also forecast one in Pakistan (which hasn’t happened so far, at least). He saw stability of the European Union – which Brexit undermines – and doubted that Analytical tools: scenarios 133 opposition to globalisation would become widespread – which Trump’s election contradicts. The list could go on with Schwartz being right about the refugee movements, but not about Russia joining the European Union. The overall point is: being right systematically, even with scenarios and with years of experience in this field, is far from a given – and is actually more human. Secondly, further highlighting why we should do doubt scenarios as a prediction method, the difficulty in convincing can explain why actual evidence of scenarios having any impact is scarce. Schwartz admitted, for instance, what the consequences were of Shell foreseeing the decline of oil prices: ‘only Shell was prepared emotionally for the change’. Arguably, a mere emotional preparation for an event is almost irrelevant. Shell’s website indicates that it still had to adjust once the price fell in 1985 from $31 per barrel to $10. Once an event has taken place, and once many uncertainties have been removed, concerning whether the event would occur at all, it is much easier to carry out a well-founded analysis on what steps the company should take next. The complexity and time involved in creating scenarios might, in the end, be better invested in undertaking other tasks; doing nothing and leaving it to fate may not be as terrible as it sounds. Thirdly, there has been a large distortion of what scenarios are about. Despite Wack’s success in correctly predicting the oil supply squeeze of the 70s, scenarios were never intended for predictions. Wack didn’t care whether the prediction would be correct or not, nor did Schwarz. Both agreed that ‘scenarios are not predictions’ but they are about ‘perceiving futures in the present’, as Schwartz writes. Scenarios serve, rather, two other purposes: they were intended to help understand the present more clearly by fleshing out underlying assumptions; and probably more importantly, they were intended to be door openers for conversations with management and with external stakeholders, such as government officials. The record for these two purposes is much stronger than for scenarios as a prediction tool – and should probably be interpreted that way. Besides Shell, another example often crops up in the discussion to point out the usefulness of scenarios – an emotional case, as it relates to 9/11, during which the protagonist, Rick Rescorla, died. Following his death, many accounts have elevated him to the rank of hero, which 6 A Caveat 134 has made it difficult to have a sober assessment about his genuine contribution to the use of scenarios. Rescorla was the vice president of corporate security at the bank Morgan Stanley when the two planes hit the Twin Towers. He had served in the Vietnam war, then as an intelligence officer in Cyprus, and had subsequently gained a law degree. As much as Wack, Rescorla had a charismatic, strong, stubborn and vocal personality, but was calm and selfless in time of crisis. This would serve him well, as his ideas were not well received. When he joined the bank, he pushed Morgan Stanley into having their offices moved away from the Twin Towers: he thought that the next attack on the World Trade Center, following the attack in 1993, would take the form of a plane hitting the towers. He had a certain credibility. During the Gulf War, he had predicted that an attack on the World Trade Center would come from a truck bomb – which it did in 1993. But Morgan Stanley couldn’t move their offices because of an ongoing lease agreement. Rescorla decided then to stubbornly hold regular mandatory evacuation trainings. His regular exercises very much annoyed traders and high-level executives who had to leave their desks for a few minutes and couldn’t work as they wished. He pushed them around anyway, and they still followed his orders. When the planes hit the towers, Rescorla’s work paid off. He is credited with saving 3,700 employees. Only six of Morgan Stanley’s employees died that day. Yet, it is similarly unclear and impossible to answer to what extent the regular exercises genuinely contributed to their successful evacuations. Without seeking to diminish the man’s legacy and his courage to save many lives at the cost of his own, it is notable that a further 13–15,000 people successfully evacuated the World Trade Center that day; the vast majority of these people had not undergone any regular evacuation training. Certain caveats concerning the usefulness of scenarios are therefore appropriate. Both examples show that individual traits appear to play a role in running scenarios in a successful fashion (iconoclastic individuals going against mainstream thinking and still appearing confident about it). If scenarios are, however, not about correctly predicting even the general direction, but really about fostering preparedness and discussions, their relevance for this chapter is then somewhat weak. Better turn to other factors, then. Analytical tools: scenarios 135 Analytical tool: expertise Two works have had a major influence on the question of prediction of political events, and they stand largely at two extremes. On the one hand, Nassim Taleb, a former financial analyst turned scholar, argued in his bestseller, Black Swan, that we refuse to accept randomness and attempt too much to seek patterns where there might be none. For Taleb, it does not matter if we are successful in predicting a few events, because we are only capable of predicting those with minor consequences. On the other hand, the psychologist Philip Tetlock has carried out research on whether people are able to predict political events, and if yes, how. He has found that this is indeed possible, and at best done by generalists who constantly revise their hypotheses and judgements to adapt them to new data. This explains why certain analysts – and companies – were right in calling Brexit, for instance. Marshall Wace, of Odey Asset Management, and Paul Marshall both made money by shortening UK stocks prior to the Brexit vote. Crispin Odey bet on ‘Brexit’ out of political conviction that Europe was ‘mangling’ with the UK, while Paul Marshall wanted to retaliate against the EU focusing on hedge funds, as he wrote in an opinion piece in the Financial Times in 2016. The term ‘expertise’ is contentious – at what point can one be considered to have it? Taleb asserts that it involves demonstrating enough knowledge to be accepted in a pre-existing circle of self-declared ‘experts’. A direct implication is that biases underpinning the group’s way of thinking are also carried further with all new members and not questioned. Expertise is often opposed to ‘punditry’, which has a depreciative connotation, whereby the former is linked with expression of judgements grounded in theory, research of specific data (qualitative or quantitative), focusing on processes and on contexts, and heeding many small but (relatively) important nuances, while the latter is criticised for offering mere headline-grabbing opinions. In all fairness, ‘pundits’ often offer a global vision of events by taking a step back and giving an overall generalist assessment – not always appreciated at its fair value – largely because these individuals may come to be perceived as oversimplifying, attention seekers. ‘Experts’ may, on the other hand, 6 A Caveat 136 misjudge the value in disseminating ideas and in making sure that a general audience understands them. The knowledge that ‘experts’ acquire is especially useful in at least two ways: to draw links with past experiences set into a context, and to express judgments. These judgments, so is the hope, will lead to determining the next short-term developments, based on an acute, accurate understanding of forces that shaped previous developments. Yet, this is valid only if one accepts that there will be hardly any discontinuities in the unrolling of events. Analysts, even with the best education and motivation to remain as well informed as possible, face two important limitations. First, they will only be able to spot developments that are in line with previous ones (or with their own belief system) – continuities, in other words. However, the most impactful events are often those that are also completely surprising because they deviate from this continuity. Political risk analysts seek to unravel these most impactful events, but, with continuous monitoring, too, such events are likely to remain unforeseeable. Second, even when analysts succeed in foreseeing a black swan event (and in bringing it to the attention of a company’s management), they are highly unlikely to be able to do so consistently and systematically. Expertise can also have a different meaning: not just political expertise, but legal expertise as well. The two are intertwined. The law is political: it is the outcome of a political process and a reflection not only of mores in society, but of power structures shaping them. Legal boundaries matter, as many political risks flare up in courts. In a few countries, the separation between the rule of law and politics is rather fluid. Chevron in Ecuador is a case in point: the 2011 ruling against the company for being responsible for environmental damage cannot be understood without considering the anti-US stance of its then-President, Rafael Correa. In 2011, Ecuador issued a ruling ordering Chevron to pay $8bn for damage caused by Texaco, a company it had acquired in 2001. After the company refused to apologise, the sentencing doubled. Chevron took the case to a US court, thinking that it could be vindicated: the court indeed ruled in 2012 that the Ecuadorian ruling was non-receivable as it was tainted by corruption. Ecuador then attempted to get a Canadian court to seize the company’s assets. Analytical tool: expertise 137 But here again, a Canadian court ruled that Chevron’s assets could not be seized as it was a different legal entity from the one that operated in Ecuador (but where Chevron had almost no assets). The courts’ rulings helped Chevron’s image. Ironically, the acquired company, Texaco, was fighting first to have the case trialled in Ecuador, as it thought that rampant corruption there would help it influence the ruling in its favour. This turned out to be a disastrous assessment of political risks, as the left-leaning and anti-American Rafael Correa got elected in 2006. The double twist also highlights the aforementioned point: being correct systematically is no trivial matter. Further cases where political and legal judgements are intertwined are certainly ones concerning expropriation. Cases coming to the International Centre for the Settlement of Investment Disputes, a court created to discuss expropriation, show that it would be naïve to think that only domestic legislation and politics play a role; geopolitics and international involvements do as well. On top of this, as the private sector does not have a direct say in international state-to-state negotiations, political ties with government officials are important for companies. They need to voice their discontentment through a government, which needs to be willing to negotiate on their behalf (provided that they also see an interest for them – making it harder for small companies to find appropriate channels through which to react). At the time of the creation of the International Centre for the Settlement of Investment Disputes, countries had an incentive to join. The court would provide them with a mechanism to handle crises, whether they perceived themselves as victims or as instigators of an unfair expropriation. It would limit excessive reprisals and would even out leverages. For instance, Venezuela would have a sort of insurance that if it were to expropriate a Swiss company, Switzerland would not take the drastic step of freezing all Venezuelan bank assets in the country, valued at $14 billion. But over time, many countries have started to withdraw from the court, as they perceived that it was not ruling to their advantage. It is difficult to make an overall assessment of the impact of such a withdrawal, though, as many expropriation cases never actually come to court. Companies and governments quietly settle, and do not make public waves about the cases. This makes it difficult to assess the extent 6 A Caveat 138 to which expropriation occurs around the world, where it happens, and what costs it has for businesses. Furthermore, expropriation cases are rarely straightforward. On the one hand, it is difficult to price the assets of a company, as it implies assessing the ripple effects of a closing down on the company’s long-term balance sheet and strategy. Therefore, it is similarly difficult to assess what fair compensation might be. On the other hand, expropriation works very subtly at times. In the case of the extraction industry, much investment and many licences – ranging from environmental, to export, to repatriation of the funds – are necessary to make the business work. A government failing to renew one of these licences, for instance because it thinks that the previous government was too lenient in giving its agreement or because bribery was involved, would have a very similar effect on the company to expropriation – although it would most likely not bear that name. These enumerated analytical methods are well known. Yet, that companies consistently suffer economic losses as a consequence of political risks is an indication that other factors are at play. As in other aspects of life, two far lesser examined factors in the political science literature are unfortunately too often omitted and have failed to receive the attention they deserve: emotions, and luck. Emotions: political ties Humans are emotional creatures. They cannot change this nature. Politics reflect this nature, when humans handle and participate in power plays. By playing with these emotions, humans can achieve much: they may form trusted friendships and through them, extract (valuable) information; they may also be able to understand what an adversary in a conflict wants and seek viable compromises; and their emotions may emerge in their judgements. Focusing on the first one: this is why entertaining and nourishing political ties with government officials can be a powerful way of helping to assess political risk. Many political consultancy firms play very much on this factor, claiming that they have more capabilities to foresee changes because they have more inside information of what is going on within parliaments or governments. Emotions: political ties 139 This ‘method’ of having political ties stands in strong contrast to the previous one of ‘expertise’. Instead of relying on theory and grounded research, it gives strong weight to oral exchanges with officials, which may amount to little more than rumours. And yet, this information can prove crucial. Information may hint at a change in regulatory framework that has not yet been made public, and can help to sound out the current political environment. Such a privileged contact provides, in intelligence parlance, another sensor. And, as with intelligence, information with the greatest value is also the type most difficult to obtain. Exemplary of this is how the end of bank secrecy came about in Switzerland. Until very recently, many within Switzerland thought that nothing would change – or that nothing needed to change strategically, as the then-President Ueli Maurer announced in April 2013. But it did change, and those who saw it coming were mostly banks with strong ties to governments, which ironically launched attacks against Swiss banking privacy laws. With the 2008 financial crisis, governments bailed out a few banks with their taxpayers’ money. These governments then felt uneasy about these banks helping their clients evade paying taxes. They hence pushed for the banks to sell their Swiss operating arms (the banks had to comply with their shareholders, which was mainly the government in this case) and then went after the division of the bank that had been sold in order to obtain the names of potential tax dodgers. The banks that got sold (e.g., Commerzbank, ABN Amro, ING) therefore saw what was coming – and they owed being able to see mostly to their political connections, that governments would soon attack Swiss banking privacy laws. Other banks, which waited much longer before reacting to the assault, were likely blinded by many other factors (e.g., that the topic had flared up so many times before without leading to the end of banking secrecy, or the amount of money that they were making). And naturally, the buying banks (e.g., Julius Baer) definitely lacked foresight. The line is naturally thin between having ties with politicians and not facing a backlash from it – or even a step further, not crossing the line into a path of corruption. Recent headline-splashing revelations from Trump’s lawyer, Michael Cohen, have been a dire reminder of this. Right after Trump’s election, three multinationals paid Cohen’s 6 A Caveat 140 company, Essential Consultants, to gain specific information from Trump’s government. Novartis paid $1.2 million to learn more about the new administration’s plan on how to handle health care; AT&T disbursed half of what Novartis had paid, worried that the president would block the takeover of Time Warner, as he had announced during his campaign – and which he followed through on; Korea Aerospace Industries officially hired Essential Consultants for ‘advice on local accounting standards’ as it was ‘vying for its biggest-ever contract with the US government’, as the Financial Times reported in May 2018. The three companies faced a series of bad media coverage, with the Swiss general attorney also announcing that it was probing into whether there was sufficient evidence amounting to wrongdoing for Novartis. It turned out that the amounts the three companies paid were simply not worth it. Informal relations may remain the best information source, as opposed to such deals. The more a company pays for information, the more it may come back to haunt it. In Latin America, nothing has illustrated this point more than the Obrador scandals, from the Brazilian construction firm that literally paid its way into politics. The scandals have been reshaping elections in Colombia, Mexico, and Brazil in 2018, with heightened anti-establishment sentiments forcing centre parties to find candidates not affected by corruption and who would still have a moderate agenda, as well as the necessary backing to pass reforms. It is hard to imagine that the business will be able to whitewash its name easily after the extent of the scandals. Emotions: convictions Building up an information network that is good enough to assess short-term political risks is one way in which emotions play a role in political analysis, and arguably not the most straightforward one. Holding convictions, though, is. Having convictions is related to following ‘rumours’ in order to assess a political risk. In pure academic writing, convictions are frowned upon; they are regarded as a form of bias pervading the analysis. Yet judgements expressed by humans cannot be void of any emotions. More often than not, emotions in judge- Emotions: convictions 141 ments are seen as unwanted. They introduce unwelcome biases, which can lead to the wrong conclusions. On the other hand, can it be that a situation is not reducible to only rational factors? Can gut feelings sometimes be right? After all, one scholar at Princeton, Keren Yarhi- Milo, found that many high-level decision-makers within governments, when presented with intelligence strongly suggesting a course of action, often disregard the intelligence and follow their own senses and feelings. Humans do not always act rationally (in the sense of acting based on mental calculations in order to maximise their interest or well-being). Psychologists have long acknowledged this, but it runs against the core assumption in political sciences – namely, that actors take rational decisions, when in fact, they often don’t. This means that political scientists, when looking at political risks, naturally have a blind spot. Yet, despite this willingness to define the field as scientific, it is undeniable that the affinity that political analysts have for a country, as well as an individual’s own political convictions, is likely to colour their analysis to a certain extent – even when the analysts try to avoid this. Analysts will downplay certain factors, for instance if they challenge their ‘belief systems’, as dissonance theory holds; as a consequence, they may tend to look for confirmatory evidence instead of trying to disprove hypotheses, and are satisfied with the result (a phenomenon known as ‘satisficing’); they will comply with group pressure and organisational thinking; and their own culture and personal experiences will be regarded as an impediment to objective thinking. Whether analysts have time or really do apply methods to challenge these biases is an entirely different question. But emotions, as evoked, do not only have a negative side. Even for judgements, having convictions can lead to correct assessments. Brexit is a case in point: although it has surprised many senior analysts, others, out of conviction, have bet on it happening. Naturally, convictions will sometimes be wrong, as much as analysts will be with discontinuities. The extent to which one is better than the other is beyond the scope of this book, but it must be pointed out that both cannot be systematically right. Furthermore, convictions, or more globally, methods based on heeding emotions, have a rightful place for whoever is interested in correctly assessing political risks. 6 A Caveat 142 Emotions: compromises Lastly, and also closely related to forging meaningful political ties with a foreign government and official representatives, is the art of conducting compromises in order to be able to manage risks as well as possible. Political analysts, when trying to predict outcomes, are often confounded as to what extent politicians can reach compromises. This plays a core role in predictions. Emotions are required in order to be able ‘to feel’ in which direction regulators are moving. As the wording suggests, having a strategy to handle political risks based on feelings is not a very scientific method. But people are emotional. Just as with poker, where the odds of the cards matter as much as the tell-tale signs of bluffing and other strategies, the successful assessment of the political landscape requires a certain sensitivity, similar to weaving political ties. Cultivating political ties, as detailed above, has one main goal: to obtain information. Skills at reaching compromise reflect a slightly different configuration, namely a more two-way-street type of setting. From the company’s standpoint, companies’ employees will, however, still need to be able to relate to other state officials – not only to extract information, but also to have an influence. It takes a very particular type of personality to make the other party feel at ease, to avoid a confrontational way of handling the situation and to understand precisely (and often, in the long term) what the other party is after. Examples of how companies reach compromises abound – even those cases where companies had to correctly ‘read’ the political environment. One of these is with the German opera venue, Elbphilharmonie. After much delay incurred in the construction of the Elbphilharmonie, there were strong sentiments within the Hamburg city council that the contract should not be continued with the construction company, Hochtief. The change of majority at the city council over the years from the beginning of the project threatened the end of the contract. In 2011 the conservative CDU, Angela Merkel’s party, lost to the people-close socialist SPD, which had issues with investing so much in art rather than in social projects. This change meant that stopping the construction of the Elbphilharmonie became a genuine option: the SPD did not see why important sums of money, over €500 Emotions: compromises 143 million, should be allocated to culture instead of to projects catering to those with direr needs. Finally, after much discussion, the company made several concessions, and according to Hochtief itself, agreed to take far more risks than would normally be the case. A new (and final) round of contracts stipulated an extremely high penalty should Hochtief fail to complete the project on time, in autumn 2016; Hochtief did finish on time, with construction costs close to €800 million. If Hochtief managed to reach a compromise and read the political landscape correctly, the real question is: how many political analysts outside Hochtief got it right? Again, as much as the other factors, reaching compromises, and correctly reading a company’s ability to do so, can be more an art than hard-grounded science; this can account for a lot in explaining why this factor tends to be forgotten in the classical literature of predicting political winds – as much as luck. Luck Discussion of luck is not always welcomed. It makes scholars and intellectuals uneasy to think that whatever may be undertaken, a large part of how plans will turn out is well beyond human control. This also means that we would acknowledge that the aforementioned factors sometimes work, and sometimes do not, rendering analyses almost futile. With luck as a key element, the results of such analyses would not be replicable – a necessary condition for any method to bear the name of ‘scientific’. This explains that many regard discussion of fate as thoroughly defeatist – or worse, as almost offensive. A 2016 statement from Evan Greenberg, the CEO of the large insurance group Chubb, epitomises this as he sarcastically wishes new entrants of political risk insurances ‘a lot of luck’, and then adds: ‘that’s all they got going for them’. Luck therefore has a bad name in the field of political risk, a field where, ironically, economic analyses heavily driven by numerical data reign over those anchored within the social and political sciences. The role of luck, though, should not be overstated and doesn’t override all previous mentioned ‘methods’. Its role should merely be acknowledged. Modest acknowledgement of it is already a challenge 6 A Caveat 144 for many scholars, due to its scientific incompatibility, but perhaps also due to a certain bias. In recognising the role of luck, it is necessary to note that a phenomenon exists similar to the attribution bias when discussing being wrong. The attribution bias explains that we are much more likely to recognise and acknowledge our own work, when succeeding, than other external factors beyond our control (such as randomness) in order to enhance our self-esteem; conversely, in a feat of self-preservation, we are much more likely to attribute our mistakes to the environment (external factors) than to our own shortcomings. On the other hand, when other people err, we see it as a causal logical reaction to their own inner working rather than external elements. Drawing a parallel with this attribution bias, it may well be possible that people working within the field of political analysis and political risks are much more likely to value their own work highly and not to accept that luck plays a part in it, for fearing of downplaying the importance of their work. A few historians do actually recognise that, in contrast with hard science, much remains beyond human control and understanding. For instance, one author, Tobias Straumann of the University of Zürich, gave luck as a reason why Switzerland was not invaded during the Second World War.37 Other complex factors may have played a role (notably, deterrence policies taken by Switzerland) – but finding evidence for the extent to which Switzerland’s policy influenced the Reich’s decision has proven elusive. Also in Switzerland, two scholars investigated how Switzerland, a landlocked country without natural resources apart from water, and poor for most of its history until the 19th century, could become so economically successful. The authors identified three factors: the impact of poverty, which pushed the people to be innovative; the smallness of the country, albeit with a variety of cultures; and a balance between self-responsibility and cooperative solidarity.38 But the authors still concluded: ‘However, the search of commonalities should not make us forget how often the success of a company relies on luck – from the decisive discovery, to the right person at the right 37 Straumann, T. (2010). Warumist die Schweizeinreiches Land? EineAntwortauswirtschaftshistorischerSicht. Die Volkswirtschaft, 1/2, 4–8. 38 Breiding, R. J., & Schwarz, G. (2011). WirtschaftswunderSchweiz: Ursprung und ZukunfteinesErfolgsmodells. Zürich: NZZ Libro, p. 411, p. 422. Luck 145 time at the right place, to the convenient opportunities and possibilities to realise it’. Lastly, and turning to a different context, the renowned British ‘Official Historian’ and Emeritus Professor of War Studies at King’s College London, Lawrence Freedman, also wrote in a 2017 article entitled ‘The Benefits of Hindsight’ about making decisions in a moment of crisis, as he reflected on his experience of working for several official inquiries (e.g., looking at the British involvement in the Falkland Islands war and the Iraqi war): ‘It is important to recognise the role of luck and chance, and the nature of the uncertainties and risks surrounding big decisions’. Such acknowledgement does not have to be a reflection of defeat, but merely of the limited possibilities of the field and of human nature. Only very few attempts have been made at explaining how ‘luck’ happens; but even these have remained futile and for good reason: the problem lies with its intrinsic nature not to be explicable, otherwise it would not be ‘luck’. When trying to understand ‘luck’, one scholar believed that luck can be influenced. Hao Ma divided luck into four categories along the lines of endogenous/exogenous and serendipitous/ proactive. Apart from ‘pure luck’, Ma maintained that businesses can take measures to influence their luck and become ‘better at recognizing and exploiting it when luck strikes’.39 Yet, Ma has a very narrow way of looking at luck, more along the lines of adapting, of seizing opportunities, and of innovation. As his definition of luck exemplifies: ‘Luck is usually nothing but opportunities knocking upon those who are looking for them, who will notice them, and who will act on them’. Finally, Ma confuses ‘luck’ with the attribution bias presented above. As Ma recalls how employees at Lockheed innovated on fighter planes, he writes: ‘Call it luck. But the Lockheed people would like to believe that they absolutely deserve it’. The contention here is that luck is certainly no ‘error term’, nor can it be influenced or broken down, especially in the context of taking a stance on upcoming political events. Approaches similar to Ma’s to the concept of ‘luck’ refuse to give it too much credit; they are not fully committed to the idea. One gets the sense that authors like Ma are still 39 Ma, H. (2002). Competitive advantage: what’s luck got to do with it? Management Decision, 40(6), 525–536. 6 A Caveat 146 reluctant to acknowledge that the control of a company’s future might rest with luck and as such, be partially left to fate. Such a commitment to luck would be the equivalent of going to church because one has got time and thinks that it will not hurt, but yet without believing in God. Nor does the chapter argue that luck is all that is needed. The two other explored factors have to be heeded: intellect, which regroups the many tangible methods to follow, and emotions. What luck can look like in practice for political analysis is shown with energy policy post-Fukushima in Germany in 2011. The unforeseeable environmental disaster located halfway around the globe, in Japan, made things right for the energy provider MVV. Germany had voted in 1998 for a government (SPD/Green) that initiated the departure from using all forms of nuclear energy. In 2010, Chancellor Angela Merkel started discussing reversing this trend and expanding the lifespan of nuclear power plants. A shutdown further in time would have meant a reduced loss for the owners of power plants. Yet, following Fukushima in March 2011, the government went back on this change of policy and decided on an abrupt halt to nuclear energy, as originally planned by the SPD/Green government. The largest energy providers in Germany were taken by surprise by this sudden reversal of policy (and even sued the government before the International Centre for Settlement of Investment Disputes). But local town halls and energy companies such as MVV, which had initiated the exit of the nuclear option in the 1990s, by investing massive amounts of money, found that they had made the right investment choice. For a few years (2010–2011 at least), there was a sentiment of having been deceived, but this changed after Fukushima. It is remarkable that many operators did not seem to be able to read the overall German sentiment of being anti-nuclear, but merely followed the decisions taken by the government. It seems appropriate to conclude with an oft-cited thought experiment by a person who has shown that he could systematically defy the odds of the financial system over 50 years – Warren Buffet, the billionaire investor and head of Berkshire Heathway. His systematic successes have shown that he cannot have relied on luck. And yet, does such a person think that luck played a role? The following thought experi- Luck 147 ment, which he rather inelegantly calls the ‘ovarian lottery’, is indicative of his view on the topic: I won the lottery the day I emerged from the womb by being in the United States instead of in some other country where my chances would have been way different. Imagine there are two identical twins in the womb, both equally bright and energetic. And the genie says to them, ‘One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be the one that is born in the United States?’ It says something about the fact that society has something to do with your fate and not just your innate qualities. That the genie is the allegory for luck is clear enough. This genie illustrates two points. First, that initial conditions (and not only those that can be influenced) matter. The scale of a company is, to a certain extent, the result of the strategy decided by a company’s board. But further initial conditions are, to some extent, beyond one’s control: whether one manages to persuade investors to provide the initial funds, whether the current economic situation is even conducive for such an investment, whether the general manager suddenly dies at the moment when the still-frail company needs his clear vision most, and so on. The list is limited only by one’s imagination. Second, luck is a strong discriminant for success. This is unfortunate. But accepting that luck plays a role, however small, is very much needed if one seeks to comprehensively understand the forces that shape the successful management of political risks. Beyond understanding the risks, and much more importantly for a company’s manager, acknowledging the role of luck helps to establish the right level of expectation while gauging how much room for manoeuvre one effectively has. Last remarks In the fourteenth century, the Italian writer Giovanni Boccaccio dared to write short stories deemed, at the time, to counter many well-entrenched mores. Published under the name of The Decameron, the short stories highlighted that three fundamental forces ruled within this imagined world: intelligence, desires, and luck. Such themes were to be adopted by many thinkers and writers in the succeeding cen- 6 A Caveat 148 turies, with luck reminding readers of how even the cleverest man with burning desires can be limited by constraints. Racine, a French writer of the seventeenth century, educated according to the Catholic movement of Jansenism, in which one’s future was already mapped out, presumably by God, made this motto the core theme of his many plays. In beautifully rhymed alexandrine verse, the protagonist of Andromaque declared: ‘Blindly I follow now the fate that claims me’. The forces of intelligence, desires and fortune drive much more than the worlds imagined by Boccaccio and Racine: they are the key to understanding human behaviour and, by extension, to understanding political analyses and political risks. After all, as observed in 2017 by the columnist for the Financial Times, Janan Ganesh: ‘[t]he most important variable in politics – the ultimate determinant of electoral outcomes – is the individual quality of the candidate’. Human beings try to influence each other – the core business of politics – and are inherently full of surprises: their behaviour is not always rational nor calculated, but emboldened in passion, and prone to creating surprises. In Europe and the US, this had ironically tended to be forgotten until 2016. The referendum on Brexit, as well as the election of Donald Trump, shook analysts in their beliefs that political risks were confined to developing countries. These shocks have put the onus back on assessing and predicting political risks, while tending to put aside one of its key components – luck. This chapter has taken a swipe at Shell’s Peter Schwartz for his wrong predictions. As evoked, Ian Bremmer’s record is not much better. In his book about G0, Every Nation for Itself, it can be informative to look at a few of the instances when he didn’t have so much luck with predictions. In case you were still convinced that G0 was a good prediction for 2012 onwards, a small stocktake may convince you that the analytical power of prediction is very limited. And as this book has been very much about countering the G0 thesis, taking a bit of time to look at the details may be valuable. Bremmer opens up his chapter ‘The G-Zero impact’ with a large terrorist threat foiled and warned that ‘we won’t always be so lucky’. While it is true that the West has seen a few terrorist incidents since 2012 – most prominently in November 2015, when 137 people died – the trend since then appears to have been reversed. Terrorist incidents Last remarks 149 have mainly come from individuals, as opposed to organised groups, using unsophisticated types of weaponry such as knives. In one of the latest terrorist attacks, in March 2017 in London, the terrorist drove a car over pedestrians around Westminster and killed five people. Their deaths are deplorable, but the numbers are also far less significant when compared, say, with 9/11, with roughly 3,000 deaths. The recourse to non-sophisticated weaponries such as knives may show an important aspect in the development of terrorism. Security services have been so diligent at foiling large plots that terrorists employing knives points rather to the desperation of attackers. Instead of large attacks, the trend has rather been twofold in the past decade and ‘in the West’: a shift from targeting (symbolic) buildings to targeting people, and more frequent attacks but with fewer victims. Bremmer then extends his argument about terrorism further to state conflicts, global standards, and the most basic necessities (air, food, and water). As seen for food and water, though, his argument doesn’t apply and plays on underlying fears linked with our natural survival instincts. Many of his arguments go in this direction of instilling fear, as he tends to see the worst for any situation. A cynic may argue that Bremmer’s own consulting firm thrives when there is high uncertainty and hence he inflates them for his own business case; or Bremmer may just give less weight to the checks and balances in our international system that ensures that everything doesn’t go to dust. In this direction of fears, Bremmer predicted that within a G0 world: Russia would not intervene in the Middle East (it did prominently with Syria); China and Japan would go on an arms’ race (nothing like this has yet emerged); Saudi Arabia would use the Gulf Cooperation Council (GCC) ‘to help maintain political and economic stability’ (Saudi Arabia leading the charge against Qatar, a Council member, in June 2017, is nothing short of destabilising the region); governments of ‘most of the world’s established powers would spend less money’ (what about the Chinese Belt and Road Initiative?); Saudi Arabia would become more protectionist (when it has arguably tried to open up to investors with its 2030 vision for a diversified economy away from oil only); China, Brazil, and Russia would set communication standards (they haven’t); established and emerging powers would not come to an agreement on climate change (Paris proved it wrong). Also 6 A Caveat 150 against Bremmer’s points: Indonesia has still not become a major and diplomatic player; Mugabe’s Zimbabwe is not prospering (in fact, Mugabe has been deposed); a food prices shock did not occur; and the European Union has not triggered a financial crisis à la the 2008 one with its origins in the US, this one leading to the US and China losing ‘a critical trade partner and the jobs that it supports’. The list is not comprehensive and could go on. But far more useful to highlight this propensity to imagine the worst, especially when it comes to political crisis, and to instil fear, is to quote the end of this very chapter on the impact on a G0 world: G-Zero crises echo and exacerbate one another. A lack of global leadership makes it all but impossible to build consensus on what to do about climate change, droughts, floods, and the food price shocks they trigger. … In short, the G-Zero will incubate new sources of conflict, make almost all of them more difficult to manage, and push international politics toward multiple forms of crisis. Bremmer’s failure should be taken as representative: Bremmer is very well connected and his expertise on many past events is incontestable. His failure to predict what will happen in the future is on point with what this chapter has tried to show. Entitled ‘Caveat’, the chapter has tried to make the exact point that predictions are doomed to fail, most of the time, regardless of the high level of expertise and connections one can have. Lawrence Freedman, the King’s College professor quoted above, concluded his latest book Future of War with these wise words: ‘These [works of prediction] should all, however, be treated sceptically’. This applies very much to this monograph as well, but we can still give it a try to see what the consequences would be if international affairs continue to go in the direction of group leadership theory. Maybe someone will, in a few years, repeat the same painful (and embarrassing?) exercise that I just did with Bremmer’s predictions. If that were to happen, nothing would make me happier than to know that the theory was at least thought-provoking enough to beget attempts at its rebuttal. Last remarks 151

Chapter Preview



The US withdrawing from the Paris Agreement, the Trans-Pacific Partnership, the ‘Iran deal’, UNESCO, as well as the UN Human Rights Councils: issues like these convey the impression that the world order has changed. Without US leadership, it may seem that we have entered into what Ian Bremmer, an oft-quoted political pundit, calls a G0 world, a world without any leadership. Clement Guitton argues against this world view, as it disregards evidence of global leadership around the world on matters ranging from climate change, to trade, to security. Going a step further, Guitton claims that there is even evidence of a new form of leadership in international affairs: group leadership.