Montrose Journal: Winter 2005

 

WHAT IF THEY ARE ALL WRONG?

 

INDEX

 

THE UTILITY OF FORCE: WHAT IF WAR IS NO LONGER WHAT IT USED TO BE?

RUPERT SMITH, FORMER DEPUTY COMMANDER OF NATO AND

ILANA BET-EL, HISTORIAN AND DEFENCE ANALYST

 

PROSPECTS FOR THE MIDDLE EAST: BUSH THE PIONEER PEACEMAKER?

JONATHAN FREEDLAND, COLUMNIST, THE GUARDIAN

 

TIGERS BURNING BRIGHT: BUT DOES THE EAST HAVE ALL THE ANSWERS?

NORMAN STONE, PROFESSOR OF MODERN HISTORY, KOÇ UNIVERSITY

 

AT THE FOREFRONT OF CHANGE: FRANCE THE GLOBAL BUSINESS PLAYER?

BERNARD SPITZ, CEO, BS CONSEIL

 

NOT THE SUPPLY SIDE, STUPID: WHAT EUROPE CAN REALLY LEARN FROM AMERICA

DAVID BLAKE, FINANCIAL ANALYST AND COMMENTATOR

 

 

THE UTILITY OF FORCE: WHAT IF WAR IS NO LONGER WHAT IT USED TO BE?

RUPERT SMITH & ILANA BET-EL

 
War no longer exists. Armed forces, of both states and non-state entities undoubtedly abound all round the globe, as do confrontations and conflicts. However, the event know as “War”, especially to non-combatants; war as battle in a field between men and machinery; war as a massive deciding event in a dispute in international affairs; such war no longer exists.

 

Consider this: in 1914 the men of Europe marched under their countries’ flags in their thousands and died on the battlefields in their thousands, in the cause of their nation state in an almost industrial process. In 1939 they did it again, and in addition the states attacked the people and their industries in their homes and cities, in the Blitz, in the Strategic Bombing Campaigns, in the Holocaust, and with the Atomic Bomb. And in September 2001 a group of people using the apparatus of the state attacked the totems of that state, in such a way and to such effect that The War on Terror followed.

 

This is a war on a state of mind: a conflict in which the US, a state with the largest best-equipped military forces in the world, is unable to dictate the outcome desired. A conflict in which forces with great potential to exert power are unable to do so to advantage when challenged by forces that are by the same standards ill-equipped and disorganised. A conflict in which military force is unable to achieve the outcome desired as it did in the two World Wars.

 

It is our contention that this is not an anomaly but a radical shift in the very paradigm of war: instead of Industrial war there is now a new paradigm of War Amongst the People. The essential difference is that military force is no longer used to decide the political dispute, but rather to create a condition in which the strategic result is achieved. As a result we do not move in the linear process of Peace—Crisis—War—Resolution—Peace; we are now in a world of continual Confrontations and Conflicts in which the military acts support the achievement of the desired outcome by other means.

 

Interstate industrial war evolved throughout the nineteenth century on both sides of the Atlantic, and came to culmination in the two world wars of the twentieth century. It originated with the French Revolution, with the Napoleonic Wars and the creation of the modern nation state with its citizens, and it was most brilliantly conceptualised by Clausewitz. Much has been written of his monumental work On War, and much of this is distorted, especially the notion that war is a continuation of politics by other means. But there are two concepts originated by Clausewitz that remain crucial to our understanding of war.

 

The first was that a state at war could be considered as a trinity of the government, the army or military forces, and the people. These three can be considered as the sides of an equilateral triangle, in which the sides have to be in balance. Absent one side or reduce its size and the strength of the triangle is negated or weakened.

 

The second idea was that the outcome of a battle could be understood as the product of a Trial of Strength and a Clash of Wills. Take two well matched boxers, with an equal will to win: as the trial of strength, the exchange of blows, continues between them one or the other’s will may be eroded. At war, the military has the force and the will to win, known as morale. But this is all backed up by the government and the people, as per the Clausewitzian trinity: the political will to win is found in and expressed by government, but this will is founded in the people.

 

Industrial war was no longer viable after 1945, but the underpinning idea that War was an absence of Peace, and that events moved in a linear process from Peace-to Crisis-to War-to Resolution-to Peace remained. Worse still, the institutions that had been developed to conduct industrial war remained – and it is these that have dealt with our conflicts in the past sixty years, not realizing they were of another paradigm.

 

The antithesis to Industrial war also goes back to Napoleon, or indeed to the Napoleonic Wars. The Spanish people lost their Trial of Strength with the French, but continued with the Clash of Wills: the people rather than the formal army went to war and waged a Small War, the Guerrilla War. The basic tactic of the guerrilla is to engage only on his terms in the ambush and the raid, to avoid being pinned down in a fight for ground, and to depend on the people for support both physical and moral; in short to engage only in tactical acts. In the circumstances of the time these guerrilla actions were not, as we say these days, decisive. But they were certainly significant: they maintained the Spanish people’s spirit and individual national identity even though occupied, and became Napoleon’s “running sore”, with their acts holding down 200,000 of Napoleon’s 300,000 soldiers in the peninsula.

 

The ideas of the Anarchists and the Communist revolutionaries added to the basic tactical idea of guerrilla war. They produced a generic strategy of three related components that enabled the use of the tactical acts to achieve a political purpose:

 

The Strategy of Provocation: here one seeks to provoke an over-reaction so as to paint the opponent in the colours of the bully, the oppressor, the tyrant and thereby gain sympathy, support, credibility for ones cause, and recruits. One also tests the opponents tolerance and discovers the level at which he will react, so as to operate safely below that threshold.

 

The Propaganda of the Deed: here one establishes ones’ importance. You have to be taken seriously and be treated with on equal terms. Publicity is crucial here, for by achieving publicity one exists, and by existing one becomes credible. And this attracts recruits and support.

 

The Erosion of the Will: by operating to create a continuous and steady drain of men and resources with no prospect of a satisfactory cessation of the conflict, the will of those opposed to one is eroded. Minor concessions are granted or successes gained serially and can be built on incrementally.

 

It is now worthwhile returning to Clausewitz and his Trinity. If we examine the trinities engaged in revolutionary war, in which the governance of the state is at issue, the people are common to both triangles: the government, the police and army-the security forces, and the people, on one side – that of the official state; and on the other the revolutionary leaders and their promise of a better life, the terrorist and guerrilla groups, and the same people. In other words the will of the people, the same group of people, is the identical strategic objective of both sides. And short of coercing their will in Stalinesque programmes of terror and mass deportation, this must be won by means and in a way other than the direct use of military force.

 

To be clear, at the tactical level, military force will have a part to play in order to provide the Deeds, the Provocations and Erosion of Will. The revolutionary or activist is using force and must be countered and defeated – however, he must be defeated in such a way that the military acts are coherent with the other measures to win the will of the people. And it is this way that is at the heart of War Amongst the People – a way which many military, political and policy officials have yet to learn or understand, since they are still thinking in terms of industrial war.

 

In industrial war the opponents set out with the primary objective to win the Trial of Strength, devoting all their forces and resources to destroying the opponents’ capability to resist and thereby win the Clash of Wills. In War Amongst the People the primary objective is to win the Clash of Wills.  In industrial war the opponents seek to resolve the political confrontation that was its cause directly by military force. The objectives for the use of military force in such war are hard and simple, “take, hold, destroy, defeat”, are the sort of words used, all describing the desirable outcome of a trial of strength. In War Amongst the People the objectives are malleable and complex, they describe a condition, which enables intentions to be changed or formed by other means, an example would be “create a safe and secure environment”. In War Amongst the People military force does not resolve the confrontation directly, the conflicts or forceful acts contribute to one or other sides efforts to win the Clash of Wills and thus decide the confrontation.

 

So instead of a world in which peace is understood to be an absence of war and we move from one to the other in a linear process-peace-crisis-war, we are in a world of permanent confrontations. Within these conflicts, potential and actual, as the various opponents seek to influence each other’s intentions with military acts – the intentions being the confrontation, the conflicts being the conflicts. But to be effective these acts must be coherent with and allied to the other measures that affect intentions.

 

In this context a confrontation occurs when two or more bodies in broadly the same circumstances are pursuing different outcomes. Political affairs of all stripes, national and international, are about resolving confrontations. And when one or both sides cannot get their way and will not accept an alternative outcome, they sometimes seek to use military force to get it – they turn to conflict. But in taking this course of action, if a side is weak and has little to lose, it does not play to the opponent’s strengths, but rather follows the path of the guerrilla and the terrorist: avoiding set battle, it does not present the opponent with opportunities to strike the mortal blows. Or else it seeks to replicate his strength, and like North Korea and others develop an atomic weapon.

 

If you are very strong and have atomic weapons you have too much to lose in using them – which is why they have not been used so far. And if you are strong you still have to find a way to exert power, to use your strength; for as the philosopher Michel Foucalt said, “power is a relationship not a possession”, an observation in vein with Archimedes’ understanding that given a fulcrum he could move the earth. And that is now the problem of the west, or those who use conventional armies against “insurgents”: for if the opponent has moved amongst the people it is extremely difficult to establish this relationship to advantage since the underpinning idea of the strategies of Provocation and so forth is to establish the relation to the disadvantage of conventional military force. The result is that the conflicts are sub-strategic; frequently only tactical, in effect.

 

It is these Confrontations and Conflicts which are the Wars Amongst the People, and they have six trends.

 

We fight amongst the people: Firstly, the objective is the will of the people. Secondly, the opponent often operating to the tenets of the guerrilla and the terrorist depends on the people for concealment, for support both moral and physical, and for information. And thirdly the strategy of provocation and propaganda of the deed require the people to work. But these conflicts take place amongst the people in another sense, through the media: we fight in every living room in the world as well as on the streets and fields of a conflict zone.

 

Indeed, a strong reason we still see war within the interstate industrial model is the media, which usually depicts it from the perspective of the conventional military forces sent in by nation states. Moreover, because the media have little time or space to convey information – a minute or three on screen or on air, a few inches in the daily press – they must work with cognitive images and jargon in order to be appealing to and understood by their audiences. These images and jargon are all of individuals and situations involving conventional armies in industrial war. In itself this has now created a new loop, since much of the audience and even segments of the media realize there is a dissonance between what is being shown and experienced and what is being explained – the former clearly being other forms of war, the latter being desperate attempts to use the framework of interstate war to interpret war amongst the people.

Taking an example from our daily TV news flashes from Iraq, we see heavily armed soldiers patrolling in tanks through streets full of women and children; or else we see ragged civilian men and children attacking heavily armed soldiers in tanks. The pictures themselves clash with our cognitive senses, and the interpretation then laid on them by the reporter or studio commentator – attempting to explain the military actions of the soldiers – confuses us further. A new reality is being restructured into an old paradigm, for the most part unsuccessfully.

 

The ends for which we fight are changing, as already noted, from the hard absolute objectives of interstate industrial war to more malleable objectives to do with the individual and societies that are not states.

 

The justification and legitimacy of the acts based upon these objectives may be the concepts of the nation state, as in the pre-emptive action in Iraq in 2003; but equally they may often be based on concepts of human rights, and therefore defined as Humanitarian Operations. All these operations – which are still largely called wars in the media and amongst wide swathes of the population – are expeditionary: they involve sending a military force far away. This force will fight a variety of opponents, often quite poorly armed, but will nonetheless score quite a lot of success against the conventionally armed forces.

Overall, the aim of these objectives is to establish a condition – a situation in which political interaction and negotiation is possible, for example – rather than a clear outcome. Indeed, if a definitive victory was the hallmark of interstate industrial war, then establishing a condition may be deemed the hallmark of the new paradigm of war amongst the people.

 

Our conflicts tend to be timeless: in industrial war there was a need for a quick victory since all of society and the state were subjugated to the cause. In the new paradigm it is but another activity of the state, and can be sustained nearly endlessly i.e. it is timeless.

 

We fight so as not to lose the force, rather than fighting by using the force at any cost to achieve the aim. This is mainly because in these modern operations, as noted above, the outcome is not meant to be definitive – and therefore the operation has to be sustained open-endedly. The force must therefore be preserved. In addition, in an era of declining defence budgets and general interest in matters military (though this may not be apparent in the current US budget), all forces are double earmarked. The planner must be prepared to commit them to another venture as priorities change, even to the close defence of the kingdom – after all, that is what the tax-payer paid for. I believe I am the first commander since possibly Wellington to have to consider in 1990, as the British Divisional Commander in the Gulf, how to fight with my force so as to bring it back: I had with me every working tank engine in the UK. My abiding memory of my military visitors from the UK was their interest as to whether or not they would get the train-set back. Finally, the bogey-man of all military planners, especially in the US, is body bags, which are deemed totally unacceptable in the body politic and the public. (That said, one of the unspoken aspects of the US war in Iraq is a latent arithmetic: if approximately 3,000 Americans were lost on 9/11, then up to 3,000 casualties will be acceptable in the War Against Terror, wherever it takes place.)

 

On each occasion new uses are found for old weapons: those constructed specifically for use in a battlefield against soldiers and heavy armaments, now being endlessly adapted to war amongst the people – and mostly inadequately since the tools of industrial war are often irrelevant to war amongst the people. If we are not using these equipments for the purpose and in the way we had intended something must have changed. What is happening is that our opponents are operating below the threshold of the utility of our forces.

 

The sides are non-state: we tend to carry out these actions in multi-national grouping or in non-state groupings. Increasingly, we are in the former and the opponent is in the latter. These coalitions need not be the formal ones like the NATO Alliance or the UN or that in Iraq today, but are often – particularly in the theatre of operations – informal, and include in effect other agencies, such as the OSCE or the UNHCR, or NGO’s such as OXFAM or MSF ((Médécins sans Frontières), and local actors such as the Northern Alliance in Afghanistan or the KLA in Kosovo.

 

*   *   *   *   *   *

 

The consequences and implications of this change in the paradigm of war and these trends are many and will vary with particular circumstances. There is no simple set of measures to be adopted; this is a complex matter and the balance between changes will need to be struck carefully.

 

The single most important thing to change is the way we think about the use of military force. To recognise the change in paradigm and accept that our institutional mindsets, developed and honed during years of industrial war, need to change. Force has utility, if it does not why are we so concerned about terrorist groups, the spread of nuclear weapons, war lords, ethnic cleansing, or is it genocide, in Darfur and so on? Why is it that our opponents appear to understand the utility of force rather better than we do? How do we bring our military force to bear to advantage?

 

In the first instance this is not a matter of equipments and military organisations or their tactical use. We must understand the confrontation in question and the outcome we desire from it in sufficient detail that we can decide what part military force has to play in resolving it. Only then can we usefully consider the nature of the forces necessary to achieve the result intended. We need to understand the employment of force rather than the deployment of forces. Deploying forces is easy, deciding when, on what and to what purpose to employ force is much harder, particularly when your objective is to alter intentions.

 

And this is made more complex because we must understand and decide on the other measures that are necessary to alter or form intentions: political, legal, social, economic and so on. Decide which has the lead or primacy, and in what circumstances, and thereby decide and designate the directing mind — the arrangements for command and control. I say this because all our institutional structures, thinking and process are based on the conduct of Industrial war; where the confrontation was to be resolved by military force with conflict at the strategic level. If conflict is only to take place at the tactical level, how do we make the tactical military acts coherent with and complimentary to the other measures necessary to change or form our opponents’ intentions and so win the our theatre and strategic level confrontations?

 

And how do we do this in our multinational groupings? How do we bring together the other measures with those of the military, and provide the essential direction for all efforts in the Theatre. NATO was designed to put a military strategy into effect - MAD, or mutually assured destruction. It has no capacity to handle political, legal or economic measures except as they affect its own existence. It only does force. The EU has great potential in this regard: it does have the other organs of power, probably more developed than its military, and could produce coherent direction and action. This may well provide for the political and strategic direction to win the confrontation, but this must be brought together under a directing hand in the theatre; for it is here that the opponent is faced and if we lack the driving logic necessary to guide our actions, we will fail.

 

We are all engaging in War Amongst the People, states and non states alike, in which our opponents, those formless non state actors, appear to understand the utility of force better than we do. And until we understand the nature of War Amongst the People and adapt our thinking and institutional structures accordingly, our statesmen and generals will fail to deliver the victories and security we seek.

 

General Sir Rupert Smith commanded the UK Armoured Division in the 1990-91 Gulf War, was Commander UNPROFOR in Bosnia in 1995, GOC Northern Ireland 1995-98, and then Deputy Commander of NATO; he retired in 2002. Dr Ilana Bet-El is an historian and defence analyst, who writes and publishes regularly on European and international defence and security issues.

 

 

 

 

PROSPECTS FOR THE MIDDLE EAST: BUSH THE PIONEER PEACEMAKER?

JONATHAN FREEDLAND

 

For a left liberal like me, it is not easy to commit heresy. After all, we are meant to be open-minded free thinkers, unshackled by taboos. Nevertheless there is one thought so heretical, merely to utter it is to ensure instant excommunication. I hesitate even to pose it as a question. But here goes. What if George W Bush was to prove to be one of the great American presidents?

 

At first blush, it seems a nonsensical proposition. As I write, Bush's poll ratings have plunged to the Nixonian depths. One of his top officials, “Scooter” Libby, has been indicted on perjury charges, while his closest counsel, Karl Rove, remains under investigation. Bush has botched a Supreme Court nomination. He stands accused of ballooning the federal deficit. Images of the dead floating in the streets of a flooded, Katrina-hit New Orleans still linger in the American imagination. And, gravest of all, the death toll of US personnel killed in Iraq is in excess of 2,000. The Bush presidency, even some Republicans predict, will be remembered only as a disaster.

 

And yet history has a funny habit of messing with presidencies. Ronald Reagan was dismissed as a joke by plenty of Europeans and Brits in the 1980s, yet he is revered in the United States as one of the great occupants of the highest office: the national airport bears his name. Even Richard Nixon, for a quarter century a byword for presidential calamity, has found himself the object of some benign revisionism in the last few years. This new version holds that Nixon was strategically sound on the Cold War and surprisingly moderate at home, and therefore insists that his place in the history books should no longer be reducible to that single word, Watergate. Could the historians of the future take a similar, kindly second look at the 43rd president of the United States?

 

Bush’s first achievement is straightforwardly political. Any president who wins re-election deserves to be taken seriously. Bush's feat is all the more impressive when you consider the circumstances of his arrival in the White House. In 2000 he lost the popular vote to Al Gore, only winning the presidency after a bitter dispute and the intervention of the judiciary. The last president to have such an inauspicious start was Rutherford B Hayes in 1876 – and he did not so much as seek re-election. Bush, by contrast, dispelled any doubts over his legitimacy by winning his own mandate in 2004. En route, he saw his party gain seats in the House and Senate in the midterm elections of 2002, the first first-term president to pull that trick off since FDR in 1934. As things stand, Bush has won the triple crown, giving his party control of the presidency, House and Senate – with domination of the third branch of government, the judiciary, the attendant reward. This is a substantial political record by any measure.

 

But it is that last accomplishment for which the conservatives of the future may thank him. For it will be Bush – not Reagan, nor Nixon – who will have made real what was a conservative dream for decades: control of the Supreme Court. Yes, his path to it was bumpy – with the Harriet Miers nomination an embarrassment – but the appointments of John Roberts and Samuel Alito seem set to entrench the conservative ascendancy in the US for another generation at least. This refashioned bench will make decisions that will long outlive the actions of politicians and, thanks to Bush, those decisions will be conservative. The result is that Bush's legacy to the US may well be nothing less than a recasting of the legal and social mores of the 21st century.

 

Of course, any claim to greatness will depend on Iraq, a word as sure to be engraved on the heart of Bush as Calais was on Mary Tudor's. Today's conventional wisdom, taking in every foreign ministry in the world – including most of the US State Department – holds that Operation Iraqi Freedom has been a tragedy of errors. Based on faulty premises, disingenuously sold and incompetently planned, the mission of 2003 is widely regarded as an abject failure. I confess that this is my own view.  But the future may not see it that way. The war removed one of the most hated tyrants of modern times, shifting Saddam Hussein from a palace to a prison cell. Couple that with the toppling of the Taliban, a regime of cruelty and brutal philistinism, and Bush's defenders have a powerful opening argument.

 

Next, they can point further afield. For didn't the war in Iraq, admittedly prosecuted at a high and bloody price, not set in train a wider series of events? Note Libya's rapid decision to come clean about, and abandon, its attempt to build weapons of mass destruction. Iran is a more complex case – rendered more complicated by the arrival of President Ahmadinejad – but it is clear that a faction, at least, within Iran's bifurcated government wishes to follow Libya's lead. The 2003 war established, through shock and awe, that any effort to go nuclear can bring terrible consequences.

 

There has been a chain reaction of a different kind, too. Lebanon is the clearest example, with its Cedar Revolution bringing people power to the streets of Beirut – and the ejection of the Syrian occupier. Tentative moves toward electoral democracy have followed in Saudi Arabia, Egypt, Kuwait and Bahrain. Even Syria seems, grudgingly, to understand that it lives in a changed region and that it too will have to adapt.

 

None of these advances should be exaggerated; they do not on their own amount to the flowering of “freedom and democracy” imagined so floridly in Bush's set-piece speeches. Those have set out the belief that US interests in the Middle East are no longer served by propping up vile (if US-friendly) tyrants, but are best aided by the spread of democracy. Yes, there are contradictions and hypocrisies, but that shift represents a break from at least 60 years of US foreign policy – and in the right direction. If Washington was to honour the ideal articulated by Bush, then the world would be a better place.

 

Of course, these recent changes in Lebanon and beyond may come to nothing. But the opposite is at least possible; the tentative shifts towards an Arab glasnost could deepen and spread. If the Iraqis do, despite everything, inch towards constitutional self-rule, the momentum may be hard to stop. People across the Muslim and Arab world will see that reform and democracy is real – and they will want some of it for themselves.

 

These are all big ifs. For every step forward Bush has inspired, there have been awful steps back: Abu Ghraib and  Camp X-Ray have discredited the cause of US-led democracy more than Bush's warm words have promoted it. But change will eventually come to the Middle East, just as it came, eventually, to Eastern Europe. And, when it does, it is at least conceivable that the man future generations will credit as the pioneer will be none other than George W Bush.

 

Jonathan Freedland is a columnist for The Guardian. He is the author of ‘Jacob’s Gift, A Journey into the Heart of Belonging’.   www.jonathanfreedland.com

 

 

 
 

TIGERS BURNING BRIGHT: BUT DOES THE EAST HAVE ALL THE ANSWERS?

NORMAN STONE

 
The current British presidency of Europe has not apparently gone down very well.  Much muttering, at the way in which Turkey’s candidacy has been pushed through, about British obduracy over the budget, and in the background no doubt also about British involvement in Iraq. To save the reputation of our presidency, the Prime Minister tells his colleagues – ‘partners’ (there is an awful woodenness to this language; there is more to come) – that they have to come to terms with the growing competition from China and India.  This is obviously fair enough.  Both countries have enormously expanded their trade and foreign services, and if these huge countries can truly turn the corner, then we face very serious competition indeed.

 

If so, this will be an enormous revolution, though perhaps deserved.  If you know anything about western history in the era of the First World War, the attitudes of imperialists (the word has to be used) are an embarrassment.  Lord Curzon, when he was Viceroy of India, announced in 1904 that the British should rule there ‘as if for ever’.  They thought of themselves as the new Romans.  Within two or three decades Gandhi could call the British Empire millions of acres of bankrupt real estate.  But in 1900 the common coin of European discourse was that the West had all the trumps, and the only serious debate was as to why.  Race ?  Protestantism ?  There have been some excellent studies, as to the superiority of western technology (the one for which I have the highest admiration is David Landes’s Wealth and Poverty of Nations, a book which got from me the compliment of being read at a session, in bed, much as I had read The Count of Monte Cristo at the age you read that book.  Landes knows the Levant at first hand and understands that not everyone wants to be American). 

 

The fact does remain that the West, somewhere around the time of the Crusades, in the eleventh century, just proved to be superior when it came to gadgets, and when the Venetians and their Norman allies sacked Constantinople in 1204, it was because they knew how to treat leather in such a way as to make it non-combustible by ‘Greek Fire’ - a mysterious compound which burned all other comers.  The Byzantines could not believe it, because the westerners were either greedy two-dimensional money-makers or thugs.  But Constantinople collapsed, and the great church of the Pantocrator, burial place of the Comnenoi, now has, from its days of greatness, only a tiny fragment of gold inscription (the building was uneasily converted into a mosque, the Zeyrek, and a brave effort at reconstruction is now going on).  Landes wrote another book, as to how western technology produced the clock, whereas no-one else’s could.  Even in 1914, if you had an appointment with an Ottoman dignitary, you had to specify the time, the lunar or solar calendar, or even the year. 

 

All of this made for much arrogance on the part of the West, and it is a very good thing that the examples of ‘the tigers’ have arisen, to show a return of ancient non-western civilizations – Ottoman, Chinese, Indian.  German commentators who lament the passing of the ‘Miracle’ – Arnulf Baring or Lothar Spaeth, say – worry about this: will there be a German pavilion in some future Korean industrial exhibition at which anything of any interest will be on display and will anyone serious bother to attend the relevant Minister’s press conference ?

 

Singapore, Taiwan, Hong Kong, South Korea present, indeed, extraordinary stories.  In 1960 South Korea’s chief export was wigs; the Taiwan story is as remarkable.  But there are some question-marks.  In the past, city-states shot up, showing outstanding creativity.  The obvious case is in Italy, where (the expression, like much else in the ‘globalisation’ context is crude but unavoidable) capitalism was invented – the word ‘cheque’ comes from the Italian for ‘blind’.  The problem with these city states is that money forgets and poverty remembers.  Amalfi, Pisa, Siena, even Florence herself – one generation makes the money, and the next gets involved abroad; the next becomes high and mighty, and then is simply defrauded, as Edward III defrauded the Frescobaldi of Florence at the time of the Hundred Years War.  Meanwhile, there are resentful poor people in the grand city-state, and among the rentiers a degree of self-hatred (Savonarola, again in Florence, burning the pictures and encouraging the mobs is an instance).  In the late-Latin Tag (Tertullian) fex urbis lex orbis: ‘the shit of the town is the law of the world’.  Rulers could hire Swiss thugs – a memory is still there with the Swiss Guards of the Vatican – but other Swiss thugs would descend, and by 1650, Italy had collapsed. 

 

Holland is a rather similar example of a ‘tiger’ burning out after four generations.  The very expression, ‘high and mighty’ reflects the hoog moogend of the Estates-General’s title (there are other instances when ‘Dutch’ is used pejoratively) but the third generation made the usual mistakes, and by 1730 Amsterdam was grand rentiers, idle shipyards, and mob.  Holland was only really saved because of the English connection.   She was large enough, and defensible enough: she had what might be termed a mass of manoeuvre; she was also taking in migrant Scots, who learned from the Dutch.  European history has, in other words, its tigers, but envy sees them off after a generation or two, as thugs, internal or external, take over.  As Orwell put it, the castle defeated the knight, gunpowder defeated the castle, the cheque-book defeated gun-powder - and the machine-gun defeated the cheque-book.

 

There is a much more serious question, as to whether the great civilizations of India and China are making the sort of return to the world stage that Japan made a century and more ago.  It is worth asking: why ?  One answer might be that, with those ancient civilizations, something quite simple got in the way – their alphabet.  No chance of mass literacy.  The fax machine really started to develop (its paternity is disputed) once the Japanese used it, since it could convey characters as a type-writer could not.  The language of to-day is mathematics, and that emancipates Chinese and Indians, who have shot ahead in the last decade or so. This is clearly the great economic question of our times, and it is entirely right that the British, with so much more experience of the outer world than other Europeans, have been raising it.  There are of course extraordinary developments in China, as the most casual observer can note (textile manufacturers in Turkey are in wild alarm).  Shanghai is back to the days of the old Bund and for some years now, India, long-considered the last victim of Old Labour, has been producing good statistics.  Fifteen years ago, Francis Fukuyama published the American optimistic book of the decade, when he pronounced that the world was moving towards market-economy-plus-democracy, a phenomenon which, he thought, came about when the GDP per head reached some figure above six thousand dollars.  Is such optimism, in the longer term, justified ?

 

In the short term, matters are impressive.  But there are question-marks.  In the first place, how many times have the claims for a radiant future been made before, for instance in the case of Brazil which, in the 1920’s, looked for a seat on the governing body of the League of  Nations?  At the same time, one of the claims made by Lloyd George for coming to terms with Communist Russia was that she represented a huge potential market, a notion advanced again and again, to the point of weariness: and how many lenders sank money into that morass. A French commentator, Alain Besancon, likes to cite Flaubert’s banker, Dambreuse: ‘he would have paid in order to sell himself’.  China is still a Communist country, and we know from bitter experience since 1990 how very difficult it is to disentangle people from the legacy of Communism.  In that system, you could survive only by pretence or worse, and if there were honest people, they were very expensive.  The Communist Party itself recognized, from time to time, that, in the attempt to create Utopia, it was destroying the seed corn, and from time to time it would let up, and allow people to get on with their lives. 

 

The first such experiment – it even involved using the expressions glasnost and perestroika – occurred in the early Twenties, when Lenin staged a ‘New Economic Policy’, legalized small private workshops, and went for Gold Loans in the West.  Lloyd George cooed as to the potential market, as did German banks, and both Germans and Americans subsequently gave money and personnel to Stalin.  Result ?  Megalomania, starvation, tyranny.  We might all accept that the products of China, an ancient, sophisticated civilization, would adapt to capitalism, but Communism is a different matter.  There was a fatal difficulty about economic reform in the old USSR, that it attracted short-term profiteers, the ‘Nepmen’ as they were called, and of course they became unpopular. 

 

One of the worst seems to have been Armand Hammer, who had a concession from Faber-Castell to make pencils, and at the end, when NEP was closed down, did a deal by which he took out from Russia, questions unasked, carpets, pictures and the like, with which he established a business in New York, which was his base for subsequent explorations in oil and much else. 

 

Who knows when Chinese Communism will respond to the present position, and exploit the grievances that are building up in the interior as Shanghai booms, and moves back towards its position in the 1920’s?  And even if it is finished, Communism has an isotopic half-life, its artefacts to be touched only with heavy protective clothing – as the Europeans discover, even when they encounter small and manageable places, such as Estonia or Slovenia.  That Fukuyama optimism, far from stupid, needs to be relativised.  That economics can be separated from politics is an Anglo-Saxon illusion, the product of (again) Orwell’s lines of grey battleships.  Is the present-day state of China the last and greatest version of the New Economic Policy, or is Fukuyama its presiding spirit ? 

 

The danger of instability is now such that Europeans might be best-advised to have a bit more confidence in what, for all of the alarms, is still an extraordinarily prosperous and creative neck of the world’s woods.  Judged from a British perspective, ‘Europe’ is maybe a bit of a bore.  Judged from a Turkish one, not so; not so at all.  In a sense, she is even settling Lothar Spaeth’s alarums and excursions by herself developing as (more woodnness) ‘a global player’.  That is where by all the evidence she is heading, if the problems to east and south can be contained.  The days when Russians could call her ‘the sick man’ are well and truly over – literally so, in that Russians die at sixty, Turks at seventy.  She is large enough to contribute much (and Istanbul itself is already something of a ‘tiger’, accounting for almost half of the entire economy).  She has not that Communist past which wrecks honesty and industry.  Europe herself may be, as Spaeth sees Germany, tired and old, but she has on her doorstep a country that is not, its foreign trade growing fast, and representing a species of globalisation that is under control.  Maybe it is not, now, very much in Turkey’s own interest to link up too closely with Europe as at present constituted. But it would certainly be in Europe’s.

 

Norman Stone was Professor of Modern History at Oxford until moving in 1997 to Bilkent University, Ankara, as director of the Russian-Turkish Centre. He moved to Koç University, Istanbul, in 2005 as Professor of History. His ‘The First World War’, in the Random House 'Modern Library' series, will be published in 2006, and his ‘The Origins of the New World War’ wıll appear shortly thereafter.

 

 

AT THE FOREFRONT OF CHANGE: FRANCE THE GLOBAL BUSINESS PLAYER?

BERNARD SPITZ

 

In this era of Euro-pessimism, we are always being fed the formula for what a European paradise might look like : a region of German organisation, Italian leisure, English business and French cuisine.   Naturally the same consensus exists for the definition European hell : an inferno of German leisure, Italian organisation, English cuisine and French business. But what if they are all wrong ? Never trust cliches. In the same way as we can eat very well in London, it’s time to end the simplistic notion so often associated with France – indeed with which we French sometimes associate ourselves – namely our so-called inability to be organised, efficient, or good business professionals.

 

The images of disorder in the French suburbs have been broadcast around the world. And the question on the lips of many Anglo-Saxons has been whether France, a model country where one buys a second home and goes almost free to the dentist, is in fact in crisis ?  Has Paris become a dangerous city ?  And coming after the rejection of a referendum on the European Constitution, is this merely another sign of the decline of France in Europe ?

 

The reality, of course, is more subtle.  France presents a combination of great successes but also of great weaknesses. What happened in the suburbs demonstrates that we cannot ignore the weaknesses for too long without them provoking despair and, fatally, violence.  Paris is not burning, we shouldn’t be worried about that.  Rather, it is political immobility that is being burnt to a crisp and which, in the end, could be good news for France.

 

French public debate, to an extent, was already informed by an awareness that things could not go on as they were.  Nicholas Baverez, in an essay on success last year developed the idea of a France in free fall.  In the same tone of self-criticism, a quarter of a century ago Alain Peyrefitte was already talking about the ‘French illness’. Roger Fauroux has offered two equally critical polemics about the inability of France to reform itself : ‘Our State’ and ‘State of Urgency’.

 

And yet as recently as June 2000, Time Magazine headlined ‘the French Renaissance’ and was expansive in its praise of our modernisation.  In some ways we are ready to recognise our handicaps and force ourselves to combat them much more than we are prepared to accept criticism from abroad. Particularly when the abroad in question is close to the Bush Administration…but that doesn’t mean France is set in aspic.

 

Often when we talk of assets and handicaps, the temptation is to draw on the past to create an impression of the present.  This is an exercise that tends to remind us that France has moved in just a quarter of a century from being a  predominately farming economy to becoming the second or third biggest exporter of services in the world; from constant inflation to monetary stability.  These areas of excellence are clear drivers for the future and offer real value to a host of industries, including for example telecommunications, aerospace, transport, the Arts, fashion and luxury goods, distribution, foods, cars, the BTP, energy or water distribution.

 

These examples help to remind people of an incontrovertible truth : namely that France has accomplished a vast transformation and should never underestimate its capacity for change. What emerges as the most important lesson for our future is to envisage our assets and handicaps not as mutually exclusive but as part of a single, dynamic concept.

 

Our first asset is the flexibility of our population to adapt. This has been exemplified most obviously in the past decade by the trouble-free adoption of the Euro and the widespread adoption of digital technology.

 

Next comes the quality of our education and by proxy the productivity of our employees who, according to businessmen based in France, are among the very best in the world.

 

Our industrial specialisation has seen us create, in a number of sectors, leaders which are not merely European but also global, with real access to international markets.

 

While the attraction of our country is often demonstrated in terms of tourism, we should not forget the large number of investors ready to base themselves in France and invest in French businesses. This makes France among the most privileged countries in terms of foreign investment.

 

Then there is the quality of infrastructure networks and public services. The widespread power cuts in the United States and elsewhere, decaying state transport networks and the difficulty of access to quality care in many countries serve to remind us of the importance of these assets, as much elements of individual security as factors in a competitive economy.  The same can be said of an administration that is honest, competent, modernised, open to new technologies and willing to play the European Union game.

 

In the end it is about putting into action the new French form of liberal-colbertism, a modern but largely practical effort at state level to ‘do what I say, not what I do’  In contrast to the two-faced American attitude which advocates liberalism in big international negotiations but does not hesitate to encourage the discreet support of the federal state for big companies, France is actually in the process of inventing a symmetrical model: one which profits when it offers the advantages of liberalism to favour the international development of its champions, as in the acquisition of marquee foreign brands by Pernod-Ricard or the re-purchasing of Nissan – or the opposite by devising poisoned pills to discourage foreign investors not welcome in France such as in the case of Danone, Alstom or Renault.

 

Yet very real handicaps can undermine our position, curbing the intrinsic dynamism of the French economy and preventing us from putting our assets to good use. Our first handicap is a lack of self confidence which translates into a growing number of fears that hold back our economic growth and divide our social plan.  The fears are many : globalisation, inequality, unemployment, legal complexity, new technology and an erosion of the safety net that represents state providence.

 

Our second handicap is the weakness of our intermediary bodies, notably our unions as well as the structure of working rights which encourages a culture of conflict over negotiation. The third handicap is the delay in modernising public structures and adapting methods of social security to meet our demographic demands.  The result of this is not merely an extraordinarily constrained management of the budget, but also an inability by the state to dedicate the means necessary for the future, as much for long-term investment or human capital as for research and higher education.  In short, the state lives below its means but does not dare admit it, particularly in advance of elections. Our final handicap became only too clear during the referendum on the Constitution. It resulted in a real loss of influence within European institutions.

 

So we have two Frances drawn along grand lines : the one is based on access to the outside, on movement in the workplace among the younger members of the population and those who have received the best levels of training.  This France welcomes globalisation with open arms. Many leave here to go elsewhere, in particular to London, the latest destination of choice for many young French people.

 

At the other end of the spectrum is the brittle France, more individualistic, largely sceptical and conservative, elderly and anxious about the most vulnerable elements of society.  For this France, globalisation is seen as an assault on our way of life and as a brutal rejection of social protection.

 

Of course it is in this duality that we discover the most oppressive menace for the future social cohesion of our country.  Such separation could have happened in any number of European countries. Great Britain has had the good fortune, like many other countries in the Union, to have invented a political leadership capable of reconciling these two apparently contradictory interests.

 

In France the problem remains unresolved and is at the heart of the next election in 2007.  In order to win power in France is it necessary to use a political discourse which is rooted in the past to reassure the France that is anxious – the France that appears to have been in the majority in our consititutional referendum.

 

Many on the left and right believe that it is possible to defend our social model without profound change.  A political victory based on such a premise could end very badly, not merely for our economic future since public deficits would rapidly become untenable, but also for our social plan.

 

Nothing is certain. Some of us hope that in 2007 there will be a rather different outcome, one in which France will change its political leadership and wholeheartedly turn its assets to good use. A country free of the shackles of pointless responsibilities, which can return confidence to her own entrepreneurs and make them want to open businesses in France.  A country which rediscovers social dialogue and fluidity in the workplace, which balances her public finances for the assistance of research and attracts the best foreign students, and which assures modernisation of her public services and financing of social systems. In short, a France that generates confidence and hope in society as a whole, this country would be unbeatable, except perhaps on the football pitch.  France certainly has the capacity for change as witnessed by the relentless march of enterprise in the course of past decades.  She has the imagination, as proven by her new liberal-colbertism. All that remains is for a new political leadership to give her the desire, courage and the will.

  

Bernard Spitz is CEO of BS Conseil, a strategic consulting company, and teaches at the Sorbonne.  A member of the Council of State and former adviser to French Premier Michel Rocard, he is a former head of strategy for Vivendi. He was co-author, with Roger Fauroux, of the best-sellers ‘Notre Etat’ and ‘Etat d’urgence’.

 

 

 

 

NOT THE SUPPLY SIDE, STUPID: WHAT EUROPE CAN REALLY LEARN FROM AMERICA

DAVID BLAKE

 

What’s wrong with Europe? Not just its economy, though that gets bad enough reviews from the international pundits. But the whole social model, which allows mass unemployment, bitter resentment in ethnic minorities in its slums and slow growth in its economy? Over the past few years a conventional wisdom has emerged to answer this question. It says that Europe needs massive “structural reforms” to cope with “rigidities.”

 

These “reforms” (and this particular set of reforms have managed to obtain monopoly rights over the word “reform” itself) would bring in much more flexibility to labour markets, scrap many of the existing laws on employment protection, cut budget deficits and tackle the long term problem of a funding “crisis” in the over-generous state pension system of these countries. Do this and, it is said, Europe could break through to a new prosperity and unemployment would vanish, removing the source of many of the other problems in society.

 

Now all of these policies have something in common. They remove risk and other burdens from firms and governments and transfer them to individuals.

 

·        More flexible labour markets make it easier to pay wages lower than centralised collective bargaining;

·        removing employment protection makes  it easier to sack people but at the cost of them having less job security;

·        cutting unemployment benefits for those without work to encourage them to take a job

·        cutting deficits means cutting spending on programmes people want or forcing them to pay more of their incomes in taxes;

·        reducing the cost of pension systems increases the burden on individuals of preparing for their old age.

 

A decade ago these criticisms of Europe were mostly from outsiders looking in. Anglo-Saxon economists looked at and rejected the so called “Rhenish” model of which Germany was the prime example or the French tradition of a much greater role for the state. But now they have become the routine patter of those inside the Eurozone. This view that Europe needs to adopt a far more free-market approach is the new consensus in the European policy-making elite.

 

It is espoused by the EU Commission, the ECB, leading business organisations and leading commentators. At G7 meetings, communiqués routinely include a paragraph saying Europe’s main contribution to solving the world’s economic problems would be “reforms” to introduce more flexibility. Every month the ECB issues a statement which laments the lack of progress on structural reforms and cutting the Budget deficit. This mix of policies is now the only solution which respectable opinion allows. But what if they’re all wrong?

 

It is easy to see why most of those who support the policy are so attracted to the diagnosis. Take a G7 Finance Ministers meeting or the ECB Council. Everyone knows that European growth is too slow and unemployment is too high. The key thing is to come up with an explanation which proves that no one who has a say in drafting the communiqué is in any way to blame for the problem. (This principle is sometimes referred to as Blake’s Third Law of European Communiqués. The First Law states that any policy agreed must be guaranteed not to impose any costs on the individuals in the meeting, a point to which we shall return later; the Second Law says that the attractiveness of any policy is inversely proportional to the chance that it will be pursued firmly enough to be tested.)

 

So for example the ECB might consider the possibility that it kept interest rates too high for too long and stifled growth; or that its obsession with money supply has prevented the growth of consumer finance which has done so much to boost US demand. But why do that when it involves blaming a colleague or even yourself for things which have gone wrong. Much better to say that monetary policy has been right and it’s the fault of the governments for not cutting their deficits.

 

What if the attempt to impose these policies is part of the problem not part of the solution? What if what really ails Europe is its refusal to enjoy being rich?

 

Let’s look at the theory which underlies the prescription. It really has two parts. The first is that the current framework in Europe imposes such onerous burdens on employers that they won’t take people on. In particular, it is so hard to sack people once they have been employed that it is better not to hire them in the first place. The intellectual birthplace of this theory is the OECD, which produced a highly influential Jobs Study in 1994. (Note that the OECD has almost legendary status with senior civil servants as being the only place harder to get sacked from for not working  than the upper reaches of central government, thus confirming that this theory meets the conditions of the First Law, that it is no threat to  those putting it forward. Since then a number of academic economists have produced studies which try to prove that countries which have too much employment protection have the worst unemployment records. Unfortunately for this thesis, the evidence is at best dubious.[i]

 

Some countries, such as Spain, have seen improved employment in recent years as they reduce regulation of the labour market; other countries like Ireland have seen huge gains in employment without making significant changes.

 

Nor does the theory become any more convincing if we look across countries. Scandinavian countries have high levels of protection and low levels of unemployment. So why should weaker levels of protection in Germany be the cause of that country’s unemployment?

 

Similar problems exist in trying to tie generous unemployment benefits to high levels of unemployment, especially long-term unemployment. Indeed, in many countries the very high levels of unemployment came before the unemployment benefits became so generous; governments decided that if they could not create full employment they needed to act to mitigate the consequences. The relationship is weak in other ways. Italy has one of the highest levels of long term unemployment in Europe yet it has no long term unemployment benefits at all.

 

This argument obviously should not be pushed to extremes. If unemployment benefits are so high that they are equal to or greater than what can be obtained by working, they become a disincentive. In the same way it has to be admitted that some potential employers, especially small businesses, will be cautious about hiring people if they worry about the problems they face if business turns down.

 

But businesses are not the only ones who face problems, which lead to the reason why the current stance of policy makers may be making things worse not better.

 

Take Germany, generally regarded as the biggest problem in Europe’s economy and very frequently cited as massively less successful than the UK. Over the past year, Germany has had a surplus on its current account of over $100bn dollars. If German employment laws make the country so uncompetitive, how is it able to achieve this while the US is running an enormous deficit?

 

The noticeable weakness in Europe’s economy is domestic consumption. Over recent years the savings ratio in Germany has climbed steadily. People lack the confidence to spend.

 

Here it is worth noticing a basic difference in the remit of policy makers. In the US, the Fed is charged with full employment and stable inflation. Everybody knows that if the economy slows down and unemployment rises, the central bank will cut interest rates to boost demand. Equally, it is accepted that the Federal government will spend more and tax less in order to keep the economy going. So individuals in US society know that there is a guarantee from the authorities to maintain demand which maintains employment. That is matched with a resolutely positive tone in describing the fundamentals of the US economy.

 

Contrast that with Europe, where there is no commitment to maintaining full employment, the Central Bank has stated repeatedly that it does not use interest rates to prop up demand and it, along with all the other main voices of economic policy making, maintains a steady drumbeat of pessimism about how little has been achieved, how much the governments have to tighten policy and how urgent it is to start hacking away at pension rights. We have just seen the ECB raise interest rates at the first sign of European recovery. The new German government has announced tax rises to get the deficit below the artificial 3% ceiling which is included in the Maastricht Treaty.

 

So when we see that employment is weak and output is weak, just give a thought to this possibility. If your government’s policy for curing unemployment is to make it easier to sack you, to ensure that if you lose your job you have less compensation and lower benefits, that you pay more taxes now and have to wait longer for a pension which is less than you were promised when you were paying in your contributions: consider, just for a moment, consider the possibility that you won’t rush out to the shops and start spending. And that maybe, just maybe, the people who think they have a policy for European recovery might be wrong.

 

There's a newly fashionable tale by Benjamin Franklin swirling round the internet which explains a lot about how America is different from  Europe. According to this, the Thanksgiving we know now came about as follows. In the early days of the English colonists in America, they were much prone to lamenting their troubles and praying to God and fasting in the hope of getting his attention. One day, as people were discussing a particularly big Fast and general recital of their woes, someone came up with a different idea.


"Why don't we stop complaining, say thank You for the fact that we're here and we're safe and have a really big feast not a fast to cheer ourselves up." And that's how what has now become the world's biggest shopping festival came about. In the period between Thanksgiving and
Christmas, the
US retail sector does 20% of its business for the total year. Franklin Delano Roosevelt even changed the date of the Thanksgiving holiday to make sure people had more time to shop. Every year on the day after the holiday itself, the shops are flooded with people and the economy gets its regular annual boost of demand all the way to Christmas.


Obviously it's the initiative of the private sector which makes this happen. But it is reinforced by the fact that in the
US it is official policy to get people to spend money to keep the economy whirring round and to keep people in work.


This isn't only true at Thanksgiving time. The Federal Reserve Bank has as part of its twin mandate the requirement to secure the maximum sustainable rate of employment. It does this by using interest rate policy to boost demand when things get slack. And everybody knows this.


So when business is bad, rates are cut dramatically to encourage people to borrow thereby producing a pick up in activity. Nor is the Fed alone in doing this. Fiscal policy is used aggressively to boost demand in time of weakness.


This is the feature of
US policy which all too often gets overlooked in the Eurozone as it discusses its economic problems. All too often, the discussion turns into a gloomfest as the litany of Europe's problems is discussed, making it sound as if Europe has ceased to be able to compete in the world. But on the most obvious measure of ability to compete, selling to the rest of the world, Europe is far more successful than the US or Japan. It is domestic demand in Europe which is the weakness. And that is made worse by the analysis which tries to make it better.

  


[i]Particularly worthy of note is the work done at the Schwarz Center for Economic Policy Analysis in New York.

See http://www.newschool.edu/cepa/research/workingpapers/EmploymentProtection_Howell_FightingUnemployment_051103.pdf

http://www.newschool.edu/cepa/research/workingpapers/EmploymentProtection_UnemploymentEmpiricalCaseForDeregulation.pdf

 and

Howell, David R. [editor] (2004) Fighting Unemployment: The Limits of Free Market Orthodoxy, Oxford University Press

 

David Blake is a financial analyst and commentator

 

 

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