What Brian O´Driscoll Can Teach the Eurogroup about Grexit

 

Brian O'Driscoll 24/2/2013

The media assumes that Greece will now leave the Euro, if not the EU, just as last week they assumed a deal was done to avoid it. The mechanism is simple. The Eurogroup has decided not to extend further support to Greece beyond Tuesday. The same day Greece will fail to repay the 1.6 billion Euros it owes to the IMF. This will leave Greece in default or arrears, depending on how tough the IMF decides to be. Either way Greek government debt will no longer qualify as collateral under ECB rules. The ECB will consequently stop emergency lending to Greek banks, whose only collateral is Greek government debt. By the time of next Sunday’s referendum on the Eurogroup proposals, which are no longer on the table, Greece will likely already have run out money. In that case, the Greek government will have to impose capital controls and a bank holiday, and probably begin issuing its own currency. The referendum will have been overtaken by events. But it does not have to be like this, as reported French offers of mediation suggest. The tragic events in Tunisia tell us why it must not be like this.

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As a rugby coach, I have always tried to teach my players to “lift the head”. This means to look more broadly at the play than just what is in front of them. It is an ability that in fact few have, and usually those whose skill sets are so strong that they have that little bit of extra time to look up and see the possibilities, and threats, across the whole pitch. One of the greatest at this was recently retired Irish centre Brian O’Driscoll, who could attack the defense ball in hand while directing the rest of the attack with his other hand (he also got a name check for his last game from Barack Obama). Another is the All Black first five eight (stand off for non-Kiwis) Dan Carter, who has an unrivaled ability to look up as he receives the ball to assess the options across the field, thinking several phases ahead. These are skills that the Eurogroup, and European political leaders in general, lack. Self-obsessed they seem able to focus only on the problem immediately at hand rather than the broader picture. As Greece heads towards exit from the Euro, the Eurogroup meets to put in place measures to prevent financial contagion to the rest of the Eurozone, but ignores the broader regional geopolitical consequences. In its obsession with the near and short term, it runs incalculable longer term risks.

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I have already written on the geopolitical consequences of Grexit (http://www.shaunriordan.com/?p=177). Yesterday’s brutal attack on tourists in Sousse adds a new element to the mix. Foreign tourism contributes 15% to Tunisia’s GDP. Some commentators suggest that Tunisia’s foreign tourist season is now effectively over. This puts at risk thousands of jobs and the stability of the Tunisian economy. Tunisia has been one of the few (only?) successes of the Arab Spring. Now it could become another source of North African (for which read Mediterranean) instability, together with Egypt and Libya. Such factors should be foremost in the minds of Eurogroup ministers when they make a stand that risks destabilizing Greece. Europe already has a Mediterranean agenda it seems incapable of tackling, focused on illegal immigration and Libya. Islamic State may be adding Tunisia to the list, but it is the Eurogroup itself which is adding Greece. I have previously focused on the risks of crisis in Greece destabilizing the Balkans and even Turkey. Ann Applebaum wrote in the FT yesterday of how European diplomatic ineptitude is creating opportunities throughout Eastern Europe of which Russia is only too happy to take advantage ( http://www.ft.com/cms/s/0/32c10406-1b2d-11e5-8201-cbdb03d71480.html?siteedition=intl#axzz3e30yoMF3). What impact will destabilization all the way along Europe’s southern and eastern frontier have on the appetite of American investors for countries like Spain (where US investment has been a major driver of recovery)? This could be the real financial contagion of Grexit, for which even Super Mario’s printing presses may be insufficient.

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I wrote last week of how the Eurogroup preferred a short term fix, kicking the Greek issue off into the long grass, to a genuine attempt to solve the problem (http://www.shaunriordan.com/?p=186) and how this could lead to Grexit anyway. The temptation to compare it to Munich and Churchill’s jibe about England choosing shame and getting war anyway was hard to resist. But it now looks as if the Eurogroup’s insistence on deferring the problem, rather than tackling the underlying issue of Greece’s insolvency, will indeed lead to Greece leaving the Euro. The reasons for the Eurogroup’s position were partly domestic politics and partly group think short-sightedness. Allison and Zelikov’s wonderful analysis of the Cuban missile crisis (Essence of a Decision) argued that the “rational agent model” was inadequate to explain policy making, and that political or bureaucratic models, where agents’ arguments and decisions are constrained by their position in political and bureaucratic structures, give a better account. Slightly more light-hearted, Rorden Wilkinson, now professor of IR at Sussex, once wrote an informal paper in which he compared WTO negotiations to a family Christmas in which everyone, on arrival, adopted and played out the role expected of them. This seems to give a good account of the Grexit negotiations, in which everyone has adopted and played out the role expected of them (fiscally austere Germans, even more austere Finns, headmistress IMF etc). No-one has been capable of escaping their designated role to see the broader geopolitical consequences. If one might not expect that of the Eurogroup of Finance Ministers, it should have been the role of the EU Summit. Instead, Merkel, who of all leaders should have been conscious of the wider picture, pushed it back down to the Finance Ministers. It seems Merkel is no Bismark.

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Instead of obsessing about fiscal rectitude and moral hazard (neither of which seemed to matter when bailing out the German banks for their unwise loans to Greece in the first place), the EU should have been looking to consolidate Greece within the Eurozone as part of a broader strategy for promoting stability in the Balkans and Mediterranean. The financial cost of bailing out Greece would have been far less than the longer term costs of radically destabilizing the EU’s, and NATO’s, southern and eastern flanks. The countries with most to lose geopolitically, like Spain and Italy, seem eager to sacrifice their security on the altar of electoral considerations. There is still time to rescue the situation. France could, by stressing the broader agenda, play the mediation role it has suggested.

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The Eurogroup has Chosen Fudge and Will Get Grexit

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Now we are back to normal, now the mind is
Back to the even tenor of the usual day
Skidding no longer across the uneasy camber
Of the nightmare way.
We are safe though others have crashed the railings
Over the river ravine; their wheel-tracks carve the bank
But after the event all we can do is argue
And count the widening ripples where they sank.

                         (Louis MacNeice- Autumn Journal)

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Greece has not defaulted, nor crashed out of the Euro, yet. A compromise deal is being broached. If the Eurogroup finally accepts a version of the latest Greek proposals, it will not resolve anything, but will put the final crisis off until later. Even the compromise deal is not yet guaranteed – the Eurogroup might yet decide the Greek concessions are insufficient, or insist on conditions that the Greeks have to reject. Domestic politics will play its part. Schäuble may force a showdown with Merkel. Syriza hardliners may force Tsipras to back away from a deal. The IMF is reported to be skeptical of Greece’s tax raising proposals. And yet markets, and some media, have celebrated as if the deal is done and the problem resolved: threat of Grexit is over. The Greeks will now receive more support in exchange for slightly reduced austerity measures. At some stage, in an unspecified future, Greece may receive some, unspecified, relief for its debt. But the rest of Europe no longer need trouble about it – it is now between Greece and its creditors. The mood reminds me of that following the Munich crisis – when British Prime Minister Chamberlain negotiated the transfer of the Sudetenland from Czechoslovakia to Hitler’s Germany – a mood so brilliantly captured in MacNeice’s poetry above. The euphoria after the Munich agreement was short lived. So might be the current relief about Greece.

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After Munich Winston Churchill made a series of brilliant speeches attacking the agreement. In one of them he said “England has had a choice between shame and war. She has chosen shame, and will get war.” Less than a year later Churchill was proved right. In similar terms we might comment that the Eurogroup has had a choice between fudge and Grexit. It has chosen fudge, and will get Grexit. In yet another example of the European Union’s apparently infinite capacity to avoid decisions, the Eurogroup, after much blustering, appears intent on kicking the Greek problem into the long grass. An agreement of minimums will allow the rest of the EU to forget about Greece for a while, until a new crisis strikes in six or eight months. Just as the “fix” Chamberlain signed at Munich determinedly ignored the real problem – Hitler’s geopolitical ambition for domination of the continent – so the continued fudges and prevarications of the Eurogroup ignore Greece’s sad reality. Greece is already bankrupt, by any acceptable meaning of the term.

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To be fair to the IMF, it seems to be more aware of the problem. Apart from being tougher in insisting on real economic reforms and further spending cuts, the IMF wants to open up the conversation on some form of debt relief or restructuring. It recognizes that there is no realistic prospect of Greece repaying the whole of its debt, or in the time frame established. This must be openly recognized and addressed before the Greek economy and citizens can have any hope of recovery. The Europeans, under their breath, complain that the IMF’s tough line on economic reforms and government spending risk derailing a deal this week. But the IMF may simply be being more realistic, or more honest about the problem. It seeks a real solution now, which will combine tougher measures by the Greek government with debt relief, rather than another temporary fix.

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This is anathema to the European leaders who are determined above all to avoid an explicit commitment to debt restructuring or relief. For Merkel, any reduction of Greece’s debt would be difficult to sell to an electorate already angry about bailing out Southern Europe, as well as risking a public split with her Finance Minister Schäuble and Bundesbank President Weidmann. She is also conscious, like her Finnish colleague Sipilä, that any deal will have to endure a difficult passage through national parliaments. For Eurozone periphery governments the problem is different. Any suggestion that Syriza has won advantages, or been able to reduce austerity, through its hardball approach would give oxygen to their own anti-establishment, anti-austerity parties. The centre-right Spanish government, for example, fears that perceived success for Syriza would strengthen support for Podemos, who on current polls already look set to form a government with the socialists after the autumn’s elections. For the Spanish government, electorally Grexit would be better than a deal that involved debt restructuring or relief. Best of all would be a deal in which a humiliated Syriza was forced to sign up to more austerity. Thus domestic concerns in both the north and south of the Eurozone rule out any real resolution of the Greek crisis, in the short term at least.

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The upshot is that the negotiations this week are not simply between the Greeks and their creditors, but triangular: the IMF and the Greeks both seek a deal based around debt relief and/or restructuring, but with very different ideas of what the deal looks like, while the Eurogroup look for another fudge that will allow them to keep the show on the road. This will greatly complicate reaching an agreement. There is another reason for the divergence between the IMF and the Eurogroup. Unlike the IMF, European leaders like Merkel are focused on the geopolitical as well as economic consequences of Grexit (see my previous blog: http://www.shaunriordan.com/?p=177), and under pressure from Washington to avoid them. They cannot afford a breakdown, but neither can they afford the price of a full resolution. Another short gap compromise is the best they can hope for. It will not be easy to achieve, but even if they can there will be no cause for wild celebration, even less the disinterested complacency described by MacNeice. In 1938, at the price of shame, England only put off war for one year. If successful this week, the Eurogroup may only have put off Grexit, and its consequences may be all the worse for the delay.

The Geopolitics of Grexit

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Eurozone finance ministers have again failed to break the impasse on Greece. The failure is not surprising. While the ECB and European Commission try to treat Greece as if it were illiquid, the Greek government, with some justice, insists it is insolvent. Northern Europeans claim Greece won’t pay, while the Greek government pleads that it cannot play. If left to finance ministers and central bankers, there is little doubt now that Greece would default and then leave the Euro. The importance of the EU’s emergency summit on Monday is that it will allow non-financial, geopolitical factors into the decision. These may balance the decision in favor of keeping Greece in the Euro.

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The key figure on Monday will be German Chancellor Angela Merkel. She will be torn between domestic political and international geopolitical considerations. At home she must maintain public support for the Euro while fighting off the advances of the Eurosceptic AfD. The Euro was never popular among Germans, who were loathe to give up the Deutschmark. Their support was won by creating a European Central Bank that was essentially a replica of the Bundesbank, and assuring them that the financial rules of the Eurosystem would be vigorously implemented, especially on Governments. Any further concessions to Greece would be seen by many, if not most, Germans as a breach of those assurances. The AfD is ready to exploit the growing disquiet about the Euro project. It’s support has been steadily growing, cutting primarily into the vote of Merkel’s own CDU. Party managers will warn her of the risk that the AfD becomes the new FDP, the king-maker in the Bundestag, condemning the CDU either to a Eurosceptic coalition partner or to perpetual Grand Coalitions with the SPD. Domestic politics, as well as the urging of Finance Minister Schäuble, will incline Merkel to hang tough.

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But geopolitical considerations (and the urgings of Washington) argue for one last push to keep Greece in the Euro. The point is underlined by the visit last week of Greek Prime Minister Tsipras to Moscow – the second time he has called on Putin at a moment of crisis. Russia does not have the financial resources to bail out Greece, but it can provide political and economic support for a post-Euro Greece (for example the oil pipeline deal signed last week). In exchange it would no doubt insist on military facilities, for example access for the Russian navy to the Piraeus. In one stroke European finance ministers would have achieved what NATO spent the Cold War striving to avoid: a Russian naval presence in the Mediterranean. It is little wonder that the Americans are pressuring the Europeans to reach a deal. While the Russians do not have the financial resources to bail out the Greeks, the Chinese do, at least in part (it could even become a first outing for the new BRICS bank, although the Chinese would have to up the resources of that institution). Given the increasing collaboration between China and Russia, itself in large part the product of Western diplomatic ineptitude, it is possible they would work together in Greece. The Chinese navy could join the Russian navy in the Mediterranean. Moreover, any such moves would have to call into question Greece’s continued membership of NATO. Grexit might not just be from the Euro. As Grexit would have implications for the future of the EU, Greek withdrawal (or expulsion) from NATO would call into question the future of that organization.

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Even more serious could be the impact in the region, especially the Balkans. When I worked on the Former Yugoslavia during the war in Bosnia, we continually thought the potentially most dangerous country was Macedonia. While war in Bosnia could be contained within the former Yugoslavia, the fragmentation of Macedonia risked bringing in Serbia, Albania, Greece and Bulgaria – a pre-WWI style Balkan War. Macedonia is again tense. Armed clashes between groups of gunmen and Macedonian security forces broke out recently near the Albanian border. The economic and political destabilization of Greece could well provide the trigger for collapse in Macedonia. But contagion may not stop there. Collapse in Macedonia could well impact on Bulgaria and Kosovo, neither of whom are doing well. Greek destabilization could also impact on a Turkey facing its own economic and financial crises, locked out of the EU, and under pressure from the U.S. to deploy troops against ISIS as two of its neighbours implode. Finally, there is the impact on the Balkans if Russia comes to Greece’s rescue. There is an axis of countries with pro-Russian leanings, whether Orthodox or Slav, running north-east of Greece towards the Romania’s southern border. Putin would be tempted again to destabilize Moldova on Romania’s north with this pro-Russian axis to the south. With Ukraine still unresolved, and potentially explosive, and Libya and illegal migration moving fast up the agenda, the last thing the EU needs is to handle the geopolitical contagion of Grexit.

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There is one more factor that will weigh with Angela Merkel as she exchanges phone calls this weekend: her legacy as a European leader and the implications for Germany’s leadership of the EU. She is conscious of the role of her predecessor Helmut Kohl in creating an enlarged EU with a unified Germany at its core. With France backing away from its geopolitical role, and Hollande ever more Merkel’s poodle, and the UK semi-permanently (soon to be permanently?) awol, Germany’s leadership of the EU has never been clearer, or less challenged. It is clear, for example, that any resolution in the Ukraine will be negotiated by Berlin and not Brussels (or Washington). Many Germans are uncomfortable with this new leadership role. They will feel even more uncomfortable if the first act of this leadership is to expel Greece from the EU. Merkel herself will not want to be the German leader who began the unravelling of the EU. She knows that where Greece is forced others might follow, voluntarily or by force. Once it is clear that Euro (and EU) entry is not irreversible, the entire project loses credibility, both with financial markets and geopolitical rivals.

Discussion of Grexit so far has focused on the financial causes and consequences, and the debate between fiscal rectitude and compassion for Greek citizens. This is not surprising as we Europeans as a whole have lost the habit of geopolitical thinking. But others have not. Bad as the economic consequences of Grexit may be, the geopolitical consequences could be a whole lot worse, with longer term consequences. Grexit could put at risk not only the Euro, but the EU itself as well as NATO, and the precarious peace so painfully won in the former Yugoslavia and the Balkans as a whole. This will surely weigh as heavily in Merkel’s mind on Monday evening as the fiscal rectitude of her Finance Minister. A deal on Monday will not solve Greece’s economic and financial problems (only extensive debt relief can do that), but it can defer the geopolitical crises that Grexit could provoke.

Business Diplomacy: Protection for Global Supply Chains

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Global supply chains are an increasingly important feature of modern economies. Even companies that claim not to be international are dependent on global supply chains more than they know, whether supplying components, raw materials, energy or finished products. In some senses the internet and world wide web are themselves supply chains. Many cannot function if their supply chains are disrupted. The disruption of multiple supply chains calls into question the ability of many modern economies to function, especially in the developed world. This dependency on, and vulnerability to, supply chains constitutes a key feature of the modern interdependent world system.

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Because supply chains are global, stretching across the world, they are vulnerable to a series of traditional and non-traditional risks, often included under the moniker of “geopolitical risk” (I prefer the term “exogenous risk”). These include:

  • Political Risk: political instability, changes of government, new legislation or regulation, nationalizations or even open expropriation can threaten supply within individual countries along the chain.
  • Physical Risk: terrorists or criminals can attack the chain, especially transportation between different productive nodes. Piracy and wrecking will grow as threats as traffic through the global choke points increases.
  • Reputation Risk: companies are increasingly aware of the risk to reputation of supply chains, as Walmart discovered in Bangladesh. But companies must distinguish between local NGOs operating at individual nodes across the chain, or transnational NGOs that operate across the whole chain. The two of course can cooperate in campaigns.
  • Geopolitical Risk: in the purest form of the word, supply chains are vulnerable to international conflicts, trade embargoes or sanctions imposed by those responding to the conflicts and the increasing threat of transnational non-state actors (eg Islamic State) generated by those conflicts.
  • Economic Risk: financial crises, volatility in factor prices (eg oil prices) and central bank decisions can all impact on individual nodes of the chain, or undermine the viability of the chain as a whole.
  • Cyber Risk: in some sense, digital tools and social media are multipliers of the risks already listed. But control of supply chains is increasingly centralized and increasingly online. This opens them up to hackers, whether for political or criminal reasons, who want to reduce or distort the efficient operating of the supply chain.
  • Natural Disasters: in as far as supply chains are about the physical movement of goods, and are spread world wide, they are vulnerable to natural disasters like hurricanes, earthquakes, tsunamis and volcanos.

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Many companies have now realized the reputational dangers of supply chains, and the extent to which misbehaviour in any one of the supply chain’s nodes can impact on their bottom-line in their final markets. If they hadn’t got the message before, they did when the Rana Plaza textile factory collapsed in Bangladesh in 2013 killing 1,129, mainly female, workers. Companies like Benetton, Primark or the Corte Ingles, who all sourced clothing to the factory, had to move fast to rescue their reputations. Developing CSR strategies that were implemented throughout all the nodes of the supply chain became an urgent priority. Despite this, most companies remain relatively fatalistic about the other exogenous risks to their supply chains. Apart from expensive, and almost certainly ineffective, cybersecurity measures and building in expensive redundancy, they abandon the supply chains to their fate.

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While no measures can offer perfect supply chain security (or perfect any kind of security), Business Diplomacy does offer different ways of thinking about the exogenous or geopolitical risks they confront, and ways of mitigating their impact or maximizing post-incident recovery. Business Diplomacy looks to adapt the techniques and mindset of the (good) diplomat to the needs of the company. Specifically it focuses on the strategic use of coalitions of state and non-state actors to mitigate the impact of exogenous risk on the operations of the company. The core methodology of Business Diplomacy is to identify not only the exogenous risks to a company’s operations but also the state and non-state actors who shape that risk. Contact networks of information and influence are developed among these “geopolitical stakeholders”. On the basis of these networks, coalitions based on shared interests can be constructed for dealing with specific problems the company faces. Such coalitions are likely to be highly heterogenous. They will, of course, include state actors, including the company’s own government and its diplomats, but, as companies cannot depend on their government alone to protect their interests abroad, they will also include NGOs, academics and other companies.

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Refining Business Diplomacy for the protection of vulnerable supply chains, it serves as an insulation around the chains. Networks and coalitions of state and non state actors shape the exogenous threat environment to minimize the risk of disruption to the supply chain and to ensure rapid recovery if it is disrupted. More specifically, a Business Diplomacy strategy first identifies the different exogenous threats to the supply chain, and whether they apply within individual nodes, to the links between the nodes or the chain as a whole. In doing so it develops a diplomacy internal to the chain, whereby the different commercial actors who operate the different phases of the chain are brought on side (and share costs/responsibilities). It then identifies the different state and non-state actors who shape the risk environment and develops contact networks of information and influence among them. Finally, it uses these networks to construct coalitions of state and non-state actors which can help mitigate the risks to the supply chain or facilitate its rapid recovery after an incident. It may help to consider concrete examples.

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Natural disasters should be the toughest case for Business Diplomacy, given that they are not controlled by human actors. They are by definition non-preventable, which is why they are called Acts of God (and it is difficult to develop a diplomatic strategy for God). Companies will develop continuity plans for dealing with natural disasters, but they rarely take advantage of the full range of Business Diplomacy tools available. There are a series of actors (politicians, officials, emergency workers, aid workers, journalists) who can provide information, mitigate the impact of the disaster on the supply chain, ensure the company receives preferential treatment or influence those who can offer these. The networks have to be in place before the disaster to allow the construction of the specific coalitions needed in the aftermath. In turn this requires the identification of possible natural disasters that could impact on the supply chain and the identification of the relevant state and non-state actors (including journalists and academics). Academics are particularly relevant. They can give an accurate appraisal of the scope of the natural disaster and how it might impact on the supply chain. They are also likely to be key members of the emergency response, able to ensure preferential treatment for the company after the disaster has struck. For example, a company whose supply chain has an essential node in an earthquake area, will want to develop networks among seismologists, local and international, emergency services, local and national government, humanitarian NGOs, possibly the local community (especially if they have production facilities) and the press. If they have a number of ex-patriate staff, the company may want to develop relationships with authorities able to offer evacuation flights (the US military have a global capacity and may be worth cultivating). Sponsoring conferences on the seismic threat and response in the country may be unrelated to the core business of the company, but may be a cost-effective way of developing the necessary relationships in a positive environment. Other public and digital diplomacy techniques could also be drawn on (perhaps sponsoring and participating, from headquarters, in online disaster simulations).

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Business Diplomacy also offers ways to approach Cyber Risk. Supply chains are vulnerable to a broad range of cyber attacks, whether on navigation systems disrupting transportation, computerized systems managing the entire supply chain, automatized production systems or social media attacks on reputation relating to the different nodes in the supply chain. Companies spend enormous sums on technical cybersecurity solutions, but these are solutions that don’t solve. As seen most recently in the hack on the US government, hackers seem to be able to get in regardless of the cybersecurity measures put in place. At the very least cybersecurity measures need to be complemented by other measures. A Business Diplomacy approach would focus not on the cyber tools, but rather the state or non-state actors using them and the motivations for attacking a particular supply chain. Key questions would include whether they are specifically attacking the supply chain to damage the end-company, attacking supply chains in general to impact on the end-country’s economy or attacking a particular target within the supply chain without thinking about the chain as a whole. It is important to understand whether the would be attackers are state or non-state actors and whether their motivations are political, commercial or “ethical” (eg environmental NGOs). Once the possible belligerents and their motivations have been identified, the company needs to identify the other state and non-state actors which shape their risk environment. Developing networks of influence and information amongst these firstly facilitates improved advanced warning of the plans and targeting of belligerents. More importantly it allows the creation of strategic coalitions based on shared interests which:

  • persuade potential attackers not to attack the supply chain, or attack a different chain.
  • make potential attackers aware of the broader consequences of what may seem a localized event.
  • isolate and marginalize those potential attackers that cannot be persuaded – undermine their effectiveness.
  • undermine any social media campaigns against reputation, either by promoting a positive image of the company or undermining the credibility of the attacker.
  • in the event of any disruption ensure a sympathetic public reaction and a rapid restoration of the chain.

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Business Diplomacy strategies can similarly be developed for the other exogenous risks to supply chains identified above. It functions both inside the supply chain, developing the relationships between the different actors supplying the different elements of the chain (whether production, assembly or transportation), and externally weaving networks of relationships with state and non-state actors that function almost as a cocoon protecting the chain against exogenous shock. It is distinguished from public affairs or lobbying approaches by its holistic focus, analyzing and managing exogenous risk in all a company’s markets at the same time. This 4D strategic vision (across 3 dimensions of space and one of time) is particularly relevant to supply chains, where the impact of actions in one node on other nodes, or the connecting links, is crucial. Supply chains will grow more essential, not less, and more global as the 21st century progresses. But the geopolitical environment is more volatile and unpredictable. Protection of supply chains will become essential to economic sustainability, for firms and nations.

Education: The New Ponzi Scheme

mr-chips_2488509kA Ponzi scheme is a fraud whereby the fraudster promises a guaranteed return on your investment (of course impossible – if it seems too good to be true …). But instead of investing the money, the fraudster keeps it. He then secures new investors, whose investments he uses to pay the “guaranteed returns” of the earlier investors. The fraud can continue as long as the fraudster can find new investors to finance the payments to the previous investors, and as long as no-one asks for their money back (which the fraudster, of course, has spent). The scheme is named after a 1920s fraudster Charles Ponzi. The most successful Ponzi scheme was run Bernie Madoff, and lasted for 30 years, but normally they collapse more quickly. The latest form of Ponzi scheme, and potentially the one with most serious consequences, is the one we are offering in education.

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In private education, parents are asked to pay large sums of money. In exchange, the school, after a certain number of years, will give the student a piece of paper which will secure it access to a university. The university will then charge the student even more money in exchange, after a few years, for another piece of paper which will gain the student access to grad school. There the student will pay yet more money to get another piece of paper. The promise to students and parents (the equivalent of the guaranteed return every year) is that these pieces of paper can then be cashed in for a well paid job. The trouble is that it is a lie. This model of education may have functioned during the 90s and 2000s, what some call the great moderation, when corporate bureaucracies expanded exponentially, but now it is broken. As educationalists we are taking money in exchange for promises we cannot keep.

Police and pickets during miner's strikeThe problem is that the world of work is changing, radically. In the 1980s we destroyed the traditional working class, through a combination of technology and off-shoring. The old working class either slipped down into a lower class of low pay and precarious work, or ascended into an expanded middle class focused on corporate bureaucracy. To justify the status of the latter, university education was rapidly expanded, with jobs that had never before insisted on graduates making degrees, or even masters, the minimum qualification for employment. This expansion of universities both increased education budgets and dummed down the education on offer. As governments found they could no longer fund tertiary education, the costs for students increased as ever higher fees were introduced and grants replaced by loans. Students would now leave university deep in debt, but it was justified by the higher paid jobs they could secure in the corporate bureaucracies. As unemployment rose during the economic crisis, parents became ever more desperate for their children to get the pieces of paper essential to their entry into the world of well-paid secure jobs.

New-Technology-1Now the processes that destroyed the old working class, technology and off-shoring, are turning their attention to the new middle class. With profit margins tight following the economic crisis, and a new emphasis on efficiency and productivity, companies can no longer afford the bloated corporate structure built up in the Great Moderation. New ICTs allow companies to abolish whole rafts of middle ranking management functions. If corporate bureaucrats are still needed, millions of bilingual Chinese students are graduating every year, willing to work harder for less reward than their western counterparts. The result will be a hollowing out of western economies, with technology and off-shoring destroying jobs in the middle, leaving only jobs at the bottom, where it is not worth computerizing, and jobs at the top for the creative, strategic thinking elite. As one commentator joked, the textile factory of the future will have only two employees: a man and a dog – the man is to feed the dog, and the dog is to stop the man touching the machinery.

There is already evidence of this happening. As developed economies recover from the crisis, inequalities of income are increasing as new middle class jobs pay less and the leadership elite earn more. Large numbers of graduates, unable to find the corporate jobs for which they were educated, fight for unpaid internships or take jobs for which they are ridiculously over-qualified. In a country like Spain, job creation is overwhelmingly low paid and overwhelmingly precarious. Short term and part time work is being created at over twice the rate of long term “fixed contract” work. Increasingly Spanish graduates emigrate to work as waiters in London or Berlin.

Those who will reap the rewards of the new economy that is developing will need very different skills from those who thrived in the corporate bureaucracy. The ability to identify problems, creativity in proposing solutions, networking skills and the ability to identify who in your network has the skills that will complement yours in a given project, leadership, the ability to take decisions under pressure, teamworking skills, design and communication skills, understanding how to make use of new technologies – all of these will be more important than than factual knowledge and formal qualifications. The winners of the new economy will be real entrepreneurs, capable of identifying a problem, proposing a solution, recruiting the additional skill sets they need for that project from their network and then sell it to a client. Work teams will be flexible and fluid, changing from one project to another. This doesn’t just apply to what we see as “high end” skills – it will be as relevant to the plumber able to offer a service no-one else has thought of as to the internet entrepreneur. These are not skills normally conveyed in the classroom, certainly not in the classroom as it developed during the “Great Moderation”. These are skills learnt during sport, drama, creative arts or setting up projects.

But the education we offer is still designed for the corporate bureaucracies. It is focused on “academic success”, the ability to secure the right grades in examinations. It is heavily content based, where the ability to retain knowledge, to be repeated in the examination, remains the most important criterion. Even examinations like the International Baccalaureate, which claim to be based around risk-taking and creativity, at the end of the day reward data recall – and good IB teachers know how to coach their students through it to secure the points necessary for access to the next piece of paper. Students who cannot meet this industrialized education criterion of success are cast to one side. Even though they may be showing exactly the intellectual skill set necessary for the new economy, they are dismissed as “difficult” or “distracting”. But it is not them we should worry about. If they have the right skill set that makes them “difficult” they will do ok. We should worry more about those who have met all the criteria we have set, who are our successes, who will comply with everything they are asked for and will pay (dearly) for all the certificates sought of them, and at the end of the day will be left with nothing, or waiting in a tapas bar in Berlin. It is them and their parents whom we will have defrauded.

Some schools do offer the skill sets needed. They ignore the criteria and the league tables with which governments, and parents, are obsessed to offer the rounded education the new century demands. But they are few and far between, and once you get to university the obsession with points and league tables is total. Governments bear some responsibility, as do parents who in their panic give little thought to how the world is changing, but the greatest responsibility lies with us as educators who continue to sell this Ponzi scheme to parents and students.

I recently looked again at Sir Kenneth Robinson’s famous 2006 talk to TED about creativity and education (http://www.ted.com/talks/ken_robinson_says_schools_kill_creativity?language=en). It remains a wonderful example of how to deliver a presentation and a passionate appeal for a new approach to education. He was right. For me the embarrassment was how little any of us have done to respond to his criticisms or realize his vision of education for the 21st century. It truly is a Ponzi scale fraud.

 

@ambassador#twit

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The Ambassador looked out of the window of the front room onto the garden. He pretended to despise these old fashioned trappings – the Residence, the Ambassador’s limousine, the servants. He was a modern Ambassador for the modern age. He had been appointed personally by the Prime Minister because of his mastery of social media. He remembered the Prime Minister’s final instructions: “I know you don’t know much about China. But that doesn’t matter. There are plenty of diplomats who know too much about China. I know. They keep writing about it. But they are making no impact there. We are losing presence. Your job is to get us back out there. Make us omni-present in the new economy. Get us known again.” He had taken the Prime Minister at his word. He knew the professional diplomats in the Embassy resented him as an outsider, when they didn’t despise him. But the Prime Minister had been wrong about their knowledge of China. Most of them didn’t speak Chinese, and the three who did were tedious bores. But that didn’t matter. The Chinese who mattered spoke English. English was the international language of the internet and social media, and that was what mattered. Nevertheless, he had to admit that, secretly, he did enjoy the deference and the perks.

 

He left his Residence for the short walk to the Embassy. He had argued when he arrived that his physical presence in the office was unnecessary – in a “digital embassy” he could communicate as well, or better, online. He hadn’t won that argument. His staff accepted online conference calls when he was away, but the Embassy’s Minister-Counsellor (what a title!) insisted that staff morale benefited from the Ambassador’s presence when he was in Beijing. It was a small concession to yield – it was only a five minute walk. Moreover, he had won many other victories. Most important he had been allowed to bring along his personal assistant from his social media company. This young man monitored the social media for “presence” opportunities. On certain subjects he had the authority to tweet, retweet or comment on the Ambassador’s behalf. If in doubt he would consult the Ambassador first. The Ambassador himself also tweeted and commented, and it was the assistant’s job to monitor the reactions in the social media. The priority was always to maximize the presence in social media, of Britain and the Ambassador. That is why his second achievement was so important: he had persuaded the Chinese to let him have a Weibo account. He tweeted on it only in English, and used it to promote Britain (and himself). In as far as he commented about China, it was always positive and supportive of the Chinese government. Both the Foreign Office and his Embassy staff complained that he was too supportive of the Chinese government. But he replied that he could not make Britain matter in China if he annoyed the Chinese Government about human rights, and the Prime Minister agreed.

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Reaching his office he waited for his senior staff to troop in. He had moved meetings from the safe speech room to his office. He found the secure cell suspended from the ceiling uncomfortable and faintly sinister. An additional benefit was that the Embassy’s political analyst was reluctant to talk openly in the Ambassador’s office (“Security, Ambassador. Bugs, Ambassador”). This greatly shortened the meetings, and saved the Ambassador his analyst’s gloomy prognostications. The staff entered, settling slightly uncomfortably in the armchairs, balancing their iPads on their knees (the Ambassador had banned pens and notebooks on arrival). “What’s new?” The Ambassador began the meeting. The political analyst began a discursive account of how the Taiwanese had successfully launched a satellite, marking their entrance into the space industry, and how this would irritate Beijing – some response would be required. The Ambassador cut him short: what had this to do with Britain? How could it be used to promote the British presence in China? When the political analyst could only shake his head, the Ambassador looked inquiringly at the rest of the room. The Head of Prosperity mentioned an exhibition in London on the use of industrial graphene. British start ups were taking the lead. This is what the Ambassador wanted. He instructed the official to put together a social media strategy with his personal assistant, using his Weibo account as well as the Ambassador’s blog. Satisfied that the British presence in virtual China would be enhanced again, he dozed through the rest of the meeting before going off to prepare his weekly podcast.

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The political analyst had been right. Beijing was irritated by Taiwan’s launch of the satellite. In fact Beijing had enjoyed advance notice of the launch, thanks to agents of 2PLA in Taiwan. The Foreign Affairs Leading Group of the Communist Party had considered sabotaging the launch, but the head of 2PLA argued that this would be dangerous, especially if China’s responsibility for the sabotage were to emerge. The Leading Group reluctantly took his advice. Instead the party’s senior leaders decided to trump the Taiwanese. China had planned the next phase of its manned lunar exploration program. A Shenzhou 15 rocket would carry a three man crew to orbit the moon. The mission was not scheduled for a couple of months, but would have to be brought forward. The head of CAIC was summoned before the Foreign Affairs Leading Group. He was appalled. Accelerating the program in this way would significantly increase the risks of the mission, including for the crew. But he was overruled. National interests mattered more than the safety of the crew, and these were decided by the members of the Leading Group. The launch was scheduled for the day after Taiwan launched its satellite. If successful, it would be broadcast to the world.

 

The Foreign Affairs Leading Group were not the only people irritated in Beijing. In a small flat in the Jianguomenwai area of the city, three men were plotting. They were Uighurs who wanted to raise the profile of the Chinese repression of their homeland in Xinjiang. They had decided to kill a foreign diplomat and had settled on the British Ambassador. There were several reasons for this. They thought a foreign diplomat would be less protected, and thus easier to attack, than a comparably senior Chinese official. It would also guarantee international publicity – the authorities would not be able to cover it up as they had assassinations of Chinese officials. The British Ambassador had singled himself out. When the Chinese authorities had recently executed a group of Uighur terrorists (the three men called them freedom fighters) he had repeatedly tweeted on Weibo his support for China’s fight against Islamic terrorism, equating the Uighurs with Islamic State. There was another reason. One of the men was an expert in data and social media. He had noticed a different style in some of the Ambassadors tweets. Some seemed more personal, more idiosyncratic. He had concluded that these were the Ambassador’s personal tweets, rather than those of his officials. If the three men could identify when the Ambassador was tweeting himself, they could use the GPS in his mobile device to locate him within a meter. The plan was to have the data expert in the flat with his equipment monitoring the Ambassador’s tweets. Once he thought he had located him in a vulnerable place, he would pass it onto his colleagues waiting in a car in the Embassy area. The plan agreed, the two men left the flat to get in the car.

 

The Ambassador had enjoyed a long but fruitful day. His personal assistant had sorted out tweets and a blog on graphene. The Ambassador had thrown in a few personal tweets of his own, and had thrown Britain’s lead in graphene into his podcast. He had also made sure that all of this had been repeated on Twitter as well, to ensure that No 10 was aware of all his activity. He was now about to leave for a reception at the American Embassy. Although officially he maintained his disdain for this “old diplomacy”, he was looking forward to a drink. As he was about to leave the office his phone beeped. It was his assistant messaging him that China had announced the successful launch of a manned space craft to orbit the moon. The message came with a suggested tweet for Weibo and Twitter: “#britishambassadorchina congratulates #government of #peoplesrepublicofchina on successful #manned #rocketlaunch #shenzhou15”. It was ok, but seemed a bit dry. He added “Wish crew safe journey”. But that put him over the character limit. He would need to shorten the text his assistant had sent him. He typed into Weibo “#britishambassadorchina congratulates #government of #republicofchina on successful #manned #rocketlaunch #shenzhou15 Wish crew safe journey.” and hit the tweet button. He then copied it into Twitter and sent it again. Dropping his phone into his pocket, he set off for the reception.

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His phone rang as his car pulled into the American Embassy. A junior official in the Foreign Ministry explained that the Director General for European Affairs needed to see the Ambassador urgently. When the Ambassador asked at what time the next morning, the official politely explained that urgently meant now, and that the Ambassador was being summoned to the Foreign Ministry. It was non-negotiable. A little shaken, the Ambassador asked what it was about. The junior official was not authorized to tell him. He would learn from the Director General. The Ambassador told the driver to take him onto the Foreign Ministry.

 

The junior official was waiting for him in the entrance to the Ministry. He escorted him to a meeting room where they awaited the Director General. He entered abruptly, greeted the Ambassador curtly and went to his seat. The Ambassador sat in the designated seat next to him. He was taken aback by the lack of customary pleasantries. The Director General coldly explained that the Chinese Government upheld the one China policy and expected countries with which it maintained diplomatic relations to do the same. This was especially true of a country like Great Britain, given the history of their relationship. This was all going over the Ambassador’s head and he wished he had brought one of his staff, even the whining political analyst, to help him understand. The Director-General continued that while businessmen or others might make mistakes, it was completely unacceptable for the Ambassador of a friendly country to make statements supporting a two China policy, all the more so when he did so on social media. The Foreign Ministry regretted the action it must take, but it had no option but to request the Ambassador’s withdrawal. Still bemused, the Ambassador asked the Director-General to clarify. “You congratulated the Republic of China on the launch of its rocket. You did so on social media that we allowed you to use as a privilege. I am afraid you must go.”

 

The Ambassador felt sick. His world collapsed around him. The Director General sensed his distress and softened his tone. “You will, of course, be welcome back here as a private citizen. Perhaps you can still learn something from us.” He gestured at a scroll painting hanging behind the Ambassador’s speech. He read out the characters painted in the corner of the landscape. “Wu wei, er zhi. Do nothing and all is taken care of. The core of our Daoist philosophy. Not, of course, official policy these days,” he added with a smile. The Ambassador briefly wondered if the Director General had put the scroll there on purpose.

 

Back in the car, the Ambassador felt numb. He had briefly tried to argue with the Director General, but it had made no difference. He would be allowed two weeks to pack his bags. He got his phone out. He still had a job to do. First he must correct his original tweets. Then he must tweet his apologies. Then he must tweet about British support for China’s space probe. Perhaps if he could get enough presence in social media he could still turn this round. In the flat in Jianguomenwai, the social media expert was monitoring his lap top. He saw a stream of tweets from the Ambassador. He was convinced they were in the personal style. He traced the origin and then texted his companions.

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The old Mercedes rammed the Ambassador’s car as it turned into Guanghua Street. As the People’s Armed Police on diplomatic protection duty ran from their sentry boxes to help, an explosion ripped through the wreckage. All four men in the two cars were killed.