Viewing global futures from the 107th floor of WTC 1

ìBanking Duel In Japan Signals End of Old Ways: Sumitomoís Bold Offer for UFJ Challenges Bid by Mitsubishi Tokyo And a Backroom-Deals Culture,î by Martin Fackler, Wall Street Journal, 2 Aug, p. C1.

ìChinese Rainmakers Competing for Clouds: Widespread Drought Leads to Regional Rivalries,î by Edward Cody, 2 Aug, Washington Post, p. A12.

ìCaliforniaís CO2 Plan Worries Automakers: Cutting Emission Would Be Costly, Industry Warns,î by Greg Schneider, Washington Post, 27 July, p. E1.

This trio of stories reminds me of what a fabulous series we had going with Cantor Fitzgerald in the NewRuleSets.Project from the spring of 2000 to 11 September 2001 (we held all our workshops on the 107th floor of World Trade Center 1, at the famous Windows on the World restaurant). Basically, we wargamedóin various innovative waysóall three of these scenarios. What I mean by that is we asked participants in the various workshops to explore all three scenarios in various formats:

∑ Like asking them to write ìheadlines from the futureî that would show how Asiaís crony capitalism would crumble under the onset of new financial rules impinging upon the region after an extended banking crisis

∑ We also had them pretend they were sending emails to world leaders as they headed to a global summit to discuss Chinaís increasingly dangerous attempt to alter the climate over their country as a result of a disastrous drought generated by global warming

∑ Finally, we had them sketch out a global scenario in which innovative methods for CO2 control emerged in the U.S., only to be replicated around the world.

So when I see a trio of articles like these, I canít help asking myself, ìWhere have I wargamed these scenarios before?î To say we had a lot of fun dreaming up these scenarios is an understatement: it was a blast, especially since we knew weíd have top Wall Street, national security, foreign and domestic think tank talent all sitting around a big U-shaped table inputting their ideas simultaneously using a groupware system of laptops, followed of course by very lively discussion.

My point here is not to bragówell, not too much anywayóbut rather to point out that itís not that hard to think systematically about alternative global futures, which just so happens to be the name of the elective course I teach here at the Naval War College. Smart people working issues consistently over time predict futures within various industries all the time. All Iím talking about is doing the same thing in international security.

More specifically on the articles themselves:

First, on the Japanese banking story: seeing two big Japanese banks openly fighting in a takeover battle truly represents the rise of a new rule set in the land of the rising sun, offeringóaccording to the Journalóìpersuasive evidence that the countryís clubby banking system finally is shedding its hidebound ways.î

Why is this important? Japanís crony capitalism set the standard for the ìAsian wayî of doing business across the 1990s. That sort of cozy banking environment of Iíll-scratch-your-back-if-you-scratch-mine gets you meltdowns like the Asian Flu of 1997, which is why, whenever Iím asked what scares me most in the world right now, I always answer ìa banking crisis in China.î

For Japan to start displaying a more open, competitive banking system is to point the way for the rest of Asia, and China especially, which has become a sort of ìprojectî for Japanís mentoring financial influence in recent years (not to mention powering Japanís rise out of its decade-long recession). So as goes Japan today, so should go China very soon. Hereís the key para in the story that describes how profound the change is:

ìIn the old days, banks gentlemanly refused to invade each othersí territory,î said Mitsubishi Tokyo President Nobuo Kuroyanagi in a June interview, just before the takeover fracas erupted. ìNow, the concept is different. Banks have to answer to shareholders Ö. By focusing on returns.î

A rewriting of the rule in banking means a rewriting of the rules in Japanís entire $5 trillion economy, the worldís second-largest. Banks play a more central role here than in the U.S., where companies large and small directly tap financial markets. Even some of the biggest of Japanís blue-chip companies still rely on their main banks, and lenders remain the lifeblood for the majority of the economyófrom midsize manufacturers to home and education loans.

China similarly relies on banks far more than financial markets to raise money, but like in Japan, that changes dramatically as China opens up to globalization. For Japan to move more boldly in this direction will certainly help influence China and the rest of developing Asia to follow suit. Japan is the ìlead gooseî in the V-shape that is Asian development.

As for the second article on Chinaí drought, this is just another stunning example of how Chinaís rapid development is rapidly starting to be constrained by its ability to tap raw materials from all angles and sources, both domestic and foreign. I know a lot of security types love to speculate about future ìwater wars,î but history says water shortages only work to improve cross-border collaborations, not raise tensions between states.

The last article of the trio, about Californiaís bold move to reduce CO2 emissions by 30% in just a decade, shows another ìlead gooseî at work. California is the natural lead goose on many matters in the U.S., which is why California governors naturally attract talk of presidential ambitions. Why it is even more true in this case is that seven states automatically copy the California car-emissions model. They are New Jersey, New York, Maine, Connecticut, Massachusetts, Rhode Island and New Hampshire. Why do all these original colonies follow the lead of the Left Coast? Beats the crap outta me. But they do. Hereís the point: put those 7 together along with huge California, and weíre talking about a new environmental and industrial rule set that impacts one out of every four cars sold each year in the U.S. That rule-set reset forces Japanese, European, and American car makers to follow suit, and that quickly resets the worldís rule set on cars. Bada bing! Just like that.