Where is the world is Wikistrat?

A graphic listing most - but not all - of the sims conducted by Wikistrat this year.  The point is to display the breadth and the volume.  Be impressed, because you should be.

Wikistrat's sims aren't a year in the planning.  Client names the subject and we're off and running in days.  Why? All Wikistrat needs is a framework and then we turn the analysts loose on the scenarios.  The company don't spend countless man-hours narrowing down the range of possibilities so that 95% of the uncertainty and surprise is drained from the exercise by the time we actually start it.  Wikistrat can customize the structure to your concerns and then it brings the masses in to run with that structure and take it places you - the client - hadn't considered.

That approach allows for a huge mapping of possibilities.  You want to find the needle in the haystack?  Well, Wikistrat can run through that hay awfully damn quick.

Spend a minute and see if you can guess the four sims that were my ideas . . .

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First one was China as Africa's de facto World Bank.  I'm pretty sure that was based on a WSJ headline noting that tipping point.  It ended up positing a lot of interesting intersection points between the US and China on the continent. Sim ended up generating both a report and a briefing by me.

Second one was the North American Energy Export Boom.  There was a time when Wikistrat asked me what I'd most like to explore in terms of near-term uncertainty in the system, and the whole fracking thing just jumped out at me:  Which way does it go?  Does it work out big-time for the US and - ultimately - the world?  Or does it get aborted like nuclear power for enviro reasons?  That was a very strong sim in terms of output, and all that material (final report and my brief) still tracks incredibly well with headlines.  All we did is simply systematize all those possibilities, organizing them into four major trajectories (usual X-Y approach). But the upshot was, anybody who goes through that stuff now has the capacity to process all the headlines to come.

Third one was the China slowdown sim.  That one's been in my mind since I wrote the piece for Esquire back in the fall of 2010 (it came out in the Jan '11 issue).  The idea came to me in the summer of 2010 and it took a while to sell it to the magazine, but it looks fairly prescient today, doesn't it?  Anyway, a very solid sim that ran down all manner of possibilities, and I really loved the quartet of scenarios we came up with (which drew comparisons to historical risers).  Great report and probably the strongest brief I've yet done for WS.

Fourth one was "when China's carrier entered the Gulf."  Wikistrat asked me to generate a host of possible sims way back when, and that was one of them. Just a simple logical progression argument, with the trick being imagining all the possibilities when that inevitability unfolds.  Hence the sim, which turned out great, along with a solid report.  And this one was only a "mini-sim" by WS standards:  just a brainstorming drill on scenarios with a quick follow-up on policy options.  Mostly junior analysts, but the output was as good as anything I've seen from the National Intelligence Council - seriously.

Two on the list I didn't really have anything to do with: NATO and Pakistan.  First one was driven by a client's curiousity.  Second one is just a natural "what if?"  Both turned out quite nicely.

The Democratic Peace Theory Challenged sim is another one I did not design, and I will admit that, at first blush, I didn't much care for the subject.  I was brought in to work the design and shaped it somewhat, but I truly had low expectations.  In truth, those were exceeded by a long shot.  The material needed more shaping than usual, because the sim had a theoretical bent, but what I ended up with at the end in the final report was . . . to my surprise . . . quite strong - I mean, present at a poli sci/IR conference strong (or walk into any command and brief strong).  It easily could have veered into all sorts of panic mongering, but instead it organized a universe of possibilities very neatly.  I was really proud of the overall effort, and it reminded me not to get too judgmental going into sims.

The Syria sim I didn't design, nor did I oversee its operation.  That Wikistrat left to junior versions of myself.  I was brought in at the end to shape the first draft of the report, and, while I moved things around plenty, the material held up very nicely to my critical eye, which is encouraging.  If Wikistrat is going to handle all the volume coming down the pike (contractual relationships are piling up at a daunting rate), then the Chief Analyst position needs to be like that of any traditional RAND-like player:  that person needs to be able to shape things a bit at the start and then at the end, but mid-range staff need to be able to herd all those cats and the resulting material. So that one felt like a nice maturation of the process, because, like with any successful start-up, the real challenge isn't marketing but execution.

This graphic, for some sad reason, skips the headlining sim of the year to date:  When Israel Strikes Iran.  That one I had a lot of fun with, giving it my years-in-the-testing phased approach (initial conditions, trigger, unfolding, peak, glide path, exit, new normal).  That approach goes back to my Y2K work and later after-action on the Station Nightclub fire disaster in Rhode Island (done for the local United Way to provide lessons learned on how well the organization responded). That was the most structurally ambitious Wikistrat sim to date and it - unsurprisingly - produced the best material by far. I'd put that final report and brief up against anything the best elements of the US national security establishment could produce . . . naturally at about 20 times the cost and five times the duration of effort.

The graphic also doesn't include the most recent sims.  I just finished a final report on The Globally Crystalizing Climate Change Event (one of mine), and, despite the great time projection, I was pleasantly surprised at how well the material holds up in the report.  I thought the analysts did a great job there.

Based on that fine crowd performance, Wikistrat pushes the community even harder in the just-wrapping-up sim entitled When World Population Peaks.  This one was truly challenging, but my point in designing the sim was almost to purposefully "test out" analysts in the manner of a language-skills oral exam, meaning I wanted something almost too hard for most analysts so as to press both them and the supervising analysts on how they handled it.  Think of it like a NASA sim where Control is trying to crash the lunar module.  That was a bit stressful, I think, for a lot of the community who participated, but - to me - it was like a nasty cross-country workout (I am assistant coaching my kid's team again for the 8th year in a row and I'm on my third kid) early in the season:  bit of a bitch mentally and physically, but it'll pay off down the road.

Yes, Wikistrat does take all its sims - even the training ones - very seriously.  If you're not growing then you're dying - simple as that.  Start-ups have to have that survival-of-the-fittest mentality and we're talking about a small firm that's come out of nowhere (okay, Israel) in just three years.

So, a nice overview of the year, and it's an impressive body of work.  Would you believe me if I told you that all of it was accomplished within a timeframe and with a far smaller budget that one of those bloated wargames that Booz Allen runs for the Pentagon?

Well, if you did, then you'd know why Wikistrat is going to succeed in this cutthroat business.

Chart of the day: World greatest aid flow keeps getting greater

WSJ story noting that:

Migrant workers abroad sent more money to their families in the developing world last year than in 2010, and they are expected to transfer even more cash home this year despite the economic uncertainly gripping the globe.

You can see the divot created by the financial crash in 2008, but note how the trajectory resumes like it never even happened.

The number is staggering:  $372B last year.  World Bank predicts almost half a trillion will flow in 2014.

Key bit:

Remittances remain a key source of hard currency for developing countries, often outstripping foreign direct investment and foreign aid.

It can "immunize" your country from downturns, so sayeth a new WB book on the subject.

Both intra- and inter-regional flows are rising in same manner, with key technological enabler being how cheap it is for ordinary people to wire money.  

One of the biggest players in this realm at about 1/7th of global market?  Western Union.

How's that for a frontier metaphor?  Back then it was all about telegraphs.  Now it's all about remittances.

A sign of Africa's genuine emergence within, and connectivity to, globalization

Marriott, says the WSJ ("Hoteliers race to fill a gap in Africa"), may have over 600 properties in more than 70 nations, but up to now none inside sub-Saharan Africa. That now changes with planned hotel in Kigali, Rwanda.

Yes, Rwanda of "Hotel Rwanda" infamy.

Eight more planned after that.

But Marriott just trying to keep pace with Hilton, Carlson, etc, in capturing some of the crowded business traffic. Plus, with South African, Chinese and Indian hotel chains already in Africa's biggest cities, the Western firms realize it's safe to go into the water.

The infrastructure to support expanding business travel.  Nicest sort of emergent connectivity to be found.

A deep embarrassment for the NFL

That was the worst thing I've ever seen in NFL history, and I've been a fan since 1968.  

Goodell has made this season a farce.

He should be ashamed for ripping off the fans and forcing so many good people to lie on the NFL's behalf.

Almost painful to watch an honorable guy, Russell Wilson, have to explain his game-winning interception toss.

Classy move by Packers to send 11 back out for PAT.  My team is bigger than that awful game.

Old radio/podcast interview (Vantage Point) from February 2012

Just forgot to post this.  Was starting two new lines of business at the time, so it was hectic back then.

Runs about 55 mins.  Holds up fairly well over time.

Spoke a lot about Iran.  The WPR column that I referenced is found here.

Also spoke about Wikistrat.

Find the podcast interview here at Stratrisks.com.

Economist wants a "global recovery round"

Global trade is down, thanks to a combination of reduced economic activity and a lack of trade finance (thank you, Eurozone).  Yes, some more protectionism to boot, but history says trade deals flourish in hard economic times.

Thus the Economist suggests ditching the moribund "Doha development round" (launched 2001) and instead take advantage of the next big WTO meet in Bali in December 2013 to initiate a "global recovery round" that ditches the org's disastrous mantra of "nothing is agreed until everything is agreed."  It's simply the reality now that there are too many member states for such an approach.

Yes, regional alternatives are springing up to the WTO global pacts.  Some see this as a "retreat" of globalization, but that's a bit dim.  The rapid expansion of globalization in recent decades leapfrogged over an insufficient amount of such regional trade pacts, so filling these in now is no setback.  

But regional deals in the absence of global ones tend to be too exclusionary to outsiders - unless they're stitched together to avoid that.

So the new WTO philosophy, pushed by head Pascal Lamy, is to make a series of take-it-or-leave-it deals by sectors.  Join it if you like, stay out if you don't.

I like the notion.

The rest of Asia's hopes for China next stimulus package

Turns out China's one-party state is pretty predictable in its spoils system:  new leaders get in, investment boom follows, and you can bet the best connected princelings clean up.

So while the US resorts to QE3, the world waits and hopes for China's pattern to continue.  The biggest hopes for this path are located in Asia, where China's economic slowdown is causing the same for South Korea and Japan.

The Asian Union integration process has already begun.  Memberships were offered and accepted in the form of FDI flows and absorption into China's vast processing trade networks.  

Asia sinks or swims together, which makes for a new burden for China regarding leadership transparency (where in the world was/is Xi?), because Beijing's decisions matter far beyond China's borders.

With the challenges of deepness and complex geology, China has no choice on shale gas but to seek foreign help

FT story on how "China opens shale gas exploration to foreign joint ventures."

It's described as a "milestone policy change that will allow foreign energy companies to play a greater role in developing China's rich potential reserves of shale gas."

China has all the same ambitions as the US: reduce dependency on foriegn sources of coal and oil, plus simply move "down" the hydrocarbon chain to less CO2 emissions.

The irony:  to escape one form of foreign dependence is to invite another.

THE big global long-term financial threat: Asia's "flowering" welfare states

Excellent Economist piece.

Idea I've spoken about before:  Asia has been the savings center of the global economy for a while.  The West (outside the oddly still-young US) is slouching toward retirement, when traditionally a society needs capital because it's burning up its own.  Meanwhile, the South is like a young couple that needs start-up capital.  

Point is, we expect Asia to fund both - plus take care of its own continuing rise.

The good news: while China's demographic dividend shrinks from here on out, SE Asia's will be around for decades, as will that of the emerging demo-div King Kong - India.

But what happens if Asia adopts the West's cradle-to-grave welfare state model?  Or what the Economist dubs "tigers turning marsupial"?

The Economist's point:  forget Asian values.  When societies reach a certain level of wealth, people expect the same things the world over.

It seems that every country that can afford to build a welfare state will come under mounting pressure to do so. And much of Asia has hit the relevant level of prosperity (see chart 1). Indonesia is now almost as developed as America was in 1935 when it passed the landmark Social Security Act, according to figures compiled by the late Angus Maddison, an economic historian. China is already richer than Britain was in 1948, when it inaugurated the National Health Service (NHS) which, to judge by political ructions—and Olympic opening ceremonies—has become crucial to its sense of national identity.

We are expecting a lot from Asia between now and 2050 . . .. 

Interview on global economy at Gold Forum in Denver last week

Yeah, right. It's Washington regulations that are screwing "clean coal."

We all see the commercials:  Washington is killing clean coal with its regulations!

Complete and utter bullshit.

The gas glut is killing coal, displacing it for up to a quarter of US electrical production across the latest full quarter.

So now you see power companies even going to the point of idling coal-fired stations (from the WSJ story):

Sammis is one of a growing number of coal-fired plants that were built to run 24 hours a day, seven days a week, but now may run only occassionally because of soft demand for electricity and competition from gas-fired plants that are cheaper to run and cleaner to operate.

Coal, says the piece, has been progressively losing out to shale gas for four years now. It's just gone super-critical over the last year.  Cheap gas now is half the cost of coal when it comes to generating electricity.

This is why America is going to be exporting our superior coal to Asia in coming years.

And that will be a good thing.

US ag industry: the greatest force for stability on the planet

Pick out the world's biggest exporter of wheat from this chart.

It's the US, which is also the biggest exporter of corn, soybeans and food aid.

Guess what got devastated this year?  Corn and soybeans (where the US just lowered its forecase of yields for the 3rd time), but somehow the US pulls off a slight increase on wheat.  Problem is, everybody else is down.  From the WSJ story (which provided the chart above):

The weather troubles, if they continue [read, winter wheat], risk pushing wheat back to the fore of global concerns about soaring food prices.  Wheat is a staple food around the world and a major source of basic nutrition for the poor, and prior price spikes in recent years contributed to political unrest.

Like the doubling of bread prices in Egypt in the months leading up to Mubarak's fall.

I say this in presentations all the time: the biggest force for global stability right now is the U.S. farmer.

Bring on the Asian fembots!

A sign of shifting demand centers: the hiring of Asian "brand ambassadors" (aka, models).

In an industry with historically little diversity, even small shifts stand out.

It's like switching the bad guys in the "Red Dawn" remake from Chinese to North Koreans.  Why?  North Koreans don't go to movies, but Chinese do - in large numbers.  So you don't want to piss off your audience.

Same thing here: after a while, the lack of Asian models is noticed in a world where the global middle class' spending shifts from mostly Caucasian to the everybody else.

Good piece on US concerns: Libya v. Egypt

Appears in NYT.

The one thing that's been clear about the Arab Spring to date:  it is a process of Sunni empowerment that comes with a great deal of identity politics.  America is now experiencing some payback for all those decades of supporting dictators who kept a lid on that identity.  in the past, I felt we did that in deference to the volatility generated by similar dynamics among the Shia in the decades after the Iranian Revolution.  But that was a conundrum-like choice:  we deeply angered half of the Middle East out of fear of the other half.

Now the Shia half seems back on its heels.  We might have imagined a tipping point with the re-Shia-ization of Iraq, but that seems rather puny right now with Syria almost literally coming apart and Iran still in internal lockdown against domestic opposition and external lockdown over the nuke program (those dropping oil exports . . .).

Yes, we now get a chorus of experts saying, "Aha!  I told you the Arab Spring was a disaster!"  But it's like that quote I gave Esquire back when it started:  the Arab Spring is like a kidney stone.  Sure, it's no fun passing it, but if you think it's going to stay in that kidney forever, just getting bigger, that's no answer either.  So yeah, passing it will hurt, but what's the alternative to trying to get it done quickly?  Pretending it's never going to come?

But the major (for me, at least) theme remains:  globalization has arrived in the Middle East, and it has triggered a lot of social and political tumult.  Large chunks of the population (mostly young) do not see a future they like, while Africa is booming and Asia keeps getting richer and a middle class blossoms across Latin America.  The Arab world is still losing - dramatically - at globalization.  As the region ages demographically from a mean age of about 22 to 32 across this decade and the next, the lack of jobs will be magnificently destabilizing.  That youth bulge is not being served, and when you can't produce the jobs (the MB's real problem now), you - those who pretend to rule - have to indulge the anger.

That's what we're seeing now: the Sunni Islamists in power are no more clued in than the secular dictators who preceded.  They are, however, more willing to indulge the populism.  This can go on for a long while.  It just can't go anywhere in terms of progress, because global investors will want none of this uncertainty.  Frankly, it's why China greatly prefers Africa.

How could US fracking revolution fail? Sounds like a good idea for a Wikistrat simulation!

Okay, I'm being a smartass here.  We did that one months ago, and it was fascinating.  I brief bits in my current brief today, because so many audiences (especially financial groups) are hungry on the subject.

Along those lines, see this good bit from John Bussey in the WSJ, along with this nice map. 

Worth a read.  The caption on the graphic says it all:  combo of price, infrastructure and regulation - usual story on all energy.  I will just tell you that, given my recent exposure in this field (i.e., more direct than a simulation), you'd be amazed at the ambition here and who that ambition is attracting.

Of course, you look at a chart like this and it's not hard to see why that would be true.

Wikistrat's latest sim: "Syria's Turmoil Explored

I co-wrote with Nick Ottens, a Wikistrat supervisor and Dutch journalist who specializes in globalization reportage.

This crowdsourced simulation, conducted in real time on Wikistrat’s online platform during the course of three weeks, discussed the sustainability of the Bashar al-Assad regime in Syria and forecasted dozens of scenarios for its collapse or survival. In addition, analysts explored and evaluated a range of policy options for the United States, Russia, Iran, Israel, Turkey, France and other actors. The simulation saw the participation and collaboration of over 120 Wikistrat analysts from all around the world. The following is an excerpt from the simulation’s executive summary, available for download here.

Assad has little control over his own destiny. His survival to date has had less to do with his bloody suppression of insurgents than the absence of comprehensive foreign intervention, China’s and Russia’s diplomatic support (along with some material support from Moscow), and the opposition’s enduring divisions. Brute force can put down any uprising, but it won’t put the sectarian “genie” back in the “bottle.” Those enduring tensions will do more to shape the future of Syria than anything Assad can now manage.

Absent assassination, military coup or outside intervention, the struggle will require significant time to reach resolution. Assad’s forces keep the upper hand wherever they focus attention, but they cannot hold territory once they move on. Recent opposition successes notwithstanding, the Free Syrian Army (FSA) survives but does not flourish.

The Wikistrat simulation explored five scenario pathways. Overall, the analysts agreed that the rising sectarian violence, questionable army loyalty and ongoing defections dramatically reduce Assad’s chances to restore stability. The most plausible scenarios thus portray a slow-but-continuous of the regime until Assad falls. At that point, the opposition’s divisions and conflicting goals imply Libyan-style post-war difficulties.

Ancient Chinese secret: Modernity shapes society just like any country in West

NYT story (As China Ages, Beijing Turns to Morality Tales to Spur Filial Devotion) shows that China not really all that different from West:  urbanization, industrialization, modernity all conspire to make "sandwich" generations (caring for kids and parents at same time) less caring about their elderly parents.

Beijing tries to instruct them with old morality tales.  It ain't working.

Great piece.

I sneak off to Denver for another speech.  This time it's a commodities (gold) focused convention.

Talking about being an analyst at Wikistrat (video)

Find here at the Wikistrat YouTube channel.

A bit autobiographical toward the end.

I am currently in sunny San Diego speaking at a financial industry research conference.

Sign of the times: Morsi's first big foreign stop = China

Nice WSJ story on this seminal example of south-south ties.

The "bamboo network effect:  Increase your trade with China and you increase your trade with China's network and the world at large.

But the trick for an Egypt:  awfully hard to follow in China's wake, so you tend to import more from China than you sell it.

China's challenge:  demographic aging means it needs to shift some portion of manufacturing (within overall processing trade network) to cheaper labor sites as China's labor gets more expensive.

Some of that shift China wants to direct inward to its interior provinces.  Some will go to SE Asia, experiencing a big demo dividend.  Some will go to India, which experiences an even bigger one.  Some to Middle East - still more, and some to Africa - the biggest demo dividend out there.

You say it's international corps that will make all these decisions, and that's true, but increasingly those corps are Chinese.  Plus, think about who's got the cash in the system for that FDI.

If you're developing and want to emerge in globalization today, you're reaching out to China - not the West.

Split the difference on the S. China Sea disputes! Impossible! Only businesspeople are so naive!

I know the non-Tebowed Republicans like to ask, What would Reagan do?  But Reagan's example is mostly inappropriate now.

The real historical players to cite are our two best Dutch diplomats:  the Roosevelts, Teddy and Franklin.  Both were perceived (incorrectly, I believe) as hostile to business when they were all about taming capitalism's worst instincts in a massive progressive era that stretched across their two seminal presidencies.

We are in the same territory now, replete with Teddy's multiple rising great powers following a huge expansion of the globalization of that era (the rather exploitative Euro version).  

So we need to concern ourselves with, a la Clad and Manning in the FT, "What Roosevelt would do in the South China Sea."

Planting flags on islets, declaring cities where there are too few residents to fill a restaurant, and huffing and puffing over uninhabited rocks are acts more suited to a Gilbert and Sullivan farce than to nations in the 21st century.

Absurdities aside, the tensions in the South China Sea could shape the balance of power in Asia and put at risk the $18tn east Asian economy. However, a century-old diplomatic idea used by a former US president offers a solution to the crisis.

At present, things appear to be at an impasse. Legally, the overlapping territorial claims defy resolution – either through bilateral steps or through the Law of the Sea treaty. This treaty, to which China has acceded, rejects lodging “historically based” claims, which are precisely the type Beijing periodically asserts.

With the legal problems exacerbated by nationalist sentiment, practicable solutions are even harder to achieve. Yet tensions need not slide inexorably into entrenched hostility, or worse. We propose a way out that would allow step-by-step commercialisation while setting aside disputes over sovereignty.

The current surge of interest in the South China Sea is driven first, by China’s steady rise and second, by the perception (if not the reality) of oil and gas deposits that may be accessible using new technologies.

Even so, no company will invest the billions of dollars required to exploit these reserves without a stable political and legal environment. Competing nationalisms and Sino-American friction are simply adding new layers of risk to an already challenging environment.

This should present an opportunity for creative diplomacy. Chinese oil companies still need foreign partners; they lack offshore drilling technology to exploit resources that may be much less substantial than China reports. Even optimistic estimates fall far short of projected Asian demand over the next 20 years.

A creative diplomacy for the South China Sea needs, for starters, to rein in rivalry – as Hillary Clinton has this week sought to do in her tour of Asia . . . 

True enough on Hillary, but at the same time Obama pushes ahead with his "pivot," his AirSea Battle Concept (brought to you, the worse-off-than-four-years-ago-taxpayer by your friends in the Military Industrial Concept), his massive arms sales to the region, his promise to meet Chinese cyber theft with kinetic responses (the new cyber strategy), and mucho missiles in a transparent encirclement strategy.

The authors' answer?  "We might revive a type of split-the-difference US diplomacy last deployed after Russia and Japan fought a war in 1905."

Guess which sitting prez won a Nobel Peace Price (for actually doing something instead of just talking about it) for that?

Ah, but such perspectives are naive.  Instead, the region needs as much weaponry and hair-trigger warfighting strategies as possible.  

That will fix things.