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Can Diplomacy Help Navigate an Upcoming Worldwide ‘Valley of Disappointment’?

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The current worldwide slowdown in productivity gains may reflect a combination of decreasing energy returns on energy investments in fossil fuels, and limitations on productivity gains in the early stages of development of renewable energy replacements.

A review of the development process in terms of non equilibrium thermodynamics concepts is in order. The stresses of the upcoming major worldwide energy transitions, accompanied by climate change protections, are likely severely to test national and international coordination systems, and demand insight into the thermodynamic and economic processes involved on the part of those who participate in international diplomacy.  

1.The Current Productivity Problem

Numerous publications have been reporting that rates of productivity gain have been declining in recent decades across much of ‘developed world’, and, from higher levels, in many ‘developing’ economies. A recent publication of the highly respected Brookings Institution probes this issue

The National Conference Board in the United States also reports almost imperceptible productivity gains, and some losses, in the most developed economies in the world. The Conference Board’s summation on this is as follows:

Zero or even negative total factor productivity growth suggests that improvements in the efficiency by which labor and capital are used have stalled . . . Ultimately declining TFP prevents companies from improving their competitiveness and profitability, and threatens the ability of countries to maintain or better people’s living standards.

As of this writing, the International Monetary Fund reports low growth prospects across a broad range of economies, and some difficulty in identifying why this should be so.

2. Current Related Financial Policy Actions

Institutions charged with coordinating national and global financial activities have undertaken attempts to encourage a resumption of ‘growth’ (typically measured within States as gross domestic product or gross national product). The conceptual basis for such measures seems to assume that growth rates should be those typical of the late 19th and the 20th centuries.

National governments have considered that they had two principal levers for trying to get economic activity back up to accustomed and/or targeted levels, termed ‘monetary’ and ‘fiscal’.

As to ‘fiscal’ action, the national government is assumed to be able to authorize economic activity directly, and to issue whatever monetary instruments, or forms, will be accepted in the markets supplying goods and services. This may create a current deficit, to be financed over time.

There seems to be more attention given to ‘monetary’ policy, typically managed by central banks, and institutions to coordinate the policies of national central banks.

National central banks have tended to try to stimulate economic activity by actions which make monetary units more amply available for national and international transactions. A part of this strategy is actions to lower the interest rates which generally apply in such transactions. This is thought likely to increase the levels of activity in investing in the production of goods and services (and in consumer purchases) by reducing the levels of yield needed over time from such activities to attract the ‘capital’ which will enable such activities.

At this time, most of the institutions with central bank functions, in the ‘developed’ economies, have been targeting very low interest rates for an extended period of time.

There have been at least two other, external but parallel discussions, with implications for economic activities. This article suggests that these inquiries are particularly significant at this time.

3. Current Awareness of A Need for An Energy Source Transition

It is generally understood that the enormous gains in human populations and activities have come from exploiting the ‘energy’ in fossil fuel, or earth-stockpiled, hydrocarbons. Discussions of productivity gains over time — generally the 19th and 20th centuries — seem to have assumed that the fossil fuel flows supporting such gains will be available at the same levels and costs as have been the case in these last two centuries. But looking ahead a century or two, this cannot continue to be taken as a given.

First, the prospective climate effects of combusting these hydrocarbons, to get the energy yield, has spurred a global search to replace these energy sources.

At the same time, the net energy yields from mining these hydrocarbons have tended to decrease. And, the limits of the most energy-rich hydrocarbon deposits seem visible, given current and prospective consumption rates.

The efforts to develop ‘renewable’ or ‘sustainable’ energy sources have led to a focus on a key measure — the energy returns on energy invested (EREOI) in such renewable technologies. Those tracking the development of renewables are keenly interested in when they will meet or exceed the EROEI of fossil fuels, and whether, and when, such energy yields will be sufficient to support a high energy industrial civilization in the future.

This author suggests that this should lead to shifting the conceptual center of discussion as to economic (and social) activity to the energy flow factors which enable such activity.

4. The Rise Of Academic Understandings of ‘Non Equilibrium Thermodynamics’

This dovetails into a stream of academic thought which has steadily expanded in recent decades, often termed ‘non equilibrium thermodynamics’.

The foundations of this thought go back at least as far as Heraclitus of Ephesus, born about 560 BC, who saw all things as process. However, in recent decades astronomers, physicists and others have expanded, elaborated, and measured these concepts in universally applicable ways.

Re-casting the productivity issues in thermodynamic terms may help answer a key question.

On the one hand, some suggest that the current slowdown in productivity growth in developed economies is just a pause in the realization of gains from innovations in process as to the economic potentials of current developed societies — e.g. ‘big data’ computations, self driving cars, the spread of ‘digitization’ of business and government operations.

An alternative suggestion might be that the combination of restrictions of fossil fuel use, the energy costs of such use, and the energy investment costs of creating and deploying   renewable energy sources now imposes or will impose constraints on the rate of productivity gains, if any, which we can project for coming decades.

Given the recent ascent into widespread scholarly discussion of non equilibrium thermodynamics, I should to state at the outset what version of nonequilibrium thermodynamics frames the premises here used in approaching human productivity and ‘finance’.

Briefly stated, this essay proceeds from the premise that all ordered structures in the Universe are manifestations of ordered energy flows. All ‘tangible’ structures are composed of relational systems — systems of correlated elements. Thus, the ‘order’ In the universe arises from correlations among the elements in the structures. In some, as in ‘solids’, the correlations are so stable as to stabilize both spatial dispersion, and radial degrees of freedom, over the periods of observation — or interaction with another ordered structure, or system.

Dynamic systems at the macro scale available to humans — processing energy flows and altering its internal conformation and/or relationships with external systems over time, or process — entail both energy intake and dissipation. Ilya Prigogine condensed this seminal insight long ago. A simple and visible astronomic example is the Red Spot on Jupiter.

Thus, ‘energy’ is in a fundamental sense the sovereign coin of the realm, so to speak, in the creation and maintenance of all ordered systems.

The leading explicant of the underlying dynamic nature of the Universe is Tufts/Harvard professor Eric Chaisson. In a series of exhaustively documented, elegant books and articles, he explains the energy densities, and related complexity levels, of galaxies, suns, ants, plants, humans and human societies. See for example “Cosmic Evolution”, Harvard, 2001, and for beautiful illustrations

A critical metric in Chaisson’s extensive documentation of energy flows is ‘free energy rate density’ (the amount of energy flow through a system per unit of mass and unit of time). Life units, for example, embody higher free energy rate densities than do galaxies or suns: animals higher free energy rate densities than plants, and humans, with their artifacts, like cities and particular elements in cities (e.. Jet planes and computers) much higher free energy rate densities than animals as a whole. In the energy scales of the Universe, human civilization is an extremely rare high free energy density phenomenon.

For a somewhat broader context, though condensed, overview for the interested general public,   one can consult an article on ‘relational order theories’

As humans have organized the world around them, they have identified and constructed systems which have, to the humans, the characteristic of yielding more energy to the humans than the humans invest in them.

In agricultural societies, ‘land’ was often used as a conceptual catch-all for an energy yielding asset. (However, I understand the the word ‘capital’ was derived from the indo-european term for cattle, in an semi-nomadic phase of the indo europeans). A fishing resource, or the ocean as a whole, could also be so considered.

Let us focus on a world in which systems other than ‘land’ (or a fishery area) were made to yield energy returns on energy invested in them.

In the fossil fuel era, such a system could be a coal mine, an oil or gas well, etc. where we have accessed energy bound in hydrocarbons by previously living systems, and learned how to liberate and turn to our use that energy. In this world, more types of resource, and energy flows, are organized more flexibly, by entities including the holders of the symbols of ‘capital’.

As we seek to enter a larger scale ‘sustainable’ or ‘renewable’ energy era we consider artifactual photosynthetic systems, wind energy systems, nuclear energy systems, etc. As to all such systems specialized so as to yield to humans more energy than humans organize into them, we have come to seek to measure the ‘energy return on energy invested’.

5. Initial Application of Non Equilibrium Thermodynamics Concepts to Productivity and Energy Transition Issues.

Assuming that ‘productivity’, as to humans, corresponds roughly to the ‘energy’ which the human or the system in which the human functions brings to ‘goods and services’ — the fabrication, transport, communication, etc. which the human becomes involved in ‘producing’ — productivity, as measured by the output of units specified per person work unit, would be enhanced by more energy entrainment, and decreased by less.

Generalizing this, one might posit that in a world of high EROEI, per person ‘productivity’ gains can be high, and in a world of low EROEI, they will be low.

We have noted that some suggest that underlying gains in efficiency — compositional productivity, or multiple factor productivity — are in operation but not yet manifested in ways which register in the statistical identities and measures we now use.

Let us entertain an alternate hypothesis oriented to a nonequilibrium thermodynamics framework, and a simple model which might be used to attempt to test such an hypothesis, over time, with enough data accumulation and analysis.

A candidate hypothesis would be that the energy returns on energy investments in the interconnected global economic systems are now rewarding investment in energy production at lower than historic levels, and at levels which, given all the energy dissipation in cycling energy through the generation and consumption, re-generation cycles does not allow for much increase in the over all activity levels of the societies involved, over time and the continuing cycling process.

Let us consider a simple model in which the key variables are a ‘capital’ sector, the energy return on energy which is invested into the ‘capital’ apparatus, and a population. These elements are arranged in a simple linear cycle, and the result which matters most to humans is designated as per capita wealth, in energy terms, as follows.

Per capita (energy) wealth = ((K*EROEI)-ReinvE)/P

That is, the wealth per person, calibrated in energy units (which have correspondences to ‘goods’ and ‘services’), equals the energy flow into the capital apparatus times the energy return from that apparatus per unit of energy investment, minus the energy reinvested in the capital apparatus, divided by the total population.

The physical system is a cyclical, reiterative one, as follows. The population inputs energy into the capital apparatus, the apparatus returns (and distributes) the energy back into the population, the population ‘consumes’ the energy, building some of it into population and amenities, etc, and returns energy into the capital apparatus. And keep cranking.

Using a model such as this, one can imagine differing endowments in different polities — e.g. higher or lower current capital endowments, populations, EROEI results. Some interesting possible relationships are noted in the footnote.

Malthus’s famous views come to mind. If we were to adapt a Malthusian point of view, the K, or capital, factor was largely seen as land. The yield — the EROEI — of land had not shown great increases in centuries prior to Malthus, and nothing like ‘geometric’, or exponential, or repetitive doubling, would seem plausible at his time. So if one assumed that the total population would increase faster than did energy production from land, using historic forms of agricultural technology, people would live more poorly, or some of them would, or some would have to go — to be subtracted from the equation.

Let us now put in this formula the Industrial (or fossil fuel) Revolution. Suddenly (in historical terms) EROEI skyrockets — let us say up to 50 times the energy input. The population can expand (improving food supply in various energy-fed ways), the energy using apparati generally (goods and services) can expand, and the capital factor can increase. The cycle becomes wonderfully virtuous, and humanity bestrides the Earth beyond its agricultural dreams.

But now let us suppose there are limits to the extent the capital factor can increase, or the EROEI begins to decrease, or both. Depending on how one varies the critical factors of population size, capital stock, and EROEI, many scenarios can be produced, as noted before. But with capital limited or fixed, and no appreciable gains in EROEI, we could be headed back to the Malthus type of calculation.

Let us sketch a more optimistic scenario for a few centuries ahead.

Let us continue to assume that the EROEI on fossil fuels decreases, and/or fossil fuel capacity is capped in order to avoid overheating the whole human complex, with major losses of system function and human welfare.

But our specialists advise us that life on earth taps only a very small fraction of the solar energy impinging on earth, we also tap a small fraction of the wind energy available, and if we are clever, farsighted, and disciplined enough we might replace the fossil fuels, at levels comparable to or above current civilization energy levels, at EROEI ratios sufficient to maintain our population levels and our per capita welfare, and also feed back into the capacity machinery enough energy to keep that machinery, and the whole system, stable and growing.

If humanity is not to go on a severe diet at some point, this is clearly the situation which will have to be managed. We humans have a very big and tricky energy supply transition coming up, and there are many uncertainties involved in it.

We may not know just how rapidly the energy supply transition can occur.

Vaclav Smil counsels that we think in terms of a century or so, and has historical evidence to support his view. Vaclav Smil (2011), Global Energy: The Latest Infatuations, American Scientist.

Others suggest that the coming transition could be managed more rapidly. The current Administration in the United States is pursuing an aggressive program to facilitate adaptation of the electricity system to increased proportions of wind and solar electricity generation.

As of this writing, a 2016 projection of the Bloomberg New Energy Finance group projects that by 2027 renewable electrical energy sources will cost less than operation of fossil fuel plants, and by 2040 renewable technologies will improve their cost levels 40-60% and fossil fuel production will have shrunk to less than 50% of total electrical energy production worldwide. In the advanced economies of Europe and America, the fossil fuel shares will have shrunk to a third or less of total electrical energy supplies. And, as to transportation, electric vehicles would constitute about 35% of new vehicles sold.

We also may not know exactly what system wide EROEI levels are required to maintain the high levels of free energy densities prevalent in highly industrialized civilization. A currently circulating guess is 10/1.

We do not know how well the public in the industrialized areas will understand their situation, and have the patience and foresight to soldier through the required transitions.

Given these uncertainties, we still must attempt to project a path forward.

Let us trace out a scenario reflecting the possibility that we are at or near a difficult point in our energy base transition.

This scenario might be called a ‘valley of disappointment’ scenario. (That is the pessimistic part. The optimism is reflected in the projection that only a valley, not a cliff, looms before us.)

If and as we are now entering a situation in which the fossil fuel energy recovery rates are declining, and the renewable energy yields are increasing, but are currently only a bit above the base rate needed for advanced civilization , account only a small part of energy supply at this moment and need extensive energy-consuming complements to fill out the entire range of energy uses, we might predict that our societies could encounter the following situation.

A slowdown in global, composite EROEI levels relative to historic fossil fuel boom era EROEI levels,

  • and thus widespread, aggregate slowdowns in GDP, or GDP growth
  • and related slowdowns in per person productivity gains,
  • and thus slowdowns in consequent ‘standard of living’ gains.

Even if the renewable energy sources were eventually to produce high and reliably increasing levels of energy flows in human societies, efficiently spread throughout our societies, we could see

  • lags between investment in the renewable energy sources, and the related complexes which are required to make them broadly and efficiently usable, and their full effectiveness, and thus
  • human societies enduring some decades of transiti

All this leading to

  • A lull in standard of living gains, if not a period of decline, and
  • slow progress in improving them again. And, consequently,

as these slowdowns occur, and a resumption of something like historic welfare gains seems remote, considerable dissatisfaction arising in populations which are accustomed to rapid gains in ‘welfare’, or standard of living.

Does this picture resemble what we now may be seeing in the ‘highly developed’, extremely entitled populations of America and Europe?

Were this overview accepted, the 2016 Bloomberg new energy investment scenario seems to suggest that by 2040 renewable EROEI would have increased by 40-60% and even transportation would be moving toward energy efficiency sufficient to service high energy human civilization. Such a rate of progress could make less onerous the ‘valley of disappointment’. We could at least better see our way to a more abundant future, perhaps even more abundant than our fossil fed recent past.  

6. Implications For Financial Policy

In this sort of scenario would the roles of ‘finance’ differ from those now prescribed?

‘Policy makers’ may be unclear whether they may just assume that ‘fiscal’ stimuli will draw on an underused and available well of production and productivity-increasing opportunities on which to spend money tokens, or whether their justification rests solely on a judgment that they, better than the market, can discriminate between higher EROEI possibilities and less productive ones. However, they may be inclined to choose to funnel resources to long term thermodynamic gain as well as or better than an unguided or unassisted market. We have done well in the past by encouraging canals and railroads, for two examples.

As to monetary tools, on the face of it, a regime in which low interest rates prevailed would seem to accord with a relative scarcity of thermodynamically fruitful (in customary language highly productive) investment opportunities. That is, low interest rates would appropriately reflect generally low returns to investments.  

If one expected that ‘natural forces’ — e.g. ‘innovations’ — would soon replenish the inventory of potentially rewarding opportunities, one might just hold steady and wait — perhaps a few years.

If on the other hand the ‘valley of disappointment’ construct more accurately depicts our situation, the ‘wait’ — the period of low returns on ‘capital’ generally — might go on for some decades. A great deal of adjustments in matters such as annuities, pensions, bond integrity — indeed, public and private finance generally — would be compelled.

Thus, there would seem to be a strong case for monetary policy functionaries and advisors to focus clearly on non equilibrium thermodynamics, EROEI oriented, analyses of economic phenomena. If this work is done thoroughly and well, the ‘valley of disappointment’ hypothesis may be confirmed in whole or substantial part, or disconfirmed. We may learn enough to get a better picture of workable paths through the transition before us.

7. Diplomacy

If the more advanced economies are facing thermodynamic/economic constraints in the upcoming Great Energy Transition, whereas on the other hand less developed venues feel entitled to a great deal of economic catch-up, regardless of atmosphere heating results, we have a continuing difficulty in managing world climate protection and acceptable rates of welfare improvement in some large and ambitious countries.  

The oil-laden Persian Gulf area is a continuing management problem. The deepest and most easily accessible pools of liquid hydrocarbons are in the hands of archaic political systems, some of whom — like Iran — have felt badly treated by the industrialized ‘West’. But USA Investment in an order-maintaining military presence in the Persian Gulf area most directly benefits India and China –the US only indirectly. This has not escaped the attention of one of the presidential contenders in the United States.

Diplomacy will be involved in finding ways to reconcile nativist-nationalist impulses in several European countries, and in the United States, with the economic and social advantages of global integration. The recent ‘Brexit’ act highlights the significance of this phenomenon.

Notwithstanding all the above, the hierarchy building imperative evident the hierarchical construction of order in the Universe explains at the most basic level currently available the tendency to global human integration evident in the last few centuries. This integration dynamic is fundamental.

But the equally underlying stochastic nature of the Universe counsels that nothing is guaranteed to we weird, extreme, socialized apes who seek to live like high technology, high energy, densely clustered ants, in a dynamic, promising, but perilous journey through life’s accumulated energy bounty into a new era of energy entrapment on Earth.

Thus the civilized effort to make light out of international heat, and workable coherence out of urgent parochialisms, has fundamental tasks before it in this era of change in the energy fundamentals. An understanding of the currents moving the ships of state, as well as steady hands on the helms, are needed.

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Economy

Economic Warfare and Cognitive Warfare

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Until not long ago, the Western world lived in the conviction that Liberalism was an end in itself, however, the new context of globalization suggests that political economics once again makes more sense, given that power relations in the economic sphere can no longer be ignored and  the idea that world trade is structured on supply and demand appears obsolete.

The world is changing. Situations change, and events and the ways of understanding politics change with them. Instruments change as well: if the aphorism of Clausewitz that war is politics conducted by other means once seemed valid, today we might say that politics (and economics) is war conducted by the means of information.

The threat is no longer limited to what we once thought and conceived in the geographical terms of one superpower attacking another. The threat today is asymmetrical, different, and changes continuously. It travels through the Internet, it is immediate, and above all, it threatens the entire system. It is not aimed at military or political targets but commercial, industrial, scientific, technological, and financial interests instead. This requires intelligence to structure itself around new duties: protect not only the entire system but also the weakest links in the chain of production.

All this requires changes in mentality and in operational processes, as well as continuous updating, especially at a business culture level. Most of all, it requires close interaction between intelligence and the private sector, despite the difficulties this entails.

The crisis we are currently undergoing, together with the industrial and commercial physiognomy characteristic of our era, requires us to consider the idea of “economic warfare” very closely.

It is essentially since the end of the Cold War that the balance of powers has been developed around economic issues: most governments today are no longer interested in occupying territory or dominating other peoples but rather building up technological, industrial and commercial power capable of bringing money and jobs to their own land.

Globalization has transformed competition from “gentle” and “limited” into authentic “economic warfare”.

Although this economic challenge reduces the areas available for military warfare, its ultimate goal of accumulating power and well-being is the same.

The national economic intelligence strategies recently adopted by numerous governments assign their private operatives central roles in maintaining security by providing them with information technology infrastructure and the primary asset in the digital age: data.

The step between protecting private economic activities and protecting national economic interests is a short one indeed.

Economic intelligence consists in coordinating a series of activities: collecting and processing information, monitoring competitors, keeping strategic information secret, and capitalizing knowledge for the purpose of controlling and influencing world economic environment. All this makes it a powerful weapon at the nation’s disposal.

The main players in economic warfare are:

First and foremost, the world’s nations, which remain the most influential regulators on the economic chessboard despite their relative decline in the life of nations and the various restrictions placed over them, such as those imposed by international organizations like the European Union. One important recent change is that now nations must take numerous stakeholders (NGO, international bodies, companies, mass media) into account. At any rate, they uphold the role of arbiter that all the other players only continue to emphasize by regularly imploring their intervention.

The world’s companies, which address the new hyper-competitive geo-economic scenario by using strategic information control as a weapon of competitiveness and economic security.

Civil society: the expansion of discussions on social issues regarding company activities (nutrition and well-being, technological progress and risks to public health industry, and the environment, transport and passenger safety, information technology and individual freedom), the mass use and democratization of Internet, and the growing involvement of the legal system in monitoring business operations, all increase the risks of hacking attacks against companies by hackers from civil society.  Including in the public discussion topics such as risks to the environment, sustainable development, socially responsible investment, and corporate social responsibility brings greater importance to the legitimacy of social questions.

The infosphere, which is not a category of physical persons or legal entities but instead a dynamic, that is the aggregate of interventions and messages spread through media and the worldwide web. The infosphere is a particularly insidious instrument similar to an amplifier that continuously jumbles and blends ideas, emotions, and impulses emitted by an infinite number of people without any real dominant subject and exerts a determinant influence – positive or negative as occurs – on individuals and organizations. When launched in the infosphere, a simple statement has the power to trigger ferocious argument, harsh political reaction, media crises, and damage to company reputations. The infosphere can become a particularly effective weapon of destabilization. We must never forget that a brand’s image and reputation are strategic components of the capital of a company that can affect its commercial and financial activities.

Which forms does economic warfare take?

Economic warfare is often confused with economic espionage, which despite being used as one of economic warfare’s weapons is hard to define both because the companies victimized are reluctant to publicize its incursion and because it is hard to circumscribe in juridical terms and therefore difficult to report.

A more commonly practiced form of economic warfare is the purchasing of companies. This may lead to authentic forms of surrounding the industries in any given territory through operations that reflect motivations of financial, economic and technological nature all at the same time.

Yet another form of economic warfare, which is both particularly widespread and insidious, is lobbying; in other words, an influencing strategy aimed directly at public decision-makers assigned to the drafting of regulations. Our nations are particularly plagued by the proliferation of regulations and one strategically important aspect of lobbying is attending and altering the process of creating, interpreting and/or applying regulations and legislative measures and directly or indirectly influencing public powers in every intervention or decision. International trade is largely based on influence, and therefore gaining closer access to decision-making centers has become an obligatory part of commercial competition.

All the practices above are included in influence strategy: influential communication is also the hardest to identify and oppose because it is perfectly legal. “Information war” is based on the following few simple principles that can wreck havoc when marshaled together:

  • moral argument, that is the possibility to induce a crisis on the basis of an ethical reasoning;
  • offending political correctness by disrupting the day’s cultural and psychological patterns;
  • choosing targets, in the sense that the weaker the legitimacy of the adversary’s capital, the more the information attack will provoke escalation in the media;
  • the degree of celebrity of the players;
  • the criterion of appropriateness or resonance of the environment.

The upheaval of the Western economies’ competitive system is not just a passing thing. A growing number of powers (China, India, Brazil, Turkey, Iran, Russia) is conditioning the rapid shift in international competition. More often than not, the choice of winning dominance in foreign markets prevails over restructuring the nation’s own domestic markets. This demonstrates the extent to which a power strategy can make a decisive difference in the context of economic competition. These new players in international competition hold a different view of the dialectic between power and market, the latter being seen as the primary means to the increment of power. This vision revives the basic principles of political economics, according to which the market is the only path to power and not the other way around that has been demonstrated in numerous cases (such as Russia’s Vladimir Putin’s use of energy resources for coercive bargaining and blackmail in 2009) and illustrates the limits  of the interpretative models of liberal economists whose analyses were focused on the effects of deregulation, mergers, or financial speculation involving gas prices, but fell short of the possible use of gas trade as a weapon.

The process of globalization is irreversible and fairly independent of what governments do.  Globalization is one thing, but the ideology of a global free market that may produce a higher growth rate than any other system but gives no importance to how such growth is distributed is another. The argument that the highest capitalistic growth distributes resources in the best possible way, in fact, was never very convincing. Even Adam Smith thought that there were certain things the market could not do and should not do.

Historically speaking, the balanced evolution of world industry was created not by liberalism but by its opposite. The United States and Germany both became industrial powers in the 19th century because they protected their industries until they were able to compete against the dominant economy of the day: Great Britain. Neo-classical economic theories are now in disfavor because the system has come to be disrupted by scarce control over international financial flows and investment procedures.

Now more than ever, we are witnessing a struggle between the forces of capitalism, which tend to overcome every obstacle, and political forces that operate through nation states and are obliged to regulate these procedures. The laws of capitalist development are simple: maximize expansion, profit, and increase in capital. Governments by nature have different priorities instead, and this generates conflict. Furthermore, the dynamic of the global economy is one that does not ensure the stability of its protagonists.

The nation-state system and the economy system coexist in constant tension and must adapt, but if there were no relative stability among states, the instability of a world organized along the lines of transnational economy would only increase. The real problem is not whether governments can control the international corporations operating inside their borders, but whether they are able to exert global control: when companies and governments clash, the latter must negotiate as if there were another nation seated before them.

Like religions and cultures, globalization is only a simplified answer to today’s conflicts and the challenges to security. Globalization has most certainly reduced the importance of military power since the end of the 20th century, whereas security – internal security in particular – has become a global public asset. In the age of information technology, interdependence, and ”smart goods over heavy goods”, the military force offers less and costs more. Economic, technological, and especially communicative competition is more important and determinant than military strength.

The globalization of information has contributed to changing the nature of warfare by making public opinion decisive. In the short term, geo-information has become more important than geo-economy because its effects are immediate and not always governable. This is also a post-Cold War phenomenon.

In this context, the economy is no longer the mechanism of security as it was during Cold War, but on the contrary, security now serves the economy in creating better conditions for the expansion and protection of globalization. The nature of security depends on the situation prevailing in each nation and varies from one region to another, according to the respective level of globalization.

Consequently, it is the process of globalization that has restored political economics to importance and re-sparked a discussion formerly considered closed, according to which the market is the path to power and not the other way around, as it becomes an instrument of power politics in the globalization of exchange. The accumulation of power through economic expansion is the driving force behind the new emerging nations.

Yet today’s economic context must come to terms with new offensive strategies that undermine the industrial basis of the market economy and draw attention to the predatory policies of what may be defined as authentic economic warfare.

It is in this context that all companies, regardless of size, can be said to suffer damage from the absence of an economic security culture that only the use of intelligence, as a tool in analyzing predatory completion, can provide.

Interpreting the notion of national security including also the safeguarding of national interests requires information and security services to be ready to protect big companies or those of strategic significance, which the French refer to as “companies of national strategic importance” or “national champions”. These companies often – but not always – have their own information or security organizations that help them survive fiercer and fiercer competition.

In any case, in the field of economic intelligence the rules between the services of the various nations are more flexible, and it is easier to refer to others merely as competitors, neither friend nor enemy. This field is currently in the process of development, and European economic intelligence is still in embryonic phase.

The evolution of the information society has profoundly modified the frame of conflict. In the opinion of American analysts like John Arquilla and David Runfeldt, experts in netwar at Rand Corporation, the nation that wins tomorrow’s conflicts will not be the one with the biggest bomb, but the one that tells the best story.

In this sense, Americans have been referring to the key concept of information dominance since 1997. Defined as the control of anything that may be deemed information, this doctrine aspires at the moulding of the world by standardizing international practices and regulations to the American model, with the objective of placing decision-making bodies under control.

These experts note that it is sufficient to observe how American public opinion was mobilized during the invasion of Kuwait by a disinformation process planned at military level, or more precisely, at the level of psychological warfare. Information manipulation processes allow certain facts to be marginalized, and for this reason the domination of information has become a top priority in defining American strategy.

We may consider how the war in Iraq demonstrated the importance that manipulating information has assumed in international relations. The accusations made by G. W. Bush against Saddam Hussein regarding the existence of weapons of mass destruction represent a textbook case in the history of disinformation.

On the other hand, we must be careful of jumping to conclusions about how cognitive warfare is waged: disinformation, or even worse, the manipulation and authentic distortion of information for the purpose of deceiving your adversary or ally is often mistakenly confused with the production of knowledge conceived to orient the rules of conduct.

In this regard, Harbulot emphasized the profoundly innovative role of information war in terms of strategy and its implications for companies.

It was naturally Harbulot’s intention to use cognitive warfare to protect the economic interests of French companies against their American competitors. If, in fact, conflicts ranging from the Gulf War to the War in Kosovo have demonstrated the overwhelming superiority of American military intelligence overseas, what room for maneuver remains open today for the managers of the intelligence service in Western Europe, who are responsible for defending the geo-economic interests of their nations against American interests? Harbulot’s answer is clear: this room for maneuver is constantly eroding, and a situation of near total paralysis has been reached in certain cases.

Closing this gap means modernizing the thought of Sun-Tzu, the Comintern, and Mao Zedong, and especially that of Winston Churchill, the first Western statesman to have orchestrated a plan for information warfare against Nazi Germany (Plan Jaël). In terms of disinformation, he represents British genius in deceiving the enemy on the dates and locations of invasion landings.

Naturally, the lack of legal provisions regarding the manipulation of knowledge raises serious concern for the economic security of European companies, which must consequently arm themselves with techniques capable of strategically managing economic information.

It is precisely in light of American political-military choices that French strategy discerned the need to define just what information war really is in the strictest terms. The expression used in French strategic context is “cognitive warfare”, which is defined as the capacity to utilize knowledge in circumstances of conflict.

In particular, the French School of Economic Warfare acknowledges in cognitive warfare the conflict between different capacities of obtaining, producing, and/or obstructing determined types of knowledge implicit in power relations that can be defined “weak against weak” or inversely, “weak against strong”.

Numerous examples that come from the world of industry testify that innovation in this field is not always necessarily made by the strongest. Naturally, the United States is the primary artifice of “strong against weak” cognitive thinking, such as, for example, in defense of its position as superpower at both military and informational level. This nation’s way of orienting its own and the other nation’s conduct implies its complete acquisition of the importance of cognitive warfare as the ability to have the images of single powers perceived by the world public opinion, a strong argument in the search for legitimacy that every democracy must acquire in national and international context. The United States has always – but especially after September 11 – stoked the legitimacy of its policies by emphasizing the defense of democracy and the need for global security as reasons to combat anti-democratic forces.

In today’s context of intense competition, destabilization plays a fundamental role. Harbulot suggests considering the example, that has become common practice in economic warfare, of a multinational company that decides to stop a competitor from developing a project in an emerging nation.

A cognitive warfare operation might take the following form:

Identification of the competitor’s weak points in the area in question (weaknesses may vary in nature: bribes paid to authorities, environmental pollution, failures to respect human rights). All the information collected must be verifiable and not give rise to fallacious interpretation.

The choice of the information attack procedure: if the cognitive aspect is considered, the following scenario may be imagined. The director assigned orders funds to be paid into a private foundation supported by the company. A trusted person at such foundation then channels this money to a NGO that has posed itself the objective of protecting the environment. The maneuver consists in then making the NGO aware of this dossier by indirectly providing it with verifiable (and therefore non-manipulated) information on the misdeeds of the competitor multinational. Through its Internet site, the NGO then sends negative messages against the competitor’s project. This is how the chain of knowledge is created. The next step required is knowing how to consciously activate it for the purpose of destabilizing the target.

The chief strength of the information attack lies not in deceiving or misinforming but instead in fomenting a pertinent dispute that has been demonstrated by objective facts. The level of conspiracy is limited to setting up and activating the information chain. The more “grounded” the diatribe is, the harder it will be for the adversary to demonstrate conspiracy, even if only in theory.

It is clear that the spread of new information technologies has brought competition exasperated levels and facilitated cognitive warfare, in such way triggering an unprecedented conflict that, in the opinion of the French analysts, exceeds even that of the Cold War.

Information has become another weapon in the art of war capable of making the difference between winning and losing, regardless of whether the conflict is military or economic.

Changes of such degree impose cultural revolution.

Then there is psychological warfare, one of the principal forms of information war. It is the most sophisticated because it relies essentially on human intelligence, in its capacity to understand possible actions for success by controlling the means of communication.

Little known and scarcely practiced in France, psychological warfare has never received much attention from the military establishment, which has often succumbed to the pressure of events or adversaries, as happened in Indochina and Algeria.

Psychological warfare employs every means available, from disinformation to deceit, from propaganda to interdiction, in clashes of various nature (from the battle against terrorism to conventional warfare and the subsidization of peace) and is moreover directed to public opinion for the purpose of conditioning or manipulating it.

The use of psychological weapons cannot be improvised and is based on an organized operative structure and conducted by specialized personnel and organizations.

Civil communication systems have by now reached levels of performance previously attained only by armed forces and governments. This has led to the accumulation of a critical mass such to enable a lowering of costs. For this reason, even if the conservation of certain autonomous military capacities is foreseen, the development of information systems for defense and intervention depends more and more on civil systems. This creates a vulnerability that might be underestimated in times of crisis or conflict.

The infosphere’s framework has become highly conflictual; information war has become inevitable and is waged with the function of appropriation (intelligence), interdiction (limitation of access to information) and manipulation (intoxication).

Economic intelligence provides a necessary response to a world with no more borders of time or space, where information is immediate and reaction time is zero. A re-organization of structures around the new dimension assumed by the relationship between information and intelligence leads to changes in both the decision-making system and the management of human resources. First and foremost of all, the revolution must be cultural in nature: perceiving information as a weapon to be incorporated into national defense strategy.

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Economy

“Made-in-Russia”: Securing Russia’s economic interests

Kester Kenn Klomegah

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Squeezed between the United States and European Union sanctions, Russia has been exploring effective ways to increase exports of its industrial products under “Made-in-Russia” program to traditional markets in Latin America, Asia and Africa. The primary strategic goal is to secure Russia’s economic interests abroad while at the same time support Russian industries in raising revenue to modernize Soviet-era industries. But increasing exports especially to African markets, Russia has to confront market competition from western players and Asian countries such as China, India and the Gulf states.

In a recent interview, Peter Fradkov, general director of the Russian Export Center (REC), has explained that Russia has been making every effort to avoid the “raw-materials” export model and focus on developing export-oriented industries and the launch of the Russian Export Center was a key step towards the development of a full-fledged national export support system.

The Soviet Union made a significant contribution to the social and economic development of African countries by building large industrial and infrastructure facilities and helping to establish national education and health care systems. However, in the 1990s the Russian-African relations came virtually to a standstill. At present, Russia’s foreign trade turnover with Africa is about 12 billion US dollars, which is a rather modest achievement. Nevertheless, the African continent remains a rather promising market for Russian industrial goods.

Admittedly, the Government authorities, and both Inter-Governmental Commissions and the REC, are primarily concerned with removing barriers for Russian exporters and opening up foreign markets for them in Africa. Reinforcement of positions of Russian exporters in Africa requires creation of certain conditions and the key task is penetration into the global market. For this purpose, the Russian Export Center has launched a program to promote Russian goods and services under a single country brand “Made in Russia” and in this context, Africa is a very important partner for us, though not an easy one.

He underscored the fact that “Russian manufacturers have a number of specific competitive advantages. Let’s take, for example, agricultural machinery. The main advantage of Russian products as compared to the counterparts by major foreign manufacturers is a lower price and almost the same level of capacity, quality and useful life.”

On the other hand, there are some difficulties still inherent in the Russia-African business partnership. According to Fradkov there are still insufficient awareness of the real economic opportunities, market conditions and specific counterparts in African markets by Russian businesses and poor awareness of capabilities of Russian partners for Africans.

“We are often faced with discriminatory barriers, which are there not because we are from Russia, but because we have just not thought about how to remove these barriers. Our primary task is to gradually change the thinking of Russian entrepreneurs, who are often skceptical about entering foreign markets, including Africa. Secondly, we strive to promote the image of Russia as a producer of diverse and high-quality products,” he underlined in the interview.

With new trends and directions in global business, African countries have to look to the Eurasian region as a huge market for exports as well as make efforts to consolidate and strengthen economic cooperation, says Tatiana Cheremnaya, the president of ANO “Center for Effective Development of Territories” and head of the working group on public-private partnership “Business Union of Eurasia” based in Moscow.

Cheremnaya discussed here three main points and are as follows: The problems of effective cooperation between Russia and Africa are political in nature. Thus, the strengthening of Russia’s position leads to the strengthening of its influence in the world, including in Africa and vice versa, sectional policy has significantly reduced Russian exports.

The second problem for the development of Russian-African business is the lack of competitiveness of Russia which allows working only in the low-budget segment. This is due to structural problems in the Russian economy, the need for modernization, the bulk of the products produced during the Soviet Union.

The third problem is competition from the United States, China and India as more developed countries with more advanced technological solutions, and from the European countries as the former “patrons” of African countries.

Russian President Vladimir Putin, taking part in a congress during the 11th Russian Business Week organized by the Russian Union of Industrialists and Entrepreneurs (RUIE) early February, discussed how innovative technology is reshaping the global business landscape. He, however, encouraged Russian industrialists and businesses participating in the forum to improve their business approaches in order have competitive advantages in the global market.

“This is the most important thing. And fundamentally fresh markets for goods and services will become available, and new leaders will appear as well. Naturally, competition will exacerbate. Clearly, in a situation like that, no one will be playing fair with their competitors, including in the global business environment,” Putin said.

Russia has trade centers established in Africa. But these Russian trade centers must necessarily embark on a “Doing Business in Africa” campaign to encourage Russian businesses to take advantage of growing trade and investment opportunities, to promote trade fairs and business-to-business matchmaking in key spheres in Africa.

Maxim Matusevich, an associate professor and director, Russian and East European Studies Program, at the Seton Hall University, told me in an interview that “in the past decade there was some revival of economic ties between Africa and Russia – mostly limited to arms trade and oil/gas exploration and extraction. Russia’s presence in Africa and within African markets continues to be marginal and I think that Russia has often failed to capitalize on the historical connection between Moscow and those African elites who had been educated in the Soviet Union.”

“It is possible that the ongoing crisis in the relations between Russia and the West will stimulate Russia’s leadership to look for new markets for new sources of agricultural produce. Many African nations possess abundant natural resources and have little interest in Russia’s gas and oil. As it was during the Soviet times, Russia can only offer few manufactured goods that would successfully compete with Western-made products. African nations will probably continue to acquire Russian-made arms, but otherwise, I see only few prospects for a diversification of cooperation in the near future,” added Maxim Matusevich.

Former Ethiopian ambassador extraordinary and plenipotentiary to the Russian Federation, professor Teketel Forssido has also explained that Russian businessmen think that business can be done from government to government levels (at the state levels) but in many countries business at the state levels has been complimented by private participation. Using government as an umbrella could be alright, countries such as India, China and others run businesses without government in Africa. The government, of course, has to clear the way for smooth business transactions.

“Russians are counting on the authorities to do business, but if they always rely on the state, business can be ineffective. That’s why Russians businessmen are slow as we have seen it,” he said.

According to Forssido Russia has to open its market for Africa and there are various ways to this. One surest way is to use the existing rules and regulations. The preferential treatments for agricultural products exist but Africans don’t use them. Then, individual countries have to negotiate with Russian government for their products to enter the market.

Further, the African regional economic blocs can be useful instruments because these blocs are very important and can work with their counterparts to facilitate trade between Africa and Russia. For instance, in COMESA and SADC zones in Africa, goods and services move freely, and now I think these blocs should look into the line of working as regional economic blocs with Russia.

“At the moment, China has done a lot in Africa despite worldwide criticisms. China is not the only player on the continent, but also India, Turkey and other serious players. But, when we talk about Russia, I think it’s not comparable. China has largely involved in Africa, practically in all sectors as we can see. We expect that Russia can do more if they want to, looking at their huge potential capability. They still have their own priorities, anyway,” he pointed out assertively.

As already known, Moscow’s long term goals include developing investment cooperation with African countries, widening the presence of Russian companies in the African markets through increased deliveries of industrial and food products, and enhancing Russian participation in driving the economic development of Africa. At the same time, Russia needs to look at simplifying access to its market for African countries.

In one of his speeches posted to the official website, Russian foreign minister Sergei Lavrov noted frankly in remarks: “it is evident that the significant potential of our economic cooperation is far from being exhausted and much remains to be done so that Russian and African partners know more about each other’s capacities and needs. The creation of a mechanism for the provision of public support to business interaction between Russian companies and the African continent is on the agenda.”

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Economy

Information as an offensive tool of economic warfare

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In his “Warfare and counter-warfare of economic information” initially published by Revue Echanges in 1994, P.J. Gustave wrote about the information warfare, or info-war, maintaining that at this stage it is more important to find solutions not to lose the economic war, rather than discussing whether or not to engage in it. Increasing competition and geostrategic balance contribute to develop the offensive use of economic practices. On the one hand the most competitive economic powers managed to use information as a strategic tool; on the other hand, economic warfare intelligence operations replaced the Cold War methods and accompanied the transition from geopolitics to geo-economics.

In this new warfare framework, the role of information is twofold. Firstly, it is a fundamental resource for the enterprise, as it allows access to all kinds of goods and services; secondly, information is the main tool for economic warfare, since it works both as offensive and defensive weapon at the same time. The radicalization of economic competition triggers a radicalization of information, disinformation and counter-information mechanisms, in which the importance of intelligence techniques is growing significantly.

Disinformation is one of the most ancient combat techniques and dates back to primitive times, when it was used for hunting. It was particularly for primitive men to make their opponent fall right into the trap without risking self-exposure. There is a trace of the use of disinformation tools even in Chinese warfare writings (2000 B.C.) and in the Bible. In contrast to what is commonly believed, these techniques were not born in the former Soviet Bloc. At the beginning of 20th century, disinformation was already used even by the British to gain advantages on the battle field and to perform important financial hits. At the present moment, there are a number of different forms of deception techniques. Technological disinformation, for example, provides wrong information on plausible projects – that are consistent with a global strategy – through filing unusable patents.

Disinformation can be extremely helpful to protect the secrecy of sensitive information while playing with space and time. Since the rising of physical barriers is a clear indicator of the presence of hidden sensitive material, more and more enterprises are adopting a different approach that consists in giving contradictory signals. This practice allows shadowing the company’s strategy while presenting a false but clear and transparent image to the opponent; this increases security since it consists in the combination of defense-offense techniques. Nonetheless, every company is vulnerable to information attacks that are difficult to neutralize, especially when the victims are not familiar with the offensive methods used and with the necessary countermeasures. Information attacks are even more dangerous when conducted while trade negotiations are taking place.

This disinformation technique is usually adopted in “grey” or “black” operations, whose destructive potential is enhanced only through the mass media diffusion. It basically consists in provoking an event or a harmful accident for the targeted company and spread the news on media outlets. This actually causes more damages than the accident itself. Besides, since there are no geographical boundaries containing the spreading of the news, these attacks can very rapidly achieve a catastrophic scale. Their main characteristic is the invisibility of the attacker and the extraordinary cost-effectiveness.

Most times, disinformation consists in a wanton and purely informative attack aimed at distorting or destroying the competitors’ image: while the news is based on real facts, the consequences are always misrepresented and usually transmitted through media outlets that amplify it. The case of the traces of benzene found in French company Perrier’s bottles of gas water is an interesting example of how a leak in the information security can turn into significant losses for a healthy firm and how an effective communication system can partially neutralize the attack. This episode originated from a human error in sanitary procedures in the Vergèze factory, where the late replacement of the filters caused an increase in the benzene level in the bottles of water to be shipped to the United States. Although this error could have been easily corrected through filter substitution, the presence of a competitor ‘agent’ in the factory increased the echo of what happened.

At the end of 1989 Perrier was a healthy company, whose financial stability was severely threatened by this attack. After the competitor ‘agent’ had informed the United States about the presence of benzene in the bottles of water, the Food and Drug Administration conducted further analyses that confirmed the suspect. In the following days, Perrier was obliged to withdraw thousands of crates of water from the U.S. and Japanese markets and eventually suspend the sales in many other countries with significant incurring losses. Nevertheless, Perrier managed to quickly react to the attack using information tools. Gustave Leven, Perrier’s CeO, adopted a successful counter-information strategy and admitted the human error had taken place. Despite the tests conducted on the sources of water came out clean, Leven announced the worldwide withdrawal of all Perrier bottles and that Perrier took public responsibility of the cost of 160 million bottles. Within a couple of days, the rating of Perrier stocks rose again and all other attacks from Perrier’s competitor were neutralized.

This example shows the power of information attacks and its implementation through the rapidity of the circulation of information and event orchestration. The attack on Perrier costed the company several hundred million Francs and was more effective than a financial speculative attack. This gives room for reflection about the need of protecting information and about the power of counter-information. As scholars like Marc Ehlias and Laurent Nodinot remarked, counter-information is a subversive concept that Renato Curcio and Toni Negri invented in Italy at the beginning of the ‘70s. At that time, the leaders of terrorist organization Brigate Rosse and political movement Autonomia Operaia were trying to find common ground on how to “break the siege of the bourgeois press”. They decided to establish a new magazine called Counter-Information, whose editorial mission was providing fact-checking on the ‘biased information published on the bourgeois press’ through fairly “offensive” articles and investigations.

The subversive balance of Counter-Information is based on the following points: search for information for strategic and tactic goals; systematic attack on the opponent’s contradictions; operative continuity between those who collect the information and those who exploit it; supporting the information through field work; providing evidence for the facts presented; spotting the audience niches that could spontaneously spread and amplify the information. In contrast to manipulative operations, this case is about exploiting the open-access information that has not been adjusted to a given purpose. There are very few companies that have proven able to push the potential of information beyond the commercial and financial purposes.

While Perrier carried out a defensive counter-information, the advertising campaign launched in the spring 1993 by the Union of French Textile Industries (UIT) can be considered as an innovative use of information for offensive purposes. This focus of this campaign was the employment and the slogans used were supported by sensational facts able to engage public opinion; the overall aims were Brussels and the Blair- House pre-agreement. Famous and opinion-leading businessmen contributed to this campaign by delivering harsh speeches on this subject. The subtlety consisted in using French people as testimonials opposing the EU negotiators without attacking the French government, which was the real target of the campaign, given its role in conducting trade negotiations.

The success of the UIT campaign (encouraging the dialogue with Brussels, Longuet’s favorable reaction, reconsideration of the EU positions, and relative success of Marrakech Agreement) was due to the use of the propaganda techniques mentioned above with regard to the Counter-Information subversive approach. In particular, the UIT campaign focused on the main contradictory aspect of the issue concerning the European textile industry: 11 out of 12 representatives opposed the proposal of the EU Commission that was supposed to represent their interests. Counter-information is therefore an indirect strategy that aims at using misinformed and manipulated public opinion to surround the target and influence opinion leaders. In order to launch the information at the right time and place, it is necessary to have a perfect understanding of the media and opinion leaders. In practice, counter-information uses the same channels of disinformation. However, as far as its defensive aspect is concerned, it needs a permanent intelligence of the above-mentioned system in order to be reactive and effective.

The idea of using information in economic competition as a disinformation or counter-information weapon shows that the info-war has now become a real issue that needs to be tackled. Sustainable solutions should consist in observing practices through non-ideological lenses and through integrating knowledge that do not strictly relate to the economic field.  In particular, since offensive and defensive economic competition techniques are increasingly looking at military methods, it is necessary to combine economic and military knowledge in a legal framework. While some countries have a traditional approach to economic intelligence that allows a natural integration, some others do not. These latter can no longer postpone a broad reflection on the role of information in the economic warfare, since it is ultimately based on information and knowledge.

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