National skin in the great game

The Apollo 11 programme was developed faster than a next-generation iPhone.

Why?

I think it’s all about risk.

The perception of risk – or perhaps I should say the feeling of fear – changes everything.

Feeling like something is at stake, that you’ve something to lose… it changes your behaviour. In this case, the US’s fear of losing the moon to the Soviets was greater than Apple’s fear of losing market share to its competitors.

If you really want to learn something, or succeed at something, put something at risk. For example, if you want to learn about a certain subject, write and publish an article about it. The fear that you’ll look stupid for all to see will drive you to examine more evidence and contrary opinions before you post it (that certainly helps me write this letter).

If you want to learn about investing, invest some money. If you’ve a strong opinion that something will, or will not happen, or will or will not work, make a bet (it needn’t be large) on that outcome. The fear that you’ll have lost money for being wrong, makes you work harder to ensure you’re right. It changes our perception of what being wrong actually means.

Having skin in the game, makes you play whatever that game is all the harder – and thus more likely to succeed at it.

It’s for this reason that while Cold War II injects massive risks global stability… it actually makes me incredibly bullish on technological progress.

Not that we haven’t had any technological progress since the last Cold War, quite the opposite. I just think the pace is going to get a lot more rapid – and move in a different direction.

The return of fear

After almost three decades of relative international stability, the world has now reentered a period of persistent and intense state competition. Across Asia, Eastern Europe and the Middle East, the level of overt and covert state aggression has grown in recent years. Our adversaries and competitors have become adept at exploiting the seams between peace and war, engaging in what we call ‘hostile state activity’. Cyber-attacks, assassination, disinformation, theft of intellectual property, espionage and military intimidation are all being used more regularly and more ruthlessly.

– “Mobilising, Modernising & Transforming Defence” – UK Ministry of Defence

When the Berlin Wall fell, the competitive drive for national survival which created the internet, satellites, advanced computing, digital cameras, the moon landings and much more, fell with it. In its place, a comfy quilt of global stability stitched by the US was lain.

This absence of power competition (an incredibly rare environment) has led to an ever more complacent political class, who’ve since been turned upon by the electorate all over the Western world.

Not that there haven’t been threats which have led to technological development. The War on Terror and our misadventures in the Middle East have led to all manner of advances in areas such as drones and surveillance. But that wasn’t a Great Power competition; ISIS didn’t have a space programme. China does.

Now that we’re returning to Great Power competition, we’ll see the same results as the last Cold War. The fear of national encroachment by foreign powers will galvanise innovation.

While that innovation will be directed towards military applications, it’ll trickle down into the private sector just as it did last time, giving us faster commercial aircraft, advanced computers and GPS (not to mention some decent spy novels).

The “privateers” employed by the state to innovate and defend against foreign adversaries stand to be richly rewarded, as do the investors who see this coming before the rest of the crowd. And my colleague James Allen has found just one such “privateer” here in the UK…

Grappling in the grey-space

… The UK will be riding its strategic luck in a much more challenging and uncertain world. The emphasis on a renewed atmosphere of state-on-state confrontation and potential conflict is proving to be correct. Russia’s assertive and often disagreeable behaviour has sustained its place as the most immediate concern, but over the past 12 months the recognition that China will become the defining security factor of this century has taken greater root. In neither case does this mean that war is imminent nor inevitable, but in both cases military and nonmilitary capability is being used to undermine the UK’s values and interests.

– General (Rtd) Sir Richard Barrons to a parliamentary committee on national security, April

We’ve questioned where “perfidious Albion” will stand in relation to China in Cold War II in previous issues of Capital & Conflict. This country faces a similar quandary as Australia, in that we are aligned militarily with the US, but tied economically to China.

However events transpire with the Middle Kingdom, the UK military establishment has outlined Russia as a competing power, with particular emphasis on Russia’s power in the fifth domain of warfare: information. General Barrons continues:

… the UK is confronted every day by the skilful use of all the levers of power available to states such as Russia, in integrated activities that fall short of conventional kinetic military measures – though still underpinned by the deterrent of credible military hard power. This combination of politics, diplomacy, proxy military engagement, cyber, commercial manipulation, advanced social media influence etc is well understood in Whitehall as a campaign intended to destabilise and weaken the UK and its allies. Much of this ‘hybrid’, ‘grey-space’, or ‘tolerance’ confrontation it is not terribly effective, but none of it should be ignored entirely. The UK should not think just in terms of ‘peace’ and ‘war’, but understand that it is locked in a dynamic landscape of perpetual competition and confrontation, some with the potential to spill into conflict.

Not peace. Not war. Perpetual competition. Perpetual confrontation.

Such fear won’t help anybody sleep at night.

But it’s gonna help some investors get very rich.

The return of risk, the return of fear, will bring forward the great advances in innovation (and the budget) required to win the great power competition.

James Allen has found a company he thinks will deliver such innovation – .

All the best,

Boaz Shoshan
Editor, Capital & Conflict

Category: Market updates

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