1

Cyber War Happening Now – We Are Not Ready

By Paolo von Schirach –

WASHINGTON – We are at war. Aggression which one day can take devastating dimensions is targeting America on a daily basis. I am talking about cyber warfare. Unfortunately, it is very hard to label cyber war as “war”, simply because it is vastly different from the “conventional war” we are used to study, discuss and prepare for.

Intellectual obstacles

Sadly, our ability to think intelligently and proactively about this potentially fatal form of aggression is seriously hampered by our old-fashioned categories. Much to our disadvantage, when it comes to warfare, we are still prisoners of largely obsolete concepts, scenarios, international law definitions, strategies and tactics that do not allow us to fully comprehend the extent of unconventional warfare, in particular cyber war.

The UN Charter allows self-defense

All students of international law know that Article 51 of the UN Charter clearly affirms the right of self-defense that can be exercised by any UN Member, irrespective of any action that may or may not be taken by the UN Security Council to deal with that specific breach to international peace. It sounds right. Self-defense is an inherent right of all sovereign nations. Except that Article 51 specifies that self-defense is justified “if an armed attack occurs”.

Armed attacks

And here –in this narrow and quite frankly obsolete definition– is our problem. This classic definition indicates that an illegitimate war of aggression has occurred if and when there is an “armed attack”. And we know what that is. This is Pearl Harbour. This is Nazi Germany moving into Poland on September 1, 1939. We picture armies shooting their way across internationally recognized, sovereign boundaries. We know a war of aggression when we see one.

Deliberate obfuscation in semi-conventional conflicts

But today we are confronted with a vastly different universe when it comes to warfare. Even when we are dealing with quasi-conventional conflicts, in recent years the lines have been deliberately blurred by bad actors who do their best to muddy the waters, with the goal of denying responsibility for their actions.

Indeed, Crimea was taken over in 2014 not by the Russian Army but by “Green Men” whose uniforms did not have any insignia. Likewise, officially no Russian forces are taking part in the bloody conflict in the Donbas region in eastern Ukraine. The Iranians have proxy forces in Iraq and Syria, trained and armed by them. But they are not technically part of the Iranian Army. And we could go on and on.

When there is no armed attack

While it is not that complicated to see through these disguises in semi-conventional conflicts, when it comes to cyber operations, cyber attacks, and cyber terror, we are in uncharted waters. To start with, it is often hard to determine that there was an attack, let alone who the attacker is. Whatever they are, these actions are not “armed attacks” as defined by Article 51 of the UN Charter, and as most practitioners think about acts of aggression.

We do not recognize cyber war as war

And here is our main problem. Our weakness as a society, and I suspect this includes key policy-makers, is that we have a psychological resistance in recognizing that cyber attacks are pure “acts of war”, simply because they do not look like the conventional aggressive military operations we are used to.

Furthermore, since cyber war is relatively new, we still do not have the intellectual and technical tools to fully comprehend the extent of this threat, and how devastating large scale cyber attacks could be. Are we talking about a few cyber probes here and there? Are we talking about discreet actions of cyber theft or cyber espionage? We know about all of them. But is this really war? Yes, it is.

Prepare for the worst scenario

And it will get worse. Count on it. There will be new, stealthy and deadly tools. It would be foolish, if not criminally negligent, not to think about all this and try to prepare for the absolute worst. I mean well coordinated cyber attacks that could cripple our country, (for instance, attacks that would completely and permanently disable our national power grid), without a single shot being fired by enemy forces.

Our problem

And here is our problem. Right now we are at the very beginning of a very dangerous new era in which cyber tools are used as weapons. To date, aggressive cyber capabilities are probably still relatively modest. But they will inevitably grow, along with the growth of cyber science and the numerous new applications that will be created. And the temptation to do bad things is very strong. Hostile forces can always hope to hide behind anonymity.

We sort of know all this. But in a rather nebulous way. Most of all, there is no real sense of urgency, most likely because these acts of aggression take place in this intangible cyber space, whose dimensions and relevance are generally unknown to most of us and that would include policy-makers who do not have the sophisticated technical background that would allow them to immediately grasp the dimensions of this ominous threat.

The challenge

So, here is our challenge. How do we mobilize all relevant policy and scientific resources against a war we are already involved in that does not look at all like the wars we are used to? How do we mobilize and sustain national efforts aimed at countering invisible cyber attacks that may soon be replaced by much bigger, perhaps fatal attacks?




When The Coal Mine Closed Down

By Paolo von Schirach

WASHINGTON – Not long ago, I read a vivid account of a small town in West Virginia facing the demise of a coal mine, the major employer in the area. It is a real tragedy. Many people in the small town worked there. Their families depended on their salaries; while the entire local economy thrived because of the money coming directly or indirectly from the mining operation. No mine, no nothing. Only semi-desperate unemployed miners, empty stores, empty restaurants. You get the idea.

Gas is cheaper and cleaner

And why did the mine close down? Mostly because of the competition created by cheaper, super abundant, (and much cleaner), natural gas as the new fuel of choice for electric power generation plants. Considering lower prices and lower emissions, utilities across America have been switching to natural gas.

Hence the slow demise of coal. Quite frankly, from a most elementary economic stand point, this switch from coal to natural gas makes perfect sense. Having a choice, utilities go for the fuel that costs less and pollutes less.

Indeed, as a nation, we should be extremely grateful to the entrepreneurs who a couple of decades ago unleashed this incredible “fracking revolution” and created this almost unthinkable natural gas bonanza. Once gas poor, America has now so much natural gas that it is exporting it, with obvious advantages for our balance of trade.

No reason to be happy

However, if you grew up and live now in that West Virginia community, you have no reason to be happy. The coal mine was all they had; and now it is gone. How are the people going to create, out of nothing, a new local economy that will provide income and a decent standard of living for all? The reality is that this is almost impossible.

Creative destruction

Capitalism is a process of “creative destruction”. Unfortunately the “creation” and thedestruction” components are not nicely harmonized. There is no “system” that will guarantee that when jobs are lost because a new technology has made the old one obsolete, (or as in this case a better fuel becomes available this way replacing the old one), enough new, well-paying jobs will be created, just when they are needed.

In the end, if one looks at the big picture, if an innovative economy works, eventually the entire society will be better off. New technologies mean new and better products or services. New investments mean higher productivity and higher salaries. Yes, this is true…eventually.

What about the victims?

In the meantime, what will be the fate of this West Virginia rural community now that their main source of income has disappeared, victim of the “destruction” component of “creative destruction”? Unfortunately, as a society we have not managed to create the necessary shock absorbers, the transition tools that could eliminate or at least alleviate the frictions caused by painful economic change affecting people with no defenses.

Sure enough, in America we have retraining programs, vocational schools, Community Colleges, and more. But these resources are scattered. They are not well organized. Most tragically, usually they are not available when and where they are needed the most.

A future smart society will provide tools

A future smart society should have this reassuring message for all workers: “Do not worry. If you lose your current job, and this is quite possible given the rapid pace of change in this hyper competitive global economy, we have many resources for you. You will quickly learn new skills. You will become employable in new sectors where there is a strong demand for qualified workers. You will be OK. Your family will be OK.”

Sadly, we do not have anything like this in place today in America. Yes, there is unemployment compensation, food stamps, Medicaid, and other state or federal subsidies. But these are just bandaids. These are no long term solutions.

May God help those poor people in that West Virginia small community. Without the coal mine they are lost.




US Kicks Gazprom In The Shin

By Paolo von Schirach –

WASHINGTON – It looks like a clever Washington move. The US Government just put on notice any company involved in laying pipes underwater that they should immediately stop work on the Gazprom Nord Stream 2 pipeline designed to deliver Russian gas to Northern Germany, and beyond via the Baltic Sea. If they do not stop, they will face US sanctions. Allseas, the Dutch-Swiss company directly involved in the Nord Stream 2 pipe-laying operations, immediately signaled that it would comply, in order to avoid US sanctions. Hence the halting of the pipeline project, just as it was close to completion.

Last minute effort to stop Nord Stream 2

Well, what’s this all about? This is about the American determination to prevent the completion of this Russian pipeline, even though Germany and many other EU countries openly want it, because Washington fears that Russian dominance of the European energy markets will give Moscow a dangerous degree of influence in European affairs.

Besides, for years Washington has been pointing out that this Nord Stream 2 pipeline has the clear geopolitical goal to divert to this new pipeline Russian gas now flowing to Eastern Europe via pipelines transiting through Ukraine. Upon completion of Nord Stream 2, the same Russian gas destined to European markets will no longer go to Eastern Europe via Ukraine. It will be shipped to Europe via Nord Stream 2. This way, with implicit European complicity, Russia will isolate Ukraine, while selling the same gas to its willing European customers.

The Europeans know what’s going on

Let me stress here that the Europeans (ostensibly our Allies) know very well that this is exactly what is going on. Russia wants to hit Ukraine and figured out a clever way to prevent it from collecting the transit fees for the Russian gas passing through it on its way to Eastern Europe and beyond.

But now America, with the threat of sanctions, stopped the whole thing. The Nord Stream 2 pipeline will not be completed; and the wily Russians got a bloody nose. Well, not really.

Nord Stream 2 will be done

Sure enough, this is a major inconvenience for Gazprom and Moscow that most likely will cause a significant delay and cost overruns for the mega-project now almost completed. But there is no doubt that in the end Nord Stream 2 will be done. Notwithstanding the aggravation and the additional costs, Russia seems to have the vessels that can step in and lay the pipes, so that the project will be finished, at some point.

Only a gesture

So, what is this fracas about sanctions all about? Quite frankly, at best, this is a gesture on the part of the US. I do not see much substance here. Frankly, it is odd for Washington to try to stop our fully consenting NATO allies, who really want this energy project with roguish Russia, (up to no good in Ukraine and elsewhere), simply because we say that it is bad for them.

The reality is that via these targeted sanctions the US can certainly delay this Nord Stream 2 project; but it cannot not stop it altogether. In the meantime, Europe sees us as bullies trying to impose our own views on them, while the EU and NATO countries engaged in this venture with Russia apparently see nothing wrong in doing business with Russia, while abetting its clear design to hurt Ukraine.

No unified view on energy policies within NATO

Sadly, the problem here is not about this ill-advised pipeline aimed primarily at hurting Ukraine. The problem is that the very existence of this project, with full European participation, (the Germans in the lead), illustrates the inability to have a cohesive, unified view of what constitutes a threat to European security, and more broadly to NATO.

An empty gesture that will drive the US and Europe further apart

This clever US move to stop the work on the pipeline looks to me like an empty gesture that at best will delay completion of this energy project. However, we can rest assured that this American blatant interference in a deal freely struck between our NATO Allies and Russia will only engender more anti-American animosities in Europe, and not the necessary reappraisal of what we, as NATO Alliance, consider to be a serious threat to our security when it comes to energy, or other critical areas.




Boeing Is In Serious Trouble

By Paolo von Schirach –

WASHINGTON – Boeing’s big troubles are not going away. At last, the Board got rid of Dennis Muilenburg, the CEO who seemed to personify the company’s ill advised self-assurance in the light of the seriously negative ripple effects caused by the two well-publicized crashes involving the 737 Max. But this “human sacrifice” seems to be too little, too late and it will not satisfy anybody. According to many, it seems that Boeing’s troubles run deep, way beyond the specific circumstances arising from technical malfunctions that seem to have caused the two crashes.

It seemed a manageable problem

At the beginning it seemed that we were dealing with a serious mechanical problem; but an isolated problem that affected one potentially defective system in one type of aircraft, the 737 Max. It was all about a software glitch that could trigger anomalous automatic adjustments in response to a sometimes defective sensor in the new 737 Max airplanes. Right after the crashes, Boeing’s reassuring reaction was that the problem had been identified and an adequate technical solution would be provided, in no time.

Because of Boeing’s reassurances, in the immediate aftermath of these accidents the accepted narrative was that, while these crashes were clearly bad news for Boeing, there would be an adequate fix which consisted in correcting the defect and then providing appropriate guidance and training to all pilots using the 737 Max around the world.

Most experts agreed that this fix should do it. Yes, Boeing had suffered a tremendous blow to its reputation and prestige as one of the two major civilian airplanes manufacturers in the world, (the other one being the European consortium Airbus); but, in time, it would be back to business as usual, and this stain would be forgotten.

Deeper issues

Well, without getting into the details, this relatively optimistic scenario did not and will materialize. And this is because these accidents triggered a stream of leaks followed by reluctant admissions on the part of Boeing that revealed how safety standards and protocols, testing of parts, cooperation between engineers and test pilots were not taking place according to the highest engineering and safety standards.

In other words, the picture that emerges, (although it may be exaggerated), is of a company that got so comfortable being number one in America and one of only two in the world that it allowed practices that were well below acceptable and agreed upon safety standards, al multiple levels.

Whatever we do must be good enough

In other words, we are getting a picture of a hubristic management whose main concern was to get products out of the factory as soon as possible, because the primary goal was to deliver airplanes as fast as possible to the customers, taking for granted that whatever safety standards the company was following, they had to be good enough.

FAA not yet convinced

Again, much of this is speculation; and it would be unfair to conclude that Boeing as a company was no longer concerned with high levels of safety. However, up to now the company has been unable to convince its US regulators, the Federal Aviation Administration (FAA), that it has made all the necessary fixes to the 737 Max and that it has implemented the highest quality safety protocols that will guarantee now and in the future safe airplanes, along with the best and most complete training programs for all pilots of all airlines, regardless of their nationality or seniority.

Indeed, as of today, there is no set date for the resolution of this gigantic problem. Without FAA certification the 737 Max cannot fly. Hundreds of airplanes produced by Boeing cannot be delivered to customers around the world. In fact, Boeing had to stop production of the 737 Max, since it has no idea as to when things will go back to “normal”, whatever thais means in these highly unusual circumstances.

Too big to do anything wrong?

I know that this is a bit of a stretch. But this level of corporate arrogance, if proven, makes me think of another major tragedy: the BP Deepwater Horizon explosion in the Gulf of Mexico in 2010 which resulted in the worst ecological disaster ever connected with oil exploration in the entire history of the US.

In that case, unsafe procedures were allowed which resulted in the explosion on the offshore platform, the loss of many lives, and the unprecedented ecological catastrophe that followed. Subsequent investigations revealed shoddy practices and lack of proper oversight. The difference is that BP, the oil company that ultimately got the blame, was not directly involved in the activities of its contractor; whereas here we are talking about Boeing’s internal procedures.

Still, it seems that being super big and successful allows smugness to ensue. You are so big and so strong that whatever you do, even when you cut some corners, must be right.

Leaks revealed serious issues

Well, tragically, it is not so. Even when you are number one, or perhaps because you are number one, safety and all proper procedures need to be strictly enforced. Belatedly, Boeing’s Board at last fired Dennis Muilenburg, the CEO who was in charge when the tragedies occurred and who has been saying ever since that everything would be in good order, in no time.

Unfortunately, while Muilenburg was trying to reassure shareholders and customers, all these revelations about relaxed procedures and lowered standards were leaked, this way causing serious additional damage to the company’s prestige and reputation. And so finally, as the CEO who seemed to personify a bad corporate culture, not to mention inadequate crisis management skills, he got fired.

FAA not reassured

But this is not nearly enough to reassure regulators, all the airlines domestic and foreign, that buy Boeing airplanes, and the flying public across the world.

Boeing’s number one objective must be to do whatever it takes to convincingly reassure all stakeholders that Boeing’s engineering and safety standards are second to none.

This may require extraordinary measures, such as hiring outsiders with a stellar reputation within the industry to go through all procedures and factory floor operations and certify them, or something like this. In other words, something really drastic must be done to recreate trust. Firing the CEO is just not enough.

Boeing is a national treasure

In the end, let’s look at the big picture. Let’s remember that Boeing is not just a big US company that makes civilian airliners, (ands a lot more, if we consider its space and defense divisions).

Boeing is an American national treasure.

It epitomizes the best of American innovation, technological prowess, ingenuity and complete dedication to quality by upholding the highest industry standards.

This was Boeing’s well deserved reputation until these two sad accidents and all the leaks and revelations that came out in their aftermath. Fairly or unfairly, Boeing’s reputation has suffered enormously. It is now up to its senior management to do their utmost to regain the confidence that has been compromised. Small fixes and reassuring press releases will not do it.




US Will Soon Be The Number One LNG Exporter

Paolo von Schirach –

WASHINGTON – Energyindepth, www.energyindepth.org recently stated that the world is witnessing a major energy supply revolution. The United States, until a few years ago destined to become a major natural gas importer, is now slated to become the world’s number one exporter of Liquefied Natural Gas, LNG.

New geopolitics of energy

The website made this point also quoting the Executive Director of the International Energy Agency, a Paris-based group of major energy consumers: “The growth of U.S. natural gas production – led by increased shale production – has been transformative, not only domestically but globally. And it’s only the beginning. As IEA Executive Director Fatih Birol recently said:

“The second wave of the U.S. shale revolution is coming. It will see the United States account for 70 percent of the rise in global oil production and some 75 percent of the expansion in LNG trade over the next five years.  This will shake up international oil and gas trade flows, with profound implications for the geopolitics of energy.”

US as LNG exports leader

While the US is now the world leading oil producer, let us focus here on the vastly increased American LNG export capacity. New US LNG terminals have been completed, and additional ones will come on line very soon. As a result the US, already the world number three LNG exporter, (behind Qatar and Australia), in a few years will become number one.

While this is good for business, it is obvious that this new role of America as key energy supplier will have important geopolitical implications, as this surge in LNG exports is not just a temporary phenomenon. Indeed, the undeniable fact is that the world will rely on large amounts of natural gas for decades to come.

The world will continue to rely on gas

Realistically, it is clear that notwithstanding pledges to cut down the use of fossil fuels in order to combat global warming there is no way to achieve a rapid shift to non-carbon energy sources within the foreseeable future. It is just technically impossible. And it is also clear that affordable natural gas, used largely as electric power generation feed stock, is and will be the fuel of choice for many energy poor countries. Besides, it pollutes a lot less than coal. Therefore, from an environmental protection perspective, it is the least damaging among the fossil fuels.

Taking all this into account, the world will continue to rely on natural gas as feed stock for electric power generation, heating, and much more for decades.

Vast geopolitical implications

Of course, this sustained demand for gas is about new or expanding markets for the US energy business. However, it is obvious that there are and there will also be significant geopolitical implications. Indeed, US growing LNG exports will be a factor in reshaping commercial and political relations with many Asian countries and Europe.

New markets in Asia

For example, India desperately needs additional energy supplies for its energy starved population, now exceeding 1.3 billion. When it comes to electric power generation, India still largely relies on dirty coal, with horrible environmental repercussions in terms of staggering air pollution levels in most large urban areas. Switching over to natural gas is a necessity for India. The availability of increasing amounts of US LNG will make this transition away from coal a bit easier; while a new, robust energy trade will strengthen overall ties. Likewise, Japan and South Korea, traditional US allies and always net energy importers, also need gas. The opportunity to buy additional quantities of US LNG will strengthen the bonds with these two key Asian countries.

Of course, energy poor China could also be a major buyer of US LNG. But the political relationship between the US and China is bad, and not destined to improve any time soon. Therefore do not expect China to be a major buyer of US LNG. (China is focusing now on a significant increase of imported Russian gas, via new pipelines).

More LNG to Europe will counter Russian dominance

Another important market for US LNG will be Europe. All projections indicate that natural gas consumption in Europe will stay flat. However, European sources of natural gas (originating from Norway and The Netherlands), are dwindling, while much of Europe relies heavily on imported Russian natural gas supplied via a variety of pipelines, old (via Ukraine) and new (via the Baltic Sea). Some European countries see no problem in this significant energy dependence on Russia, while others feel uneasy, given the history of Russian meddling in Eastern Europe and beyond.

Given these geopolitical concerns, some European countries, most notably Poland and the Baltic States, look very favorably at the opportunity to diversify their natural gas imports by increasing US LNG purchases. For the time being, US LNG exports to Europe are modest, and so they do not shift the overall pattern of large purchases from Russia.

New flexibility

However, the very fact that several European buyers of Russian gas now have a new purchasing option –US LNG– that simply did not exist until a few years ago, gave flexibility and better bargaining power to the Europeans. As a result, Russia in many instances was forced to lower its prices, as a way to fend off US LNG competition. Going forward, as US LNG export capacity increases and the price differential between LNG and Russian piped gas shrinks, expect additional European purchases of US LNG.

Increased US influence around the world

All in all, the fact that the United States already is today –and will be even more so in the years to come– the leading, dependable exporter of liquefied natural gas, a vital, relatively clean, energy source, will increase American influence around the world, and will help strengthen political ties with key countries in Asia and in Europe.

Yankee Ingenuity

Not so bad overall, considering that this US natural gas (and oil) revolution originated out of the dogged persistence of a small band of American “frackers” who believed that oil and gas could be profitably extracted from shale formations, when all the energy experts and the big energy companies stated that it was absolutely impossible.

Three Cheers for Yankee Ingenuity!




Bad Human Behavior Is The New Killer Disease

By Paolo von Schirach –

WASHINGTON – When it comes to taking care of our health, we Americans are really going backwards –in a most spectacular way! We are now well into an era in which by far the main enemy of our health and therefore of the opportunity to live a mostly disease free, long life, are no longer untreatable viruses or bacteria. NO, IT IS US.

We are killing ourselves

Yes, we are slowly killing ourselves. And the silent killers are the terrible dietary habits millions of Americans have mindlessly embraced over the last few decades, (eating and drinking way too much bad stuff), and zero exercise. The manifestation of these truly bad habits are well known. I am talking about our gigantic –and worsening– obesity epidemic, the consequent explosion of type two diabetes and the various ailments caused by this debilitating, chronic disease.

In a nutshell, we are killing ourselves because –as a Nation– we have adopted a horrible diet and no exercise as our norms. The cumulative effect of these terrible habits practiced by millions over many decades is deteriorating health, (more cardiovascular afflictions, more hypertension), for tens of millions of Americans. Of course, these chronic conditions get worse as we age. And If you add to the mix the serious crisis caused by various addictions, (drugs, smoking, alcohol), America –a rich, well resourced country– is getting close to a basket case.

We spend a fortune on health care

And all this is happening notwithstanding the stupendous amount of money the US spends on health care. Indeed, America has the odd record of spending double what other rich countries spend on health, (about 18% of GDP, a staggering amount), with truly mediocre if not bad health statistics when it comes to incidence of chronic diseases and declining life expectancy. (At a little above 79 years, US life expectancy is very close to Cuba, Portugal and Albania).

Science defeated many diseases

As I said, when it comes to our health as a society, we are really going backwards. Think about it. The 19th and the beginning of the 20th Century were all about understanding and then successfully fighting deadly bacteria and viruses that were at the source of often incurable maladies. Finally, cures and vaccines were discovered that could successfully fight back smallpox, tuberculosis, sifilis, pneumonia, and polio.

Public health standards

Closer to our times it became routine, first in developed countries and then progressively elsewhere, to have massive immunization programs, so that infants and children would be protected from many potentially lethal infectious diseases. Furthermore, basic norms of cleanliness were identified and and then taught, such as frequent hand washing with soap, refrigerating perishable food items, and rinsing fresh fruits and vegetables before eating them.

At the same time, authorities understood the importance of public hygiene. They started providing treated, clean water to households. They built modern sewage treatment plants, along with modern trash removal services, so that urban waste would not become the breeding ground for bacteria and vermin (such as rats) that could carry and spread disease.

Major victories

These are major victories. Vaccinations, immunizations, the availability of antibiotics, combined with vastly improved standards aimed at safeguarding public health, cut down infant mortality and allowed millions of adults to live longer, healthier lives.

If we fast forward to today, for sure thousands of dedicated scientists keep working on major medical issues, such as various forms of cancer, dementia, Alzheimer, and a plethora of genetic ailments. And this is good. Much, much more needs to be discovered and understood.

US health is declining

That said, if we look at broad US health statistics, we see an enormous paradox. As I said, we conquered major diseases a long time ago. And America spends literally a fortune on various forms of health care delivery, almost double the average of what is devoted to health in other affluent societies. And yet the overall health conditions of the American populace are actually declining on account of the epidemic proportions of ailments such as obesity and type two diabetes caused not by mysterious germs but only by our bad personal habits.

In other words, our declining health is totally self-inflicted.

We know the problem

The sad fact is that everybody with a modicum of education knows exactly why we are dealing with these epidemics. It is all about over eating bad stuff, (mostly processed food, sodas, and too many fatty, sugary snacks), combined with too much alcohol, and lack of even a modicum of physical exercise in our daily routines. And if you add to this already toxic mix millions of Americans addicted to alcohol, cigarettes, and a large variety of drugs, you have the paradoxical picture of a wealthy, reasonably well educated society that is also very sick. This is the really bad news.

It is all rooted in bad habits

But the good news is that this catastrophic deterioration of the overall health conditions of millions of Americans is not about bad luck. It is rooted in our freely adopted BAD HABITS. Habits are not genetic. We learn them, and then we adopt them. And this means that given proper guidance and education, once we realize how toxic these habits are, we can ditch them and embrace new, healthy ones.

Yes, it really is as simple as that. We became accustomed to unhealthy processed foods. We drink rivers of sugary sodas. We eat too much junk food which is mostly fat, sugar and salt. Most of us do not exercise at all. I am not sure how these habits came to be embraced. But is is time to get rid of them. And it is quite possible, even though doing so will require an extensive, focused public education campaign, starting with children, and quite a bit of self-discipline.

Yes, ditching bad habits is a major challenge

I fully recognize that changing the entrenched bad habits of millions of Americans looks too big a task, in fact an impossibility.

And yet it is doable.

We can all learn what a healthy diet is, and then embrace it as our new habit. There is nothing magic or mysterious about it. Fruits and vegetables are good for you. Snack food is not. Plain water is good for you. Green tea is good for you. Sugary sodas are not. Furthermore, once we understand the horrible long-term consequences of a sedentary life, we can all engage in some form of exercise, (walking just 30 minutes a day can be a life changing new habit for mostly sedentary people).

As I said, unless we ditch our truly bad habits, we are slowly killing ourselves, while we waste billions of dollars every year treating mostly preventable diseases that we inflicted on ourselves.

Are you telling me that we cannot do better than that?




Boris Johnson’s Gamble Will Fail

by Paolo von Schirach – 

WASHINGTON – Boris Johnson won the UK political elections –in a most spectacular way. Indeed, it seems that his new version of British Conservatism cum Populism upended British politics. Old Labour Party bastions located primarily in the North of England fell, this way transforming the British political map. Congratulations on this splendid and unanticipated performance. This is the good news.

The bad news

And now, for the bad news. Johnson won by shamelessly over promising almost everything to everybody. There will be Brexit, of course, and this was baked in the cake anyway. But Brexit, according to Johnson, will not cause any pain or discomfort to the UK –a country that does most of its business with the European Union. On the contrary, we are told that Brexit will be a salutary tonic. It will unleash the long dormant British creative spirit. It will trigger a new wave of innovation and entrepreneurship, this way unleashing unprecedented prosperity for the British people. This fantasy land proposition is credible only if you believe in miracles.

Well, the truth is that this uplifting vision is not just uncertain, it is in fact a most improbable dream, simply because Britain today (in case you missed this) is no longer the mythologized Great Britain that pioneered the industrial revolution. Today’s Britain is a sleepy country where not much happens, except for a few islands of innovation. So, please forget about creating –almost overnight– Singapore-on-the-Thames, once the ties with the EU have been cut.

Delivering growth to the North

But the real problem for Johnson will be delivering a tangible level of new, top-down development and attendant prosperity to the Labor bastions in the semi-impoverished North of England that decided to give him a chance by switching sides and dumping the Labor Party, at least for now. In order to lure them to his re-engineered Conservative-Populist camp, Johnson deliberately promised all sorts of goodies: better health care, better public education, better transportation systems, and more money for all sorts of services.

So, there you have it. Johnson promises a smooth and painless exit from the EU, robust growth caused by new investments in productive enterprises, (this is absolutely necessary in order to get the extra revenue to pay for at least some of the infrastructure and social services he promised), and new prosperity and security for the neglected British working class. And all of this between now and the next elections in five years!

It will not happen

Without getting into too many details, it is clear that this is not going to happen, at least not between now and the next elections. Common sense and the long record of mixed results –at best– for welfare policies and top-down government-led investments indicate that profligate spending, after the initial sugar high, does not change any of the pre-existing negative fundamentals. Indeed, the only measurable change will be widening budget deficits. And this will create pressure down the line to increase interest rates in order to attract buyers for the growing national debt.

Jump-starting a sleepy economy?

As for the otherwise noble goal of restarting the economy and aspiring to remake Great Britain into a dynamic global hub of innovation and enterprise, the only thing I can say is: “Good Luck”. Mountains of evidence indicate that genuine entrepreneurship, (as opposed to subsidized half-baked efforts), cannot be willed into place by well-meaning governments relying mostly on cheap credit, tax holidays, incubators, or other gimmicks.

Create a business friendly eco-system

The best that a government can do to stimulate innovation is to create and sustain a credible business friendly ecosystem: reasonably low taxes, good education institutions, including at least some top notch research universities, robust IP protection, easy to understand laws, reliable dispute resolution mechanisms, healthy financial markets, well-funded venture capital firms, and reliable state of the art infrastructure. And these –mind you– are just preconditions. Indispensable preconditions, but only preconditions. Indeed, while absolutely necessary, having them in place and functioning gives you a chance to compete; but they are by no means a guarantee of success.

I wish that Johnson’s optimism could be truly contagious. I wish he could inspire would-be innovators to innovate and –most critically– bring to market commercially viable new products and services. I just do not think this will happen, at least not between now and the next elections, and on the scale that would be necessary to transform in a meaningful way this aged developed country that lost its spirit of discovery and adventure a long time ago.

Big programs will cost real money

That said, while future growth is aspirational, the promises made to the new former Labour and now Conservative voters are real. If Johnson wants to consolidate his newly broadened electoral base, he will have to deliver. And this will cost real –not hypothetical– money. Extra money that the British Treasury does not have. And this inevitably means higher deficits and more debt.

Of course, for many “progressive” economists (strange adjective indeed!),  all this –higher deficits and a swelling national debt—seems perfectly alright. Indeed, looking at the rest of Europe, the US and Japan, it is clear that these days more spending and bigger government programs benefiting retirees or other deserving constituencies, all of them financed with more borrowing, are the norm.

Most Western governments –and the UK is no exception– are now defying gravity, or so it seems. They keep borrowing in order to finance bigger entitlements, while the monetary authorities keep interest rates at zero, this way making it easier to finance larger deficits, while –so far at least– there is practically no inflation. These policies once were called lunacy inevitably leading to fiscal disaster. Today, they are main stream. Well, truth be told, so far no catastrophe ensued. Or at least this is what appears.

Atrophy is here

My contention is that whatever else may happen down the line (in the UK and elsewhere) when the debt burden will become unsustainable, a real (albeit silent) catastrophe has already happened: and it is called atrophy.

This is not about the apocalypse, about countries going down in flames convulsed by the pain and despair of bankruptcy. This is about becoming comfortable with the new normal of anemic growth, or no growth at all, as long as the government keeps doling out some subsidies relying on borrowed money to all deserving constituencies.

This is about redirecting increasing percentages of static tax revenue away from productive investments and on to more public services and debt service. As this process continues, eventually there will be zero money to invest in future growth. In a word, this is about secular stagnation. However, since this most insidious phenomenon manifests itself only slowly and incrementally, it is easy to explain it away, or ignore it altogether.

I wish Prime Minister Boris Johnson best of luck. Still, I am quite skeptical about his ability to deliver innovation, growth, prosperity, and more entitlements –and all of it within the next 5 years.




Good Values at the Root of Utah’s Success

By Paolo von Schirach

WASHINGTON – A recent article pointed out how, year after year, Utah is on top of the national list of the best states to do business in America, not to mention that the state gets very high marks on good governance; while in Utah there is very low unemployment, lower than the historically low national average of 3.5%. And in Utah kids attending public schools on average do rather well compared to the rest of the U.S., notwithstanding the fact that in Utah spending per pupil is quite below the national average. Well, what is the secret of this success?

Nothing special about Utah

There is absolutely nothing special about this Western landlocked state. Sure, there are mountains, and parks and a great deal of pristine nature. But this natural beauty is not at the foundation of Utah’s growth, and therefore it cannot explain sustained prosperity. And yet, year after year, Utah stays on top of many significant national rankings dealing with easiness to do business, governance, quality of life, and more.

The secret is the people and their values

Well, here is the reason: the people of Utah. Yes, the people of Utah and their values. We know that most people in Utah are Mormons, (62%). Whatever your opinion about this rather mysterious religion, we know that this faith strongly promotes values of thrift, frugality, sobriety, honesty and charitable giving. Could this –deeply held values that promote best practices in education, business and government– be the ingredients of Utah’s secret sauce? I think so. The spiritual values held by many Utah’s citizens do indeed have a beneficial impact on the society they built.

So, there you have it. Sustained economic growth and good governance reinforce each other, and both of them are the byproduct of good values sincerely embraced by the people.

No proprietary economic development strategies

Utah’s, “economic miracle” is not the outcome of following sophisticated, complex investment and economic development strategies, or proprietary computer generated models developed by a team of management super gurus.

The truth is disarmingly simple. Values that hold in high regard a good education, entrepreneurship, honesty, hard work, frugality and lean but effective government inspire productive, honest behavior and good public administration. And all this eventually translates into prosperity.

“You mean, that’s it?”

Yes, that’s it.




The Fake Aramco IPO

By Paolo von Schirach

WASHINGTON – There were great expectations about the Aramco IPO. It was announced long ago by Saudi authorities, and then postponed several times. Well, now we know why it took so long, and why in the end the IPO did not take place in New York or London. Indeed, the Saudi government, the sole owner of this energy giant, could not be sure about the response of savvy international investors. Would they really buy shares at a price that implies an overall $ 2 trillion valuation for Aramco? May be not. And so the Saudis decided to play it safe. They would do this at home, in an environment and with investors they could control. And so they used the Riyadh Tadawul stock exchange (where less than 200 stocks are traded) as the venue for this “historic” IPO.

Home made IPO

And, sure enough, the compliant, super wealthy Saudi elites bought the Aramco shares at the set price and bid up the stock so that Aramco would reach the $ 2 trillion valuation This choice of venue and how all this was arranged tells us that this is is no genuine IPO.

This is a (forced?) purchase, at a preset, dubious valuation of a very small number of Aramco shares by a few wealthy Saudis and some Saudi companies. Prince Mohammad Bin Sultan, MBS, the de facto ruler of Saudi Arabia, wanted the valuation of Aramco –no doubt the world’s largest energy conglomerate– to be at or close to $ 2 trillion. And so the shares had to be priced accordingly, and the compliant buyers –all of them Saudis– had to pay and sustain that price.

Not the real thing

Anyway, because of all this maneuvering, it is clear that this is not a genuine IPO in which the market eventually sets the value of the newly offered company based on available, scrutinized financial data and on their interpretation of market trends.

This IPO is a Saudi government gimmick aimed at getting essentially free cash in exchange for a tiny sliver of Aramco for which several compliant Saudi buyers paid a preset political (and therefore most likely inflated) price.

The risks involved in a real IPO

If Saudi Arabia had wanted to attract serious international buyers, it would have had to disclose a lot more, and then let the market decide what the value of Aramco really is. But this orthodox approach carried the risk of a lower overall valuation for Aramco after the IPO, had investors decided that the company, however enormous and certainly very valuable, is not worth $ 2 trillion. And this would have hurt the prestige of the Saudi Kingdom. For Saudi Arabia, Aramco is “it”. There is not much else in the Kingdom beyond oil and oil products.

Cognizant of these risks, MBS opted for a safe IPO. The offering took place at home, in Saudi Arabia, using the tiny Saudi stock exchange. The Saudi elites were persuaded (forced?) to buy the Aramco shares, so that the government could prove to the world that Aramco is the most valuable company on earth. In other words, this is about propaganda, and therefore the IPO is not serious.

What is Aramco’s true market value?

There is no doubt that Aramco is an energy giant. In fact, “the” energy giant. But, based on all we know about the company and most importantly about the future of global oil demand and oil prices in this new era of electric vehicles and carbon taxes, what is a fair valuation for Aramco? Is it close to to $ 2 trillion as the “local buyers only” IPO would suggest? Or is it less, perhaps half of that, as many analysts indicated? We did not know for sure before this IPO, and we still do not know today.

Clearly, executing a proper IPO in an internationally recognized exchange would have exposed the Saudi government to the scrutiny of international investors, and therefore a possible embarrassment, had investors decided that the shares were too expensive and consequently the touted $ 2 trillion pre IPO valuation excessive. In order to guarantee a “success” MBS engineered this “friends and family only” IPO.

Big questions about the Saudi reform agenda

That said, one thing is clear. If the manner in which this long delayed IPO took place is illustrative of the seriousness of MBS’ ambitious economic reform agenda for Saudi Arabia, I am not impressed; and consequently not very optimistic about the future success of MBS’ plans to diversify and grow the non-oil Saudi economy.