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.

Brexit Should Force EU To Rethink Its Purpose

WASHINGTON – The most improbable is now reality. Great Britain opted out of Europe. What does this Brexit vote mean? it means as a minimum that the grandiose European Project that was supposed to have already created a “Continental Symphony” with all EU members playing harmoniously together, in order to praise the virtue of a strongly felt “European Unity” was and is in fact a dream.

The Brits do not buy it

Most British people do not buy any of this. This vote also means the end of David Cameron as British Prime Minister. He led the “Remain” campaign, and he lost, becoming now another political casualty in the broader war between old European political establishments and a restless public, deeply uncomfortable with the status quo.

The British do not see themselves as Europeans

Whatever the political, economic and trade consequences of this upset, as a minimum we know this: a majority (albeit slim) of British voters do not think of themselves as Europeans. The “Leave” camp claims that by severing these ties, the UK regains its full sovereignty. What does sovereignty mean to the average UK voter? Probably something akin to freedom from a vaguely defined foreign (Brussels based) interference.

Narrow victory

It is true that the “Leave” camp won by a narrow margin. But this result in favor of Brexit was not supposed to happen. The UK is after all a leading member of the EU. Its voice matters on the Continent. And yet most British citizens feel that being in the EU is damaging their country.

Is this really true? Probably not. Hard to assess the net losses or benefits for the average British voters of a complicated web of treaties, agreements, regulations, and administrative procedures that binds Britain to the EU.

Vote driven by emotions

In the end, it is clear that most British people voted on the basis of emotions rather than a rational assessment of costs and advantages of EU membership. But emotions and gut feelings do matter when one determines his/her allegiance to any entity that has the aspiration of becoming more important than one’s own Fatherland. The gut feeling here is mostly negative.

And now what?

That said, what will happen next? Who knows really. Before this vote, the Cameron Government made extremely dire predictions of economic losses, stagnation, unemployment and more in case of Brexit. But we do not know that for sure.

There will be a two-year window of time to plan for the exit. And while the disengagement from the horribly convoluted layers of European agreements may prove to be very complicated, I do not believe that this will doom the UK. I suspect that the necessary adjustments will be easier than anticipated.

And some basic things will not change. We are after all in a globalization era of mostly zero-tariff free trade. Finally, I do not believe that it is in the interest of the rest of the EU to make things too complicated, just for the pleasure of giving a hard time to the bizarre British.

Little Britain

True enough, since Scotland voted overwhelmingly in favor of “Remain”, we may very well see demands for a new referendum on Scottish independence. And this time it may succeed. Great Britain may very well cease to exist the way we know it today. Besides, Britain will have to sort the post Cameron era. Will Boris Johnson, former Mayor of London and leading “Leave” champion, become the next Prime Minister? Possible.

The future of Europe

But here is the most important consequence of this shocking referendum result. The unexpected vote in favor of Brexit will force –this is my hope– the rest of the EU members to have a serious debate about the current state and future prospects for the EU.

It is no secret that there is a strong anti EU sentiment also in other European countries, from France to Poland. If the UK survives this transition out of the EU without too much damage, others may be tempted to follow suit. Indeed, unless the EU begins to mean something really important for the average European, what is the compelling reason for staying in this arrangement?

Bureaucratic set up

Other European citizens may want to sever their ties to the EU because they also see the European Union mostly as an elitist affair managed by Brussels-based unelected technocrats who have no political mandate and no political mission. They are faceless functionaries who regulate everything, and inspire nothing.

Indeed, the anemic European Union grows little and in most key sectors it does not invest and innovate enough. For EU members, being together does not mean that the Union they belong to is much more significant and more vibrant than the sum of its parts. The parts (with few exceptions) are weak, and the EU is also weak.

More countries to follow the UK?

I suspect that, given a chance to express their opinions, significant pluralities or even majorities of EU citizens would vote to follow the British example. The EU is an interesting experiment in free trade and building supra national institutions. But it is inefficient, it lacks coherence and –most fundamentally– it lacks a truly inspiring purpose that can be understood and embraced by the average citizen.

NATO Is Indeed Obsolete

WASHINGTON – The Atlantic Alliance, or NATO, is an old security arrangement (founded in 1949) that no longer has a clear purpose. In his habitual blunt style Donald Trump, the leading candidate for the Republican nomination in the upcoming presidential elections, recently said that NATO “is obsolete”. In fact, while Trump is certainly not a leading foreign and defense policy expert, he is mostly right.

No mission

Indeed, what is NATO’s mission today? And, related to that, what means does NATO have at its disposal to execute this mission? On the first question, now that the Soviet Union is gone, the mission of a military alliance created to face it is murky. On the second question, NATO has very few military means, as defense budgets in most members states have been shrinking, year after year. (In the US, despite cuts, the Pentagon’s budget is equal to 3.6% of GDP. Germany’s defense spending is 1.2% of GDP. In Belgium it is 0.9%, in Spain 0.9%, in Italy 1.0%)

The old rationale

The initial rationale for the creation of Atlantic Alliance, the very first peace time integrated military structure, was the Soviet threat against Western Europe at the beginning of the Cold War. Europe’s proximity to the expanded Soviet Bloc, (it included all of Eastern Europe and East Germany), combined with Europe’s economic and military weakness, (due to the lingering effects of the destruction caused by WWII), prompted America to commit itself to the defense of Europe. Hence the creation of NATO in 1949, with tens of thousands of US troops permanently stationed in West Germany and elsewhere in Europe, with tanks, guns, aircraft, and nuclear weapons.

No more Soviet Union 

But then the Berlin Wall came down in 1989, and the Cold War ended because the Soviet Union imploded shortly thereafter. The Warsaw Pact disappeared. The New Russian Federation lost control over all of Eastern Europe. Germany was reunified. Moscow also lost large pieces of the old Soviet Union, including Ukraine, Belarus and the three Baltic States.

NATO is still here 

However, NATO was not disbanded in response to the withering away of the old existential threat to Europe’s security. Perhaps it was prudent to keep the old institution in place, just in case. And may be it was a good idea to allow the former members of the Soviet Bloc to join NATO, even though the new Russian leaders saw this as an eastward expansion of NATO, and therefore a potential threat to them.

Still, be that as it may, an Alliance’s strength is based not on how many members it has, (28 countries), but on its shared purpose and on its ability to deploy the military tools to secure them. And here NATO shows its inherent weakness. No clear purpose, and drastically reduced military forces.

A new threat from Russia? 

If we fast forward to today, many will argue that NATO is still quite relevant because Putin’s Russia has demonstrated to have aggressive tendencies. in 2008 it went to war with Georgia. More recently it grabbed Crimea, a piece of Ukraine. Many say that, if unchecked by NATO, Russia would keep moving westward into Poland, the Baltic States, and may be beyond.

I believe that Russia is mostly interested in neighboring regions that historically were part of Russia. The idea that Ukraine is just the appetizer for a famished Russia, while Portugal or at the very least Germany will be the pudding seems quite preposterous.

Inadequate military means

But even if we assume that this unlikely theory of Russian resurgent expansionism were in fact correct, then where is NATO’s demonstrable military deterrent to counter it?

Indeed, if NATO is still standing and operational because Russia is a threat to its members, then we should also see robust defense spending aimed at creating a war fighting force that can credibly deter aggression by showing Russia that any threat to NATO members’ security would be met by a formidable force.

Unfulfilled commitments

Well, it is not so. Because of economic weaknesses and competing social spending priorities, most European countries have allowed defense spending to go into free fall. In theory, all NATO members are unequivocally committed to spend at least 2% of GDP on defense. In practice, only 5 countries, out of 28 NATO members, have honored this pledge. Most of the others spend around 1% of GDP on their military, or less. This is half of what they promised. If you take the U.S. out, The European members of NATO have only limited air power. Practically no sizable expeditionary forces. No meaningful airlift capabilities.

During the Libya mission, confronted with a third-rate enemy, the French and British air forces run out of smart bombs only a few weeks into the conflict. Even that limited operation could not have been executed without US support in key areas such as air defense jamming and suppression, and overall logistics.

Not serious 

Quite frankly, this reluctance to field credible military forces makes NATO into a joke. You cannot say that we have to keep NATO together and strong in order to face an aggressive Russia and then have a virtually disarmed military alliance on account of the fact that nobody wants to spend diminished revenue on defense in economically weak countries.

Limited support to US-led operations 

As far as what used to be called “out of area” (that is possible threats outside of Europe) NATO does not have clear objectives and a credible strategy to achieve them. Yes, NATO countries participated in the difficult Afghanistan and Iraq conflicts. NATO countries intervened in Libya. All true. But in all these efforts (Libya is a partial exception) the US was leading, and selected NATO countries followed.

At present, while the US (with little enthusiasm) is leading a military effort against ISIL in Iraq and Syria, some NATO countries are contributing some aircraft to the air war. But there is no clear NATO policy. And certainly no commitment by all NATO members to participate.

No clear purpose 

So, here is the thing. With the end of the Cold War, NATO lost its original purpose. What we have now is murky strategic objectives and lack of military means to accomplish even slightly ambitious missions.

The NATO Alliance is now mostly a talking shop with too many members who contribute almost nothing of value. While something may change after the US elections, it is unlikely that anybody will ask the hard questions about purpose, strategy and means.

No debate on difficult issues 

Nobody wants to have an open debate within NATO that would inevitably expose deep political divisions and embarrassing military vulnerabilities. For this reason, I suspect that the old institutional framework will be left as is, even though most analysts recognize that it is obsolete and virtually meaningless when it comes to core military capabilities.

In the future, if we are lucky, the US may be able to create ad hoc  “coalitions of the willing” and work selectively with the 4 or 5 NATO countries that still have modern armed forces.

There Is No European Identity

WASHINGTON – For the outside world, the current political debate within Great Britain about staying in the European Union, EU, or leaving, depending on the outcome of a June referendum, looks like arcane stuff, and probably not that interesting. Another strange internal European thing that foreigners, and Americans in particular, do not understand much, and frankly do not care that much about.

What difference does it make? 

In the end, what difference does it make to America if Britain, a much diminished second rate power, belongs or does not belong to an assorted group of medium, mediocre, and poor European countries tied together by a complicated web of trade agreements?

Well, it probably does not make a huge difference to Americans.

Failure of the “Idea of Europe” 

But this issue matters in Europe. And I am not referring here to the ripple effects of a British Exit, or “Brexit”, when it comes to trade between the UK and the rest of the EU, or the possible consequences on the City of London as a key global financial center, should Britain begin to operate outside EU banking and securities rules.

No, I am referring to something else. I am referring to this. The very fact that Britain is openly debating whether or not it is good for the country to stay in the European Union attest to the failure of the “Idea of Europe”.

The unfulfilled promise of a “European Union” 

The very denomination “European Union” suggests a relevant and powerful new entity that is and will be involved in a lot more than agricultural subsidies and regulating the allowable size and shape of vegetables.

True, from the other side of the Atlantic, the EU looks mostly like an over complicated, and rather cumbersome arrangement among under performing economies, run by bureaucrats who seem intent on regulating everything.

A Big Project 

But, in Europe, the expression “European Union” is supposed to have a strong meaning. In Europe, at least for some, the European Union is an unfolding “Big Project”. It is the plan to progressively unify almost 30 countries, eventually creating a United European Super State, (or something close to that), so that the new entity would be much more relevant than the sum of its individual parts, (the member states).

And this Big Project supposedly is the pull factor attracting so many applicants. The EU is the future; and they want to be part of it.

Well, this is the official, or semi-official narrative.

Lack of shared strategies

In practice, the picture is far less attractive. Cohesion and solidarity, let alone unity of purpose among members, is rather low. Getting to an agreement on practically anything within the EU involves an immensely laborious process aimed at reaching a consensus among almost 30 governments.

And when the focus is on major policy choices, common strategies, the EU members find watered down unity at the lowest possible common denominator. In simple terms, this means that whatever the EU declares, nobody listens to it, because it is usually just empty rhetoric.

Right now the EU is trying, with little success, to forge a common policy to face a major refugee and immigration crisis triggered in part by the civil war in Syria. It is obvious that there is very little common ground among member states.

Furthermore, there is no discernible European foreign policy; let alone security policies based on a genuine consensus on external threats and appropriate countermeasures. Threat perception in Portugal is not the same as threat perception in Greece or Poland.

Europe is not irrelevant

Do not get me wrong. I am not suggesting that the EU is inconsequential across the board. On matters of global trade, anti-trust, financial arrangements, and a lot more the EU is very consequential. And for foreign investors and exporters into the EU, the harmonization of rules within the EU, plus the existence of a pan-European market where the same norms are applied across almost 30 countries, from Finland to Croatia, is a major advantage.

No European Identity 

Still, all this notwithstanding, the EU failed in its ultimate goal: the creation of a genuine “European Identity” that successfully replaced or will soon replace national identities. If this shift had been accomplished, then the issue of Britain leaving Europe would have never come up. Nobody would want to leave a new Super State that all citizens strongly identify with and that brought about so many advantages to all its members.

What will Britain do? 

And yet, the debate about leaving the EU is going on in Great Britain. In June there will be a referendum that will allow voters to settle this issue. My hunch is that eventually the British people will decide to stay in the EU.

Still, the very fact that no one dares to predict the outcome of this referendum is an indication that Britain is deeply divided on an issue that should have been settled decades ago. Other countries that are not planning any “In or Out” vote are also deeply divided on whether EU membership is a good thing or not. (Think of Poland, Denmark, Greece, and to a lesser extent France and Italy).

EU will survive; but it will stay weak

Here is the thing. With or without Britain, the complex inter-governmental arrangements that make up the European Union will survive.

But Europe will continue to be a rather weak hybrid in which some components of national sovereignty have been delegated to EU functionaries in Brussels, while others remain under the control of national political authorities. All these competing authorities and jurisdictions created a recipe for confusion and weakness.

With or without quarrelsome Britain, forget about a strong Federal Europe. And, most of all, forget about a strong Europe playing a decisive role in world affairs. If the Europeans do not believe that much in Europe, why should the rest of the world take the EU seriously?


Strange Conversations While In Africa

LUSAKA (Zambia) – During business trips in far away places it is relatively easy to talk to strangers who are also traveling, just as you are, for business or pleasure. Sometimes the conversations are very interesting, sometimes bizarre.

Meeting Brian

It is Sunday and I went to the hotel gym to exercise. Afterwards, I saw a gentleman in the locker room. I said hello to him. There is a brief introduction. It turns out that this traveler (let’s call him “Brian”) is from the North of England, very close to Scotland. Brian is a nice, mild mannered man. He runs a bed and breakfast, and he organizes outdoors activities for children. A good guy, it seems. He is in Zambia for a wedding.

British politics

So Brian lives right next to the Scottish “Border”. Ah, Scotland, with all its political problems. “This matter of secession is by no means over”, says Brian. “Even though the referendum failed, they’ll try again”. I agreed with him on this.

But then we turned to British politics, and Brian observed that there are goods things going on in the British Labour Party. Indeed, there is a new beginning, on account of the election of Jeremy Corbyn, (a bizarre radical socialist), as party leader.

I was frankly stunned. Good things? From a party that just regressed to ancient Marxism? I politely noted that this leftist agenda has been tried, many times, in many different parts of the world, and it did not work.

In praise of Socialism

Well, Brian brushed all this aside. (Essentially, the Soviet Union, Pol pot’s Cambodia and Maoist China, among others, never happened; or were just small foot notes). He noted that many noble Marxist experiments, such as the Sandinista regime in Nicaragua, were snuffed by the evil Americans. So we shall never know what wonders those truly enlightened Socialists might have brought about.

Never mind that Daniel Ortega, the retreaded old revolutionary leader whose dream of a just society was allegedly killed by the CIA, is alive and well, (In fact, now, thanks to the wisdom of Nicaragua’s voters, Ortega is the current “democratic” leader of perennially impoverished Nicaragua. Apparently the CIA did not do such a good job.)

It failed in the past, so let’s try again

But Brian goes further. “Well, the very fact that Socialism did not work in the past is good for today”, he says, quite seriously. “We can have a fresh start, avoiding the mistakes of the past”.

In other words, according to Brian, Socialism in principle is a very good thing. The ony issue is some implementation glitches, here and there. In other words, with more refined planning and better execution these problems experienced in the past will be avoided, and the world will finally enjoy the blessings of a just society.

As I said, Brian is a pleasant person.

And yet, in a peculiar way, he is a prisoner of a crazy ideology. Think of this bizarre –and totally irrational– argument: “Precisely because Socialism failed so many times in the past, this is the moment. We have to try again”.

He said all this calmly, in a matter of fact way.

So, here we go. One century of disastrous economic failures, (not to mention killings, the Gulag, mass murder, denial of basic human rights, and more), is a pretty good indicator of future success.


It really worries me to see how blind belief in crackpot ideologies prevents otherwise normal people to see reality.

No, contrary to what the thinkers of the Enlightenment believed, Man is not a rational creature. Sadly, the vast expansion of knowledge about nature and the physical world has not done much to make people wiser.

FT: “Corbyn Is A Disastrous Choice”

WASHINGTON – Here is how The Financial Times sees the election of Jeremy Corbyn as the new leader of Britain’s Labour party: “Jeremy Corbyn’s resounding election of the Labour party is a catastrophe for the British center-left…Under Mr. Corbyn, New Labour looks dead and buried and the party’s chances of returning to power remote at best….This is a bad day for Labour and worse for the country”.

How did this happen? 

Well, not much room for equivocation here. Bad leader. Bad choice. Bad for the country.

Well, having noted that, how could this happen in Britain, supposedly a mature, in fact sophisticated, democracy? How is it possible that supposedly mature adults would choose as the leader of the main opposition party a man who believes in really silly ideas like nationalisations, and in social justice achieved via income redistribution? Corbyn is also anti-American, while he would like to get the UK out of NATO. He speaks well of Hamas and Hezbollah, while he is an admirer of the late Hugo Chavez, Venezuela’s semi-dictator and the man who led the country into a real economic hell.

Indeed, how is this possible? We have seen other anti-establishment, extreme leaders and brand new parties (Syriza, Podemos) emerging in Europe. But mostly this has happened in really beat-up countries such as Greece or Spain. All in all, Britain, while not doing splendidly, is way ahead of Southern Europe.

Unhinged militants 

So, why are Labour rank and file, those who elected Corbyn, so unhinged? Regardless of any consideration about the almost impossibility to win a future general election with such an extreme-left leader, why is it that so many British citizens believe that Mr. Corbyn’s redistribution ideas are actually modern and appropriate?

Inequality above all 

It is true that most capitalistic economies are facing wider and wider income gaps. Very few rich got very rich, the rest are barely getting by. Yes, this is true. And this is a real issue. But the idea that taking money away from the rich, while redistributing to the poor or semi-poor, will really help all British citizens to be more prosperous is a dream.

In fact, the main problem facing most mature democratic societies is low growth and a bloated and inefficient public sector. Lack of growth, not inequality is the main problem. We need to broaden the economic base and enhance participation. More people working.

Focus on growth, not inequality

Europe, America, Canada, Australia and many other countries need to understand that their leaders must do their very best to foster broad-based economic growth. This means improving access to education, flexible labor markets, deregulation, lower corporate taxes, incentives for entrepreneurs and innovators.

In essence, exactly the opposite of what Mr. Corbyn and his enthusiastic supporters advocate.


UK Cannot Exploit Its Shale Gas Reserves

WASHINGTON – The US is enjoying the immense economic benefits of the hydraulic fracturing (“fracking”) revolution that made it possible to exploit previously untapped vast shale gas and shale oil reserves. The energy extracted from these enormous “unconventional” shale deposits has transformed the American, and indeed the world energy outlook.

Hemispheric Energy Security

From the standpoint of “Hemispheric Energy Security” North America is almost totally energy independent. If you add imports from Canada and Mexico to the increased US supply, we are almost there. While the US still buys some oil from OPEC countries and other producers, most of its supplies now come from within North America. This transformation has and will have significant geopolitical implications.

More shale across the globe

That said, it is important to note that there are immense shale reserves across the globe. Plenty of shale gas in China, Argentina and elsewhere. Therefore, is it reasonable to expect that the fracking revolution that began in the US will continue in other countries, following the American example?

In principle, yes. But it is unlikely that shale development will move at the same pace. In part this has to do with geography and geology. For instance, it seems that many Chinese shale deposits are located in hard to reach, less developed North Western regions. Getting there is complicated. Extracting shale gas will be difficult, because these arid regions lack the large amounts of water necessary for fracking operations. Finally, moving natural gas from there to the densely populated Eastern regions will require the construction of expensive new pipelines.

Bad politics, bad rules 

That said, geography is not the only obstacle. Take Great Britain, for example. It appears that there is plenty of shale gas in the UK. But almost nothing has been done to exploit it. And this is essentially for two reasons.

Reason one is that the country is a prisoner of an environmentalist culture that fabricated and disseminated lies and distortions about the “dangers of fracking”. Untrue stories (created by US environmentalists) of fracking disasters, plus alleged clear threats to water and soil, are used in the UK to make the case that Britain must avoid this environmental calamity by banning fracking.

Ideological prejudice 

Well, guess what, none of this is true. If energy companies follow, as they should, proper protocols and procedures, fracking is safe. This is the evidence gathered over many years of fracking in Texas, Pennsylvania, Louisiana, Oklahoma, Ohio, West Virginia, Colorado and other states . Thousands of wells have been safely drilled in the US. A major report just released by the US Environmental Protection Agency, EPA, (no friend of the US fossil fuels industry), indicates this much. But this reassuring evidence does not matter.

Environmentalism is now akin to a religion. It is based on beliefs, not facts. The UK anti-fracking crowd will continue to oppose drilling no matter what the evidence gathered after more than a decade of shale oil and gas exploitation in the US says. Needless to say, this vocal and well-organized political opposition is a huge impediment. They will vote for local officials opposed to fracking. They will disrupt operations of energy companies.

Bad rules 

Reason two. In the US the fracking industry advanced rather fast because the legal and regulatory framework (state and federal) allows speedy action. Needless to say, in the US energy companies have to obtain permits, comply with state safety and environmental rules, and more. However, in general these are sensible regulations that have been created to establish and uphold reasonable safety and environmental standards, and not with the intent to block the energy industry in general, or fracking in particular.

But the real incentive is that shale gas exploitation is a true economic win-win proposition in America. And this is because in the US land ownership includes ownership of the mineral rights. In other words, a Pennsylvania farmer owns the shale gas deposits that exist under the surface of his or her land. And this means that by leasing his or her land to an energy company he or she will get rich, possibly very rich.

No such economic incentive exists in the UK. In Great Britain, the state, and not the land owner, has the mineral rights. This being the case, beyond the energy companies that see a profit opportunity, there is no natural constituency favoring fracking, while there are large environmentalist groups that loudly oppose it, (see above).

The UK Government is aware of this. It has created new incentives by mandating that the counties and localities that will allow fracking on their land will get some of the proceeds. This may be a good attempt to create pro-shale development constituencies. We shall see.

In the US land owners benefit

But nothing beats the obvious direct interest of the individual American land owner who welcomes the energy companies interested in drilling on his or her land because he or she stands to gain from fracking.

Pro-business laws make a huge difference

What’s the point of all this? The point is that mastery of the new technology and favorable geology are only half the story. Whether we are talking about fracking or some other industry, a key variable is having a pro-business legal and regulatory environment.

Look at the UK. This is a modern, capitalistic country that really needs more domestic energy. Well, luck has it that there is plenty of shale gas under its soil.

And yet it cannot be extracted because of a nasty combination of ideological prejudice and bad laws that do not help the development of the domestic energy industry.





Very Modest Military Effort Against ISIL

WASHINGTON – With a straight face, White House Press Secretary Josh Earnest announced that while the United Arab Emirates stopped flying bombing missions against ISIL last December, (somehow this development had not been made public until now), this should not be interpreted as a lessened UAE committment to the fight. Really?

UAE has left

Well, in theory the UAE could contribute substantially without fighting, for instance by paying for the cost of military operations. But we have not ben told in what way this staunch ally will help us win.

And how much was the UAE actually contributing before withdrawing? We do not know exactly. But here are some figures that may help shed some light on the issue.

As of December 2014 the “Coalition” had launched 1,371 air striked against ISIL, 799 in Iraq ,and 572 in Syria. (This is a very small number). 81% of these were conducted by the US, the remaining 19%  –yes, this is only 19%– by the rest of the “Coalition”. This would include Great Britain, France, Jordan, Saudi Arabia, the UAE, and others.

It was not doing much anyway

From this we can safely conclude that, whatever the UAE was doing before withdrawing, (a fraction of an already puny 19%), it did not amount to much. And this is not for lack of means. The UAE air force has a total of 368 fixed and rotary wing aircraft. Of these more than 200 are fighter jets (US made F-16, and French made Mirage 2000). Not insignificant numbers for a relatively small country.

62 Coalition Members

And what about the rest of the large “Coalition”? What are they doing to help win the war? We are told that there are 62 countries on board. This sounds impressive. Yes, except that it is not.

Among the members we have: Singapore, Malta, Moldova, Mexico and Andorra. Yes, Andorra, a tiny little place sandwiched between Spain and France, and not exactly a major or even minor political or military anything. While there are others like Hungary, only a handful of countries among those that are nominally Coalition Members are involved in combat operations. And you have seen above how insignificant the total non US military effort is.

In other words, this whole “war against ISIL” is so unimpressive that it looks frankly unserious.

The Kosovo air campaign

Indeed, please compare this anti-ISIL air campaign to the NATO-led 1999 air campaign against Serbia aimed at stopping the Kosovo conflict. Over a period of 78 days NATO combat planes flew 38,000 air sorties, of which 10,484 were strike sorties. (ISIL campaign: 1,371 sorties as of December 2014. Now, February 2015, the number must be a bit higher).

Modest effort

This war against ISIL is a small effort led by a reluctant America with extremely modest military contributions from a handful of countries, plus symbolic nods from 50 or more nations that sent a little money and/or a little humanitarian aid.

Allow me a prediction. Given what I would call a low level of enthusiasm, this war against ISIL will not be won any time soon.

UK Will Lead A New NATO Rapid Reaction Force – Should Putin Take Notice?

WASHINGTON – As a response to Putin’s aggression in Ukraine, NATO will do…well, not much. Most of the reactions so far, have been cosmetic, public relations moves. Of course, technically speaking, NATO does not “have to do” anything. Ukraine is not part of NATO; and so the Western Alliance is under no treaty obligation to do anything at all.

Show we do anything?

Still, NATO countries cannot ignore a conflict nearby in which a would-be NATO and EU member (Ukraine) has been attacked by rebels openly supported by Moscow. This act of Russian supported aggression at the periphery of peaceful Europe must be followed by some reactions.


And here are the reactions. As a tangible show of displeasure, the West enacted (limited) economic sanctions against Russia. But, on the security front, should the West do anything at all to signal Russia that there would be serious consequences should Putin believe that after Ukraine he may have a green light elsewhere as well?

What if he think he can support subversion in Estonia, (a small and weak NATO country with a large Russian minority), just as he has done in Eastern Ukraine?

US enhanced presence in Europe

And so there have been some shows of NATO unity and resolve. The US dispatched a few combat jets to Poland. A few troops (we are talking hundreds, not thousands) have been sent to the Baltic countries to participate in exercises.

Indeed, these (relatively new) NATO countries are understandably worried. They used to be part of the old Soviet Union. Some of them, as noted above, just like Ukraine have sizable Russian minorities. Could they be next on Putin’s wish list?

Mostly gestures

Still, all this is mostly symbolic stuff. Beyond these gestures,  not much. Statements, declarations, yes.

But what about real actions aimed at showing that NATO is a strong, politically united and militarily prepared alliance that can credibly and quickly respond to any crisis? Not much on that front.

A UK-led rapid reaction force

Well now the UK, the country that is going to host a NATO Summit in Wales, (September 4-5), has just come up with a “major” announcement. Great Britain will lead a brand new NATO rapid reaction force. So far, six NATO countries have confirmed their participation. And who are they? We have Norway, Denmark, The Netherlands, and then Latvia, Estonia, and Lithuania, the three (scared) Baltic states mentioned above.

A credible military tool?

The goal is to have a NATO multinational force of 10,000 that can be rapidly mobilized. Look, any new effort is probably better than no effort at all. But, looking at this plan, if I were Vladimir Putin I would not lose any sleep on this. With the exception of the UK, this is a (small) collection of NATO dwarfs, in terms of countries’ populations, sizes, resources –and most of all– current and projected levels of military spending.

With the exception of Great Britain (defense spending at 2.4% of GDP) and Estonia, (defense at 2% of GDP), no other member of this new, (planned), force, meets even the minimum requirement (solemnly agreed upon by all NATO countries) to increase defense budgets so that they will reach at least 2% of GDP.

Germany and France not joining

Most of all, please note the absence of Germany and France, the two most important NATO military powers in the Continent. May be they will join later, who knows. But I suspect that the Germans do not want any role in a new military arrangement that most likely will be interpreted as an unfriendly move by Moscow.

We are “doing something”

So, there you have it. NATO today is a military alliance with dwindling forces and mostly pacifist governments now trying to show that they are “doing something”, so that a new, aggressive Russia will take notice. Well, if this new “force” is the best that can be done, good luck!

Defense spending in free fall in most NATO countries

As usual, America is the country that –even in this new era of declining US military spending– has by far the largest defense budget, (4.4% of GDP in 2013). All the other NATO members, (with a couple of exceptions, most notably Poland), have cut military spending. Most of them spend around 1.5% of GDP on defense, and a few are down to less than 1%!

Putin will just carry on

And now we have the UK leading this group of small countries that promise to put together something credible, at some point in the future. If this is the best that NATO can do, Putin can carry on his mischief in Ukraine, without any worries or concerns.

NATO Reaffirms Its Unity and Resolve – Yet Defense Budgets Are In Free Fall

WASHINGTON“[At the forthcoming NATO Summit in Wales] we will send an unmistakable message: Today and in the future, NATO means one for all, all for one”. This is the upbeat conclusion of a WSJ op-ed piece co-authored by Anders Fogh Rasmussen and by General Philip Breedlove, Secretary General of NATO and Supreme Allied Commander for Europe and Commander of US European Command, (A NATO for a Dangerous World, August 18, 2014).

We stand united

The gist of the piece is that NATO stands absolutely united, now as before, while the Alliance has done or is doing all that is necessary to strengthen the  political and military cooperation among its 28 members.

While the Cold War is over, the authors argue, there are many potential threats out there, from further deterioration in the Middle East to possible escalation of the crisis in Ukraine.

Well, it is nice to read reassuring words from the top civilian and military authorities of this old Alliance. The trouble is that most of what they say regarding NATO being ready to meet challenges is either grossly exaggerated, or not at all true.

Disconnect between commitments and budgets

The two authors vaguely hint at the enormous disconnect between declared goals and objectives (ambitious) and real defense budgets (ridiculous) when they write that: “The Wales summit is a key opportunity to reverse the trend of declining defense budgets and to share the responsibilities for security more fairly”. So, they admit that there is a defense spending problem. But they do not even begin to say how big it is.

Defense spending in free fall

The US is the NATO member that spends the most on defense: about 4% of GDP. No other European NATO member comes even close. Britain leads the pack with defense at 2.4% of GDP. France dropped military spending from 2.5% in 2004 to 1.9% in 2013. Germany is at 1.3%, Italy a bit less with 1.2%. Poland does better with military spending at 2%, while economically challenged Spain went down from 1.2% in 2009 to 0.9 today.

And do keep in mind that America is already cutting its military spending, with more cuts coming in the near future.

So, there you go. We stand united. Our resolve is unshakable, blah, blah, blah. Unfortunately, this is mostly “feel good” nonsense. The Alliance is there, and so are all the trappings of a peace time integrated military structure. The commitments are there, and nobody says they will not be honored.

Modest capabilities

However, the sad reality is that most European NATO countries cannot field credible armed forces. And even the best do not have that much. For example, shortly after the beginning of the air campaign against Gaddafi’s Libya, led by France and Britain, the Europeans were asking America to give them precision guided ammunition, because they had run out. And this was a small war against Libya, a third-rate military force.

And leaving aside the actual level of spending, if we look closely at the actual military preparedness of the armed forces theoretically fielded by –say– Romania, Estonia or Portugal, we are not going to be impressed.

Few synergies

Related to this, there is the perennial shortcoming resulting from a lack of real “military integration” among NATO countries. Which is to say that there is no way to get “more bang for the buck” because military spending is highly fragmented.

Indeed, many attempts notwithstanding, the individual European NATO members, plus America and Canada field separate armed forces. There are few if any effective synergies when it comes to procurement of new weapons systems.

Over the years weapons standardization and interoperability have improved some. But we do not have a fully integrated “NATO Army”. Which is to say that the little money that is indeed spent does not buy as much as it could in terms of joint NATO capabilities.

When the Soviet Union collapsed

The truth of the matter is that when the USSR disappeared back in 1991 the real rationale for the NATO Alliance –protecting Europe against a possible Soviet aggression– also disappeared. And so most European countries, whatever their public pronouncements, started cutting defense spending.

Today we have an Alliance which is actually much larger in terms of members, (Poland, the Czech Republic, Hungary, the 3 Baltic countries, and many more joined in recent years), but with minimal military capabilities.

Please, tell the whole truth

The pep talk-editorial authored by Secretary General Rasmussen and General Breedlove is in fact a disservice, as it hides the stark reality about lack of resources behind NATO-speak verbiage on theoretical commitments, coupled with a routine reassertion about steadfastness and unity.