What we've gotten right in 2018

“Wrong does not cease to be wrong because the majority share in it.”

--Leo Tolstoy

Introduction: Political Risk Analysis as Baseball

For all its shiny new professionalization, the recent record of top political risk thinkers regarding the highly uncertain political times we live in is nothing short of abysmal. For example, over two of the most important and hardest to read recent major geopolitical events—Brexit and the surprise rise of Donald Trump—an overwhelming number of predictions have been botched.

Why has political risk analysis gone so wrong? I have long held heretical views about my industry, which cluster around what I call ‘the plumber’s test.’ Just as I don’t invite back my local plumber (however charming) if he fails to fix the pipes, nor should businesses put up with political risk firms that missed the war in Iraq’s predictable outcome, failed to see the coming of the Lehman Brothers crisis, or to predict that Britons would leave the EU. What holds true for my plumber ought to hold for what I do for a living as well. However bejewelled or slick at marketing a political risk firm may be, what ought to matter in the end is delivering correct analysis to the clients.

My political risk firm, almost uniquely, called Brexit correctly. This is because we avoided a major analytical trap that plagued my rivals. The general failure of the political risk industry to get Brexit right revolves around ‘the Pauline Kael fallacy.’ The legendary cinema critic of the leftish New York Times supposedly wondered, following Richard Nixon’s landslide forty-nine state victory in 1972, how it was possible that the incumbent won when everyone she knew voted for the hapless Democrat George McGovern.

There we have it in a nutshell. Top political risk analysts are generally now part of the elite they are supposed to assess, an elite in London who uniformly called your sanity into question if you so much as broached the possibility of Brexit happening. These analysts too often go to the same cocktail parties, read the same books, marry the same sort of people, and share the same ‘right thinking’ views of the global elites, all without worrying overmuch about the wider world outside the cocoon of conferences at nice hotels, becoming intellectual prisoners of The Four Seasons.

All too often intellectually trapped within an elite they are supposed to objectively analyse, much political risk analysis has lost the precious objectivity needed to think clearly about our rapidly changing world.

These analytical dangers are balanced by the lure of the rewards of being amongst the few to truly understand the new multipolar era that is dawning. For there are endless commercial and political opportunities to be reaped in mastering our present complicated world, as first-rate political risk analysis can uniquely guide businesses to see the myriad glittering opportunities on the new global chessboard. With the world in transition, there has never been a better or more lucrative time for political risk analysts to get their act together.

Saying this, we should also not undersell what can be intellectually accomplished either. My own political risk firm called the ‘shocking’ Brexit referendum correctly, just as I analytically knew the Iraq War was doomed to failure and that the more recent December 2016 Italian referendum was heading towards a decisive defeat, long before conventional wisdom reached these bleak conclusions. It is not merely luck that some firms have a far better record of prediction for their clients than others. As is true in baseball, while day-to-day chance should always keep us humble, the best teams win the most games in political risk analysis as well.

The 2018 season

So how has my firm fared in 2018? While after-action thinking must always come into play whether you are right or wrong, of course it is far more gratifying to learn the lessons of what worked, rather than what did not. I am delighted to say that, looking back at the predictions we made at the start of the year, my firm has been on the money over all the major prognostications we unveiled January 1st of this year.

First, we were right in that, contrary to a lot of happy talk at the time by my rivals, the Europe crisis was about to rear its ugly head again, taking a political form, due to both the unsolved political problems of migration and the endless euro crisis. According to exit polling in Germany following their recent parliamentary elections, Chancellor Merkel’s warm-hearted and bone-headed decision to let in 1.1 million refugees without having the slightest plan for how to manage this major social upheaval was the primary reason for her CDU party’s relatively poor showing, and the beginning of the end of her long Chancellorship. The failure of Europe to agree on this most vexing issue had claimed the keystone to what European political stability there has been over the past decade.

Likewise, the rise of a populist government in Italy, determined to take on Brussels over its spending strictures was entirely predictable, given that the original economic crisis over the euro has long since morphed into a political crisis, as along with migration issues, the League and Five Star (again according to exit polling following the March 2018 parliamentary election) overturned the old, stagnant, Italian political order over these very failures. 2018 saw the beginnings of the political cost Europe will pay for merely managing problems over the past decade, rather than solving them.

The key to getting this right was in following the facts—in this case ignoring the legions of European analytical cheerleaders—instead looking at the likely political consequences of what were so obviously policy failures.

Second, we correctly predicted that the Trump administration would follow through and actually abrogate the Iranian nuclear deal, the cornerstone of his predecessor Barack Obama’s foreign policy. It would be risk on in the Middle East once again.

The key to getting this right—and do remember at the turn of the year conventional wisdom strongly held that ‘grown-ups’ like Secretary of Defence James Mattis would restrain President Trump—is to know that the GOP establishment has long agreed with him over this particular issue. While Secretary Mattis has tried to rein in the disruptive president over foreign policy in general (safeguarding America’s long-held global alliance structure), over Iran the two are on lockstep in holding out for a more hawkish stance, along with the Republican Party on Capitol Hill.

Anyone who knew anything about the GOP’s foreign policy orientation over the past decade ought to have gotten this one right. But with the vast majority of political risk analysts hewing to the centre-left, their personal aversion to the Republican Party seems to have encouraged a devastating lack of analytical curiosity about those with whom they do not agree, poison for any good analyst.

Third, and perhaps most importantly, a trade war would break out between the US and China.

Again, a real political knowledge of how President Trump has fundamentally has re-made the Republican Party from a pro-free trade, pro-business party into a protectionist workers party is essential in getting this right. Understanding what the Trump Revolution actually means is vital; whether you agree with the direction he’s taking the GOP should not get in the way of thinking this through. Personally, of course, I am less than thrilled (to put it mildly), but I am also capable of assessing things that I do not like.

Also, rather than just hearing from the many cheerleaders extolling Beijing’s effortless rise to Great Power Status (in many cases the very same people who have been so wrong about so much lately), a good, hard look at the extent of China’s flouting trading rules—from its massive theft of intellectual property, through to its unfair protection of its own state-owned champions—should have led far more serious analysts to ignore the hype, and see that these serial transgressions were bound to eventually lead to a US policy response. For ironically, even in the toxic political atmosphere in Washington, one of the few things Democrats and Republicans actually agree on at present is that a harder line with Beijing is absolutely necessary.

Fourth, the US mid-term elections would dent and slow, but not fundamentally derail, the Trump Revolution.

Again, getting this right involved looking beyond the all-too-real strangeness and exceptional nature of the Trump presidency, and knowing something about how ‘normal’ modern American political history has worked. Despite the fervour of his base, given his deeply polarising style, there has not been a single day of his presidency where Donald Trump had even half of America approving of the job he has been doing. While his movement commands adulation, it was and remains a minority one in the country.

Given this, and given the bleak mid-term historical record for sitting presidents that saw President Clinton lose control of both the House and the Senate in 1994, George W. Bush do so in 2006, and Barack Obama lose the House in 2010 and the Senate in 2014, Trump’s split decision in 2018 is merely the next data point in an entirely explicable historical pattern. The average loss of House seats in the modern era is 29; President Trump is on course to lose 36, a hardly revolutionary and very explicable outcome.

Fifth, Turkey would go off the reservation in our new multipolar age, pursuing a far more independent neo-Ottoman foreign policy, as it slowly drifts away from the West.

Getting this right involved actually reading what strongman President Erdogan was saying, and seeing that he now stands in total control of Turkish politics, as his slow-moving but deliberate majoritarian political philosophy has led him to destroy over time all possible checks on his power, be it the independent press, the former deep state, the military or the Gulenists.

While such overweening control has definite drawbacks (Turkey’s once and future economic crisis can be blamed on no one else), it does mean that in terms of foreign policy Erdogan can do as he pleases in the near term, and that he has been signalling for quite some time his desire to move away from Ankara’s traditional knee-jerk support of the West, building a more independent neo-Ottoman foreign policy that pivots Turkey more towards the Middle East.

Such an understanding requires knowing a lot about both domestic Turkish politics and also about the policy failures of the West, as for decades the EU has lied (there is no other word for it) about Turkey’s prospects for joining their club. Turkey, as a regional great power, is not just another mendicant at Brussel’s door; it has other options. After being neglected for decades, it is little wonder that its populist strongman has chosen one.

Conclusion: The Golden Rule of Political Risk Analysis

If I had to pick one underlying analytical virtue that explains both our success and the relative recent failure of our competitors it is that we have relentlessly followed the great thinker Edmund Burke’s advice to see the world as it is, warts and all, and then make our assessments based on the world we actually live in, rather than dream of one that is never there. In other words, never cheerlead, and let the facts take you wherever they may. That amounts to the best analytical lodestar we could possibly take forward into 2019 and beyond.   

--Dr. John C. Hulsman is President and Managing Partner of John C. Hulsman Enterprises, a prominent global political-risk consulting firm. His new book, To Dare More Boldly: The Audacious Story of Political Risk, was published by Princeton University Press in April and is available on Amazon.