It’s capitalism, Jim, but not as we know it…!

With apologies to the late and legendary James Doohan, those who try to make sense of how the planet’s economic systems function have likely been taken aback by the recent and continuing actions of the PRC Government/CCP in imposing a series of ever-expanding regulatory constraints not just on individual companies (vide Alibaba/Ant) but on whole industries (for-profit private tutoring). In the latter case, with a single bureaucratic cum political act, an entire industry was essentially “vaporized”, with investors suffering tens of billions of dollars of losses.

For a country which experienced the most extraordinary economic growth in recorded history because of decisions from 1978 onwards to encourage what was in reality competitive capitalism, such a development seems equally extraordinary.

However, subsequent actions and rhetoric appear to give a hint at possible underlying motivations, although trying to make sense of what emerges from the opacity of Zhongnanhai (the compound just to the west of Beijing’s Forbidden City which houses the headquarters of both the CCP and the State Council) is the Chinese equivalent of Kremlinology!

There is, of course, the risk of transposing western sensibilities onto a culture and political system which prides itself on its resilience and longevity, and in trying to posit a “simple” explanation. “What were they thinking?” gets one nowhere.

However, there does certainly appear to be an element of the CCP (re-)asserting its paramount status across all aspects of society, including private industry, and cutting down “tall poppies”, even if they did not have the temerity to challenge the Party’s authority. Conversely, “vaporizing” the for-profit tutoring industry may well be underpinned by the perception that it created and “arms race” and so was a major factor in making further education a prohibitively expensive goal, thus threatening not only social cohesion, but also demographics (even if the gaokao, or national university entrance exam is already considered notoriously brutal). In essence, the CCP seems to be initiating a form of re-distribution and equalization.

One could add to the mix (with rather less conviction) the thought that perhaps the CCP is not only trying to re-direct economic activity towards what it sees as more productive sectors in which it needs to catch up with the US and others (such as semi-conductors or advanced materials), but also to start re-directing its economy to a “war footing”, in which it can safely sever itself from the rest of the world (a theme which is recurrent in the history of the Middle Kingdom), and especially the US and its capital markets, because at some point there will be direct confrontation (say, over Taiwan). Call that the paranoid school of Sinology!

Attaching probabilities to the reasons is almost certainly a “mug’s game”, brought on by the human need for clear explanations and “certainty”. Observing actions and assessing likely outcomes is more productive.

In reality, there may not be any coherent set of underlying reasons, or the actions disclosed may be the direct expression of President Xi’s will, as he prepares for next year’s expected 20th Party Congress, at which he is almost certain to seek a third term as what amounts to paramount leader.

What we have just alluded to is that bane of risk management: “Nobody Really Knows”.

This does not mean, of course, that one simply “shrugs one’s shoulders” and despairs. It simply means that one now has to incorporate additional factors into one’s risk assessments and look for the second and third order effects of what is irrefutably fact.

The Awbury Team


It’s been twenty long years. Will there be twenty more…?

If you are over 30, you almost certainly remember where you were; what you saw; and how you felt on the New York morning of September 11th, 2001. “9/11” is now a term that needs no preface or explanation to be understood in terms of what it alludes to.

The consequences of that day still haunt and affect our world. We should never forget their origin; nor the tragic loss of life , or the trauma of those who responded, or who survived.

A generation has since grown up which has no knowledge of a time when air travel did not mean dealing with the indignities and arbitrariness of “airport screening” and the institutionalized suspicion of customs and immigration officers, let alone the risks of being “profiled”; while the “surveillance state” in its modern guise traces its origins back to that day.

And now, in the midst of a continuing pandemic, one begins to wonder whether a new generation will grow up which is accustomed to wearing a face-mask in certain circumstances; to dealing with the often absurdly complex and inconsistent rules supposedly designed to minimize further transmission of the virus; and which will see enforced “social-distancing” as normal, rather than bizarre.

None of the above means that we believe that the changes and consequences seen are somehow all unwarranted; nor are we trying to equate one event with the other. Rather, the point is that we should never assume that what is currently accepted as “normal” is unchanging. The inefficiencies and changed behaviours that result from such events have consequences, often negative, yet human beings adapt, as they always have.

So far as the (re)insurance industry is concerned, each event has been a seminal one, leading to significant shifts in risk appetite and modelling. In the case of 9/11, the industry realized that the scale of potential acts of terrorism (and just their economic costs) had undergone a step-change such that only the state could backstop such risks; while, with the pandemic, the industry had to deal not only with the economic costs, but also with the reputational consequences of ill-drafted wordings, as well as the need to “go remote” almost overnight.

To their credit, (re)insurers have proven to be as resilient as they are supposed to be, with no material failures seen. So, the core principle of always being there to pay valid claims in full still stands- something which may have been overlooked amidst all the “sturm und drang” over whether or not a particular cover was intended to respond to “Event X”.

That does not mean that it is appropriate to be complacent and to assume that the industry can now continue “as before”. Anyone who believes that is remarkably naïve. One risk is that (as is endemic amongst most militaries given to fighting the last war) the nature of the event will be added to the “risk catalogue” as a discrete risk, and incorporated into revised PML models without understanding and accepting the reality that neither 9/11 nor the pandemic was unique as a risk, even if the impact was on a greater scale- and yet everyone was “surprised”.

In our opinion, the lessons should be not only to review and revise assumptions, probabilities and correlations constantly, as well as to look for signs of emergent properties within the world that presage extreme events, but also to understand that, sometimes, the best way to avoid a particular type of risk as a (re)insurer is simply not to write it, because there is no acceptable or bounded price for it. We suspect that the latter issue, in particular, will become ever more pertinent.

The Awbury Team


Is It History, or are You just Psycho…?

Those who enjoy what is now termed “classic” science-fiction (yes, we are showing our age…!) will almost certainly, at some point, have come across and read Isaac Asimov’s legendary Foundation Trilogy, the first book of which was published in 1951 (altho’ its origins date back to the early 1940s).

The Trilogy is based on the premise that, through an understanding and mastery of “psychohistory” (a combination of history, psychology and mathematical statistics), it is possible to predict the future behaviours of large groups of people- i.e., societies; and Asimov portrays the collapse and re-configuration of a galactic empire as the result of human behaviours (with some plot twists along the way!)

Interestingly, since then, the real discipline of “cliodynamics” has gradually been developed (see, for example, Peter Turchin’s book “War and Peace and War”)- a transdisciplinary area of research integrating historical macrosociology, cultural and social evolution, economic history/cliometrics, mathematical modeling of long-term social processes, and the construction and analysis of historical databases. While not trying to claim significant predictive powers, nevertheless, cliodynamics does aim to understand why and how societies and empires rise and fall, and to illustrate that the sweep of recorded human history exhibits a recurring series of nested cycles of behaviours and outcomes.

“What (you may say) does any of this have to do with (re)insurance?”

Anyone who underwrites credit and related risks (as the Awbury team does), cannot do so in some isolated, self-contained and purely quantitative manner. Experience teaches that, while predictive models have a use at scale and over time (providing they have reasonable assumptions and recognized constraints), context and qualitative or behavioural influences also matter greatly.

In terms of underwriting a short term, idiosyncratic risk, one might argue that an understanding of history and human nature may not add much value. Yet, on a longer-term, portfolio basis such knowledge can be extremely useful, as it can help illuminate potential trends and outcomes, and so prepare the underwriter or risk manager to recognize a shift in the nature of the underlying risk..

Of course, one must not be so foolish as to believe that “this time it is not different”, or vice versa. There are always nuances, and previously unknown or non-existent factors in what are complex, and soften unstable systems. Nevertheless, as Mark Twain said: “History doesn’t repeat itself but it often rhymes”.

Human beings tend to exhibit patterns of behaviour that, in a given set of circumstances, are largely predictable, whether the result of internalized beliefs, or in response to external forces. All this helps the suitably-prepared risk underwriter to develop a thesis as to the realistic vulnerabilities which a particular risk, or portfolio may have, and so help avoid or at least mitigate the probability of unexpected and unanticipated outcomes which may lead to losses.

Pyschohistory may have fictitious origins, but cliodynamics is an increasingly rigorous discipline, which becomes another tool to be added to an underwriter’s mental toolkit.

The Awbury Team


Real, or a misleading mirage…?

Among those who are focused on the world of underwriting credit risk, one of the most analyzed and discussed factors is naturally the likely future trajectory and range of probabilities of default within and across industry sectors.

By now, there are several time series, such as the S&P or Moody’s Annual Default Studies, or (in the US) those based upon one of the main high-yield (HY) bond indices, such as that compiled by Bank of America which provide historical data as the basis for trying to forecast future trends.

Most of the “action” occurs in the HY space. Investment grade “gap to default” is quite rare.

At the onset of the pandemic in March 2020, many broad default predictions (based upon past crises) over a 1-year forward time horizon, were in the 7-8% range, and even higher in certain industry sectors- levels not anticipated or experienced since the Great Financial Crisis (GFC).

Yet here we are over one year on and the expected avalanche of major corporate and SME defaults has simply not happened. Even in the upstream energy space, while disproportionately high at over 20%, the ratio has begun to fall, as oil and natural gas prices recover from unsustainable, post-pandemic lows. In fact, the US HY (ex-energy) default index is now down to 1.6% (according to CreditSights) on an issuer-weighted basis, some 3.3% below its 20-year average and approaching all-time lows.

The reasons are the subject of much debate. So, what is going on? Clearly, direct US federal government fiscal support for both businesses and individuals, coupled with that for capital markets from the Federal Reserve, has been a significant factor. In addition, some industries have simply benefitted from the changes in patterns and levels of demand caused by the pandemic; while managers have been forced to adapt to survive, having had to “move ten years in three months”.

As the US economy rebounds, all this leads to the question: “What could now possibly go wrong?”

To which the answer is: “Plenty”

Of course, that does not mean that it will; just that the factors for potential dislocation and negative outcomes certainly exist: the Delta-variant overwhelming less-vaccinated societies and leading to further severe lockdowns; misjudged tapering or withdrawal of fiscal and monetary support; a dislocating change in inflation expectations; swift “China de-coupling”; or unanticipated and severe supply chain disruptions….

Thus, one has to balance proper caution with a continuing assessment of correlations; probabilities; and potential tail distributions. The real art lies in avoiding the “fat tails” and the risk of ruin by continuing to build a diversified portfolio of exposures, and distinguishing between cyclical, survivable stresses and those which are secular and existential.

It is all too easy to accept “conventional wisdom”, and fail to exercise independent, evidence-based judgement.

At Awbury, while we are institutionally paranoid, we also understand that, even when risk seems to be “all around”, one can find opportunities that offer sound risk/reward outcomes when properly understood and structured. The reverse is also true: when everything seems “fine”, it usually turns out not to be, which means avoiding what seems to be “easy money”.

The Awbury Team


Near Misses…

Everyone, whether a business, government, or any complex entity, tracks (or certainly should!) the things that go (badly) wrong and have an immediate impact- for example, bankruptcies, air crashes, deaths in hospital, crime levels, etc.. Almost by definition, the (re)insurance industry obsessively tracks many “bad things”, and tries for forecast their probability, as they may become claims and so losses.

However, the tracking of so-called “near misses” appears somewhat less prevalent and systematic. This is partly a function of human nature. We are obviously happy when something bad does not happen, and so tend to dismiss it as unimportant.

Unfortunately, actual events form only part of the overall dataset for identifying and understanding what might happen. How an outcome was avoided provides a better idea of the scale of potential risks, their level of randomness, and whether avoidance was “accidental”, or the result of a conscious decision or protective protocol.

Airlines have long tried to instill processes that encourage pilots and others to report “near misses” or “close calls”. For example, the US FAA has a confidential reporting database called the Aviation Safety Reporting System (ASRS) for precisely that purpose. A similar approach is increasingly used in the medical profession to try to curb deadly and expensive medical errors.

In 2018, EIOPA published its own report on the topic ( focused on insurance failures and near failures. Perhaps not surprisingly, one of the key findings was the impact of inadequate or failed systems of corporate governance and overall controls. If one does not have clear and effective processes in place to identify, manage and mitigate risks, the potential for failure increases significantly. One would think that would be blindingly obvious for any (re)insurance business! Yet, while large-scale P&C company failures are quite rare, one does wonder how much the “rampant positivism” of most public pronouncements at the company level squares with industry-level angst about matters such as climate risk, and the extent to which there is correlation across portfolios, where “management” of aggregations masks the true level of tail risk.

A persistent problem is the fact that reporting a “near miss” can, in itself, be seen as somehow disloyal or disruptive, even if (or especially if) the person making the report was neither involved nor responsible. As a result, it is highly probable that many issues are under-reported; and so valuable data are lost.

In the realm of underwriting credit and related risks, a “near miss” would be analogous to being approached by a potential client to consider exposure to a particular Obligor generally regarded as “popular” and a sound risk by other markets (WireCard and WeWork come to mind), but declining to do so because one could not create a defensible thesis that the risk/reward would ever be acceptable, or having the sense that something did not quite “add up”. Arguably, that is what credit underwriters are supposed to do, but sometimes, being only human, they can be swept up into situations in which critical thinking and judgement are somehow suspended. And sometimes, one is just lucky, because one is “off risk” when something bad happens. Nevertheless, one should aim to learn from what actually happened.

Of course, we all like to think that we avoided an event because of our foresight; and, if one is always alert to anomalies and facts or patterns that simply do not make sense or “fit” that may be so. Yet sometimes it is simply luck- a reality which we should admit; and which should keep all of us humble.

The Awbury Team


You Must Be Crazy…!

Ideas. Where do they come from? Why are some successful and others not? Why is it that so many of them seem “obvious” with the benefit of hindsight?

Clearly, ideas and their outcomes and impact come in all shapes and sizes- fulfilling many different purposes- from the seemingly absurd through to the widely-adopted, but largely incremental; to the world-changing.

Paul Graham (a co-founder of Y-Combinator, and serial publisher of thoughtful essays) recently published a short one entitled “Crazy New Ideas”, in which he made the point that: “Someone proposes an idea that sounds crazy, most people dismiss it, then it gradually takes over the world”.

Consider, for example, the fairly recent example (for those of us born before they even existed!) of the mobile phone (cellphone)- from obviously pretentious, brick-sized, mono-functional fad to indispensable multi-purpose “smartphone” tool, “attached” to its owner’s hand and an extension of his/her/their personality. While the technology had many components and creators, it took the mono-maniacal genius and perfectionism of someone like Steve Jobs to create something globally desired, coveted and literally possessed.

The world is full of nay-sayers and skeptics, who mock something that they did not think of and cannot comprehend. Very often they are actually right- failure of execution is almost a default setting for many “ideas”. But sometimes, just sometimes, they create the legendary “fly-wheel” effect; and change what we do and how we behave. Amazon, when one thinks about it, was a simple idea- using the growing capabilities of the nascent internet to sell books. Yet, from the mind of Jeff Bezos and the creation of a compounding business model, it has become another “default setting”, and perceived as an existential threat to a whole range of traditional businesses. Simple idea; persistent development, adaptation and expansion; and now pervasive source- even if it now has an increasing number of (at least partial) imitators. One could almost say that Amazon created a new business category.

Of course, the failure rate of new ideas, but emergence of the occasional “game-changer” means that mourning “the one that got away” is almost ritualistic for the venture capital industry; and why FOMO is endemic, leading to what amounts to a feeding frenzy upon those astute to come up with a plausible idea and pitch deck.

Perhaps we are too cynical?!

Perversely, as Graham points out in his essay, creators themselves can undervalue their own ideas, and so over-filter them before trying advance them and then to share them publicly. After all, the aphorism: “Nothing ventured, nothing gained” also exists for a reason.

Awbury itself exists because of an idea that became a business plan and is now a franchise. We know the value of having ideas- and how hard it can sometimes be to execute them in the face of lack of understanding or comprehension. One can also be seen as a potential threat- when nothing could be further from the truth, as, for us, true value is built through multiple partnerships and adaptive co-operation.

At Awbury, we admire “the crazies”; those who have sufficient self-belief to create new businesses and paradigms, and change whole industries or economic systems. From such behaviour successful partnerships are creating and generating value, and building wealth for many. That is how societies prosper.

The Awbury Team


Don’t Touch That! It’s Critical…

What is any self-respecting ransomware “business entrepreneur” to do?

The US Government has recently (at the Biden/Putin June summit meeting) made it clear to the Russian Government (and so implicitly to others) that it considers 16 sectors “off-limits” in terms of being targets for cyberattacks and the use of ransomware. For the likely list see CISA’s website.

Delving into the realm of game theory, the questions then become why would one create and publicize such a list, and whether doing so will actually deter or invite attack, as it is obvious that the “off-limits” sectors are exactly the ones which any ambitious criminal or malevolent state actor should target in order to cause maximum damage or inconvenience, or to extort for “ransom”. Of course, it is also arguable that everything should be off-limits. However, we are dealing with one government telling another where, in theory, it will “draw the line” in terms of finding it necessary to be seen to respond and exact a price from the perceived aggressor.

The problem is, as we have written before, that proving that a particular event was “state-sponsored” or directed is awkward. Even if one has irrefutable “proof”, disclosing it may reveal how that was gathered, compromising existing intelligence-gathering, as well future “counter-measures”. One does not wish one’s opponent to see one coming or to know how one got there!

And that fact is causing problems in the world of providing cyber covers, where policies often have exclusions for “terrorism”, or Acts of War. How does a (re)insurer prove that an event was an excluded one? Where does and should the burden of proof lie? Can you ever prove “beyond a reasonable doubt” that “X” not only caused an event, but did so at the direction of a state entity? Do you have to revert to “the balance of probabilities”?

When serious money is at stake, the debate becomes quite heated, and then ends up in court- vide the continuing Mondelez/Zurich saga over a cyberattack from 2017 involving the NotPetya ransomware onslaught.

Be that as it may, it does beg the question of how cyber (re)insurance underwriters should build their portfolios. Can one truly risk-weight the probability of an attack, and thus a potential claim, based upon the existence of a list and a publicly-issued threat (at least so far as US covers are concerned)? If, subsequently, the US is able to deter and/or cripple would be cyber-hackers, where might the focus shift next? After all, the reason for ransomware attacks is, in theory, primarily a monetary one. The US may have historically been seen as “where the money is”, but there are now many other parts of the world in which there are wealthy (and perhaps less protected or paranoid) targets.

All in all, the topic is a fascinating one because of its combination of game theory, geopolitics, technology and money. In a world in which losing connectivity would be seen as going back to The Dark Ages, the issue is unlikely ever to go away. So, how can the risks be contained, when the intent behind it is criminal and/or projection of power, but in an often-deniable form? And bear in mind that this in a world of software such as NSO’s Pegasus/ Q Suite, whose capabilities in the “wrong wrong hands” (so to speak) could be truly dangerous at a level not yet seen.

The Awbury Team


Information overload…

In the not so distant past, access to information was both controlled and rationed, while “storage” was essentially all physical.

Now that we live in any increasingly digital and digitized world, the issues have fundamentally changed. We have moved from scarcity to surfeit. According to the FT, one academic (Melvin Vopson) of the UK’s University of Portsmouth has calculated that within 135 years the Earth will have more bits than atoms- leading to an “information catastrophe”. Of course, all such long-dated forecasts should be greeted with healthy skepticism, but the point remains that, at a fundamental level, bits have to be stored somewhere, and each is 10-30 nanometers (billionths of a metre) wide on storage media. Even if not seen as being “physical”, at some level they actually are. Eventually they do all add up.

In the meantime, one can observe the often malign consequences of the digitized “information” onslaught in many areas- from social media to politics. However, from the point of view of someone trying to underwrite and manage credit and related risks (or make any effective decisions), there are some particular factors to be aware of:

– We live in an expanding fog of data, so trying to discern useful patterns, shapes and trends is always a challenge
– Whether we are willing to believe it or not, we face objective ignorance about the future. Many things are simply unknowable. Having “information” can easily fool us into believing the future is knowable
– Quality is at least as important as quantity. “Lakes” of raw data are all very well, but one needs to understand the source, and have a reasonable chance of being able to create order in a way that is actually useful
– There are too many “pretty baubles”; meaning that, because we are primates (even if, theoretically at least, at the top of the ranking of observed intelligence) we are easily distracted by something new and shiny. Some may change the world; many are simply trash
– Finding a balance between the “tried and tested” and the “well past its sell-by date”. Yes, some sources and approaches remain axiomatic and have lasting value, but the more we know, the more we come to understand how much we don’t know, or realize that we were simply wrong
– Trust can be in very short supply in a world in which it seems increasingly easy to manipulate data and forge “information” in ways which can be all too plausible.

When faced with such an environment, it is easy simply to succumb to decision paralysis and procrastination, or to retreat into a miasma of mistrust. By definition, that achieves nothing.

Instead, one has to create a framework in which one begins to weight the reliability of sources; create and curate a pool of those which are most relevant, reliable, unbiased and timely; and gradually build a toolbox of mental and actual models that are both scalable and adaptable for understanding, analyzing and solving problems, and so providing workable and valuable solutions.

Only then does one stand a chance of emerging from the fog.

The Awbury Team


Are You Biased, or Just Noisy…?

It is a truism that each of us is prone to cognitive biases in decision-making, and that being aware of this reality is at least one step towards mitigating and managing any potential negative outcomes from distorted judgements.

However, while the topic of bias has been extensively studied, and one can easily find “catalogues” of such biases online, the issue of “noise” in decision-making has been less noticed or explored.

So, the just-published book, “Noise: A Flaw In Human Judgment” (co-authored by Daniel Kahneman, Nobel Prize winner and author of “Thinking Fast and Slow”; Cass Sunstein a lawyer-scholar, also a prolific author; and Olivier Sabony, formerly of McKinsey) is worth consideration, as it is always useful to know more about how and why one’s decision-making process can be improved, and to be made aware of flaws or defects which may not be obvious.

For a start, bias is not the same as noise. The former refers to systematic deviations in judgments or outcomes- i.e., outcomes which all deviate in one direction; the latter to random scatters, or unwanted variability, amounting to a “lottery”. Both defects are potentially harmful and unfair; and cause mistrust, unnecessary costs and losses, and unfairness- one only has to think of justice systems. Noise undermines credibility.

And noise can take more than one form: “occasion noise”, when a decision varies because of a difference in external factors which should have no bearing; and “system noise” in which the same facts systematically produce different outcomes. In the latter context, the authors give an example pertinent to the (re)insurance industry. A large, un-named insurance company, in order to check the quality of its underwriters’ decision-making when setting premium rates, provided them with a series of sample cases to review and judge. Management was shocked to find that the same fact set produced outcomes in which the median rate suggested varied by up to 55%! Apart from the potential reputational risks, if such inconsistency became visible, there would almost certainly be a cost to the company itself in terms of revenues foregone.

Clearly, dampening noise is beneficial in any decision-making process, but that must be achieved without creating unrealistically rigid or complex systems that stultify effective human judgement when it is warranted, or de-humanize those subject to the outcomes.

What the authors suggest amounts to “decision hygiene” (a term which reminds us of Atul Gawande’s “The Checklist Manifesto”)- the use of guidelines, protocols and algorithms (being careful not to introduce covert biases) that provide the decision-maker with a number of easier “sub-judgements” that should help control for both bias and noise. In some cases, aggregating individual judgements can be helpful, as can compiling the views of disparate teams on different aspects of a complex problem- such as the cost/benefit analysis of a potential merger.

At Awbury, we have long been students of the decision-making process. Being able to make and implement decisions in a timely and effective manner is a competitive advantage, as long as one does not succumb to the delusion that one has somehow achieved “perfection”. The realm of (re)insurance will rapidly disabuse you of that!

The Awbury Team


Demography is Destiny…

The above phrase (attributed to Nineteenth Century French sociologist August Comte) has become rote shorthand for the idea that the direction in size and scale of a country’s population is closely correlated with its longer term economic growth and political power- the idea being, essentially: “More younger bodies good. More older bodies bad” (especially if the overall population is static or shrinking). Historically, population growth was certainly a matter of concern to governments which needed to deploy “hard power” (i.e., trained armies and navies- and, later, air forces- manned by relatively young men) in order to project power.

So, much is being made of the likelihood that the PRC’s population is on the verge of beginning to contract (for the first time since the founding of the state in 1949), with that reality being seen as so politically sensitive that the results of the latest census were delayed (and perhaps pre-emptively “massaged”) before being revealed, and then followed by the government encouraging a “3-child” policy. Policy as irony, given the past! Meanwhile, in the US, the initial results of the latest decennial census indicate that the rate of population growth has fallen to the lowest levels since the Great Depression, with the pandemic also heralding a “baby bust”, rather than “boom”.

Naturally, much hand-wringing has followed.

After all, the “received wisdom” is that, in itself, population stability or decline leads gradually to an erosion of geopolitical influence. Of course, it is much more complicated than that. The fastest growing populations in the world are currently mainly in sub-Saharan Africa, yet most of those countries are politically and economically weak, even failed or failing states, with negligible external power or influence.

In reality, while, eventually, population decline and ageing need to be compensated for by immigration (as a reversal in birth rates is almost invariably not feasible) if a society is not to “fade away” (consider Japan), the modern world offers advanced nations, such as the US and the PRC, many ways in which to maintain and even augment power and influence for an extended period, whether in military technology, or through AI and cyber capabilities, as well as through the “soft power” of culture and the deployment of financial capacity through lending and investment. Stealth, careful targeting, superior and adaptive command and control systems, and leaders who are not “still fighting the last war” are essential to the use of “kinetic force”, rather than the ability to hurl forward waves of ill-trained conscripts- consider the Iran/Iraq war of 1980-88 if you wish for evidence of the futility of that approach.

What really matters is whether governments are able to decide upon and implement a coherent mix of policies that accept the reality of population trends, and adjust for them over time. There are no “quick fixes”. This is one reason why immigration is a topic that constantly roils many a body politic, as the “incumbent” population often responds badly to the idea of simply “importing” more people, even if, objectively, they realize that any state needs at least to maintain the ratio between the productive, wealth-creating segment of its population and those who become net consumers.

This inherent tension in most, if not all societies is not a new theme, being in many ways as old as recorded history. However, those nations which wish to maintain influence and deter aggression are going to have to combine technology with economic and demographic policy in order to do so.

Forget “hand-wringing”; and focus on iterative adaptation to reality.

The Awbury Team