In 1964,, when Bob Dylan released the song and eponymous album with the above title, there was little doubt that the US was seen as, and regarded itself as the “liberal hegemon”; the “world policeman” tasked with sustaining its interpretation of democracy where feasible, and preventing the spread of competing ideologies or forces, such a Communism.
At that time, China barely registered on a global scale (having turned inwards after the Korean War, and soon to face the turmoil of the Cultural Revolution); the USSR and the Warsaw Pact were the identifiable, obvious Enemy; and Iran an autocratic monarchy and quasi-protectorate.
How the world has changed.
The question is whether our mental models and assumptions also have, even if there have been a number of “tremors” over the past decade or so.
The benefit of hindsight will be a wonderful thing. However, one does wonder whether the consequences of the Russian invasion of the Ukraine, and the conflict arising from Hamas’s acts of terror and their propaganda impact on Israeli society and military self-belief, coupled with uncertainty over the PRC’s intentions and capabilities in the South China Sea and towards Taiwan, mark a shift in the tectonic plates underpinning the current geopolitical landscape.
Military doctrine states that fighting a major war on two fronts simultaneously is rarely a good idea. Adding a third would be regarded as folly. Of course, the US is not actively engaged in any major wars at present. Yet, having, in effect, experienced mission failures in Iraq and Afghanistan, it is, nevertheless, in supplying materiel to the Ukraine and Israel, depleting its own resources, while the PRC has continued scaling up the capacity of the PLA’s various components (although it should be borne in mind that the last time the PLA fought a war- against Viet Nam in 1979- it did not prevail; and it has no modern combat experience.)
And now, to say the least, there is increasing disunity within the Federal Government, and elsewhere within the US “political establishment”, in terms of the extent to which the US should continue to try to “make the world safe for democracy”. The trend may not yet be towards full isolationism, but the signs are there. The question then becomes whether there will be actually be a return to a world equivalent to that of the pre-World War II “America First”, of even “Fortress America”, with the US increasingly and explicitly disengaging from alliances such as NATO, and gradually running-down its overseas military presence, except perhaps in the Western Pacific to provide forward defences, or in the Middle East (for now).
Such a world would be very different from that which has existed for the past several generations.
All of this makes underwriting, selecting and managing credit, economic and financial risks, as Awbury does, even more “interesting” than usual. Is history going to repeat, rhyme, or wander off in an, as yet, uncharted direction? Human nature does not really change; and, for now at least, key political and military decisions are still taken by flawed, biased, sometimes delusional human beings. Is it, therefore, realistic to continue to rely upon past assumptions as to how individuals and societies behave?
The level of “noise” and (dis-/mis-) informational distortion continues to increase; which emphasizes the need to be able to discern the signal, however faint.
So, as always, we remain institutionally paranoid and skeptical; and extremely careful about the risks we do place in our portfolios. There is no upside in behaving otherwise as stewards of our own, and our Partners’ risk portfolios.
The Awbury Team
Awbury Insights 