Will the War Do the Job?

The scuttlebutt in Washington has escalated to a fever pitch. President Bush's speech last night laid out his case to the world for a war which could begin in a matter of weeks. This imminent threat raises important questions, not the least of which is what will war with Iraq mean for your investments?

This is a question I've spent a lot of time mulling over. I have an extensive amateur education in military history, and have also spent years thinking about the impact of strategic developments on investment. Beginning two decades ago, I joined with Lord William Rees-Mogg, former editor of the Times of London, to undertake what proved to be a long-term effort to analyze markets based on the dynamics of conflict. We delved deeply into the history of military technology to see how the changing balance between offensive and defensive weaponry had altered economies and social organization. The results of our research were published in Strategic Investment, and in three books, Blood in the Streets, The Great Reckoning and The Sovereign Individual. I came to believe that the largest ponderable factors in the unfolding of history are the influences which determine the costs and rewards of projecting power.

Looking at history through that prism, we saw the development of the microchip as more subversive of large-scale governance than any political tract ever penned or the scribblings of any defunct economist. I saw dark possibilities arising from the influence of decentralizing technology in devolving military capability to small groups.

Lord Rees-Mogg and I got more press for having foreseen the collapse of the Soviet Union, which occurred while our books were still in print, than for warning of an upsurge in terrorism. At that time, terrorism was just a cloud on the horizon, not a towering inferno in downtown Manhattan. Yet notwithstanding the fact that our forecasts about terrorism were ignored a decade ago, they were arguably prophetic of the headlines over the past year. Consider this passage from The Great Reckoning:

"A terrorist is unlikely to be deterred from employing weapons of mass destruction by the threat of massive retaliation. A mad bomber who would risk death to blow up an airplane is willing to risk death. Period. He is unlikely to be further deterred because his target is bigger. Indeed, the logic of terrorism makes it more attractive for terrorists to blow up or poison a whole city than to kill a few innocent tourists on an intercontinental flight.

"For fundamental reasons, weapons of mass destruction are more likely to be used, the greater the number and smaller the scale of the groups who can obtain them. The vulnerability of large governments and centralized targets is therefore likely to continue growing during the 1990s. Large cities rather than military targets will be at growing risk as effective weapons of destruction are dispersed ever more widely throughout the world."

Events have unhappily proven that we were correct to conclude that "the threat of retaliation is of declining value in deterring the use of weapons of mass destruction as they proliferate." This is directly relevant to the proposed military action to remove Saddam Hussein from his many palaces in Baghdad.

I am a firm believer that investment analysis should rest on a sound logical foundation. Without pretending that I am privy to any "inside" information from official sources in Washington, I 'd like to lay out for you some of the possible implications of the Bush administration's preoccupation with Iraq.

Bush and his advisers may not fully grasp the dynamics of the threat presented in battling an enemy like the al Qaeda terrorists. It is only too believable that the leaders of the "only remaining superpower" would be frustrated by the challenge of confronting a clandestine enemy who refuses to step out of the shadows.

Al Qaeda is a novel threat. Never has the United States faced such unconventional antagonists. Even the Barbary pirates who so appalled and preoccupied the administration of Thomas Jefferson were ordinary, rational beings compared to Osama bin Laden and his followers. The Barbary pirate states of Tripoli, Tunis, Morocco and Algiers preyed on shipping as a means to gain wealth from theft, ransom and extortion. Al Qaeda, by contrast, does not launch its depredations solely to accumulate wealth. If bin Laden had lived in a palace like the pasha of Tripoli, he would have been a much easier antagonist with whom to deal. The terrorist attacks of Sept. 11 were launched as destructive acts to injure and kill Americans and help radicalize Muslims around the world, not for pecuniary gain.

With that as background, the government's response to the unconventional threat did little to encourage my optimism about a successful prosecution of the "War on Terror." Most of what was done or proposed during the past year was conventional, even anachronistic. The United States launched a retaliatory war against Afghanistan. This did not require "outside the box" thinking about terrorism. For that reason, the fact that it was a success does not necessarily validate the strategic judgment upon which it was based.

The administration also heightened and intensified "bureaucracy," in response to the crisis, by federalizing airport security and proposing a cabinet level "Department of Homeland Security." Any student of modern history knows that intensifying command and control bureaucracies is the natural reflex reaction of any government facing a challenge. The fact that Bush and his advisers were so quick to propose a conventional response to an unconventional threat is not a good sign that they have a deep grasp of the dynamics of the problem. It would have been much more encouraging if President Bush had come forward and announced to the public that U.S. intelligence and military forces would henceforth be committed in a protracted Quiet War with terror involving new models of engagement, rather than reverting back to a Cold War mentality to fight a clandestine 21st century threat.

Another implication of the proposed attack on Iraq is that the Bush administration believes that the success of Islamic terrorism is based upon state backing. There is certainly some evidence for this. Afghanistan under Taliban rule provided a protectorate for al Qaeda terrorists. There are vague reports that Iraqi intelligence backed al Qaeda. Iran has reportedly provided sanctuary to some al Qaeda leaders. And other reports indicate that al Qaeda was partially funded by the Saudi government, which allegedly provided Osama bin Laden with lavish payoffs not to attack them. So the case that al Qaeda and Islamic terrorism in general depend upon state backing for success is not without some supporting evidence.

The question is whether the backing of states is crucial to the emergence of neo-medieval groups like al Qaeda that wield military power without exercising a dominion over a specifically delineated territory. Those who believe the answer is yes may be right in terms of any given terrorist act or capability. But I suspect that they are trying too hard to fit disruptive threats of terror into a well-worn pigeonhole.

Nation states know how to fight one another. They don't know how to fight non-state threats. That implies a strong temptation to construe every threat as essentially originating with some rogue state rather than from outside the nation state system. If this is what Bush and his talented advisers think, which is probable, they could only be right temporarily. The logic of the power equation has long pointed to an escalating capacity of small groups to wield destructive force. This implies the twilight of state power and a growing capability of small groups to disrupt life as we know it.

By contrast, al Qaeda and the other followers of bin Laden are not contesting territory per se, except to claim moral dominion over Islamic lands. The Bush administration seems to want to counter the difficulties that the non-territoriality of terrorism poses by assigning a homeland to the terrorists first in Afghanistan and now in Iraq.

America has weapons which so far exceed the capabilities of those of any Islamic country that we could obliterate any force that can be identified as an enemy and is motivated to stand and fight. But the fact that we could obliterate any congregation of terrorists or any army by employing superior weaponry to that of the terrorists does not in itself mean that terrorists will be cowed if American armed forces wipeout another Islamic army.

At the simplest level, the answer is probably no. Witness the intractable, clandestine violence that plagues Israel. The Israelis enjoy a vast military technology gap over the Palestinians. That is the very reason why suicide bombers and other Islamic fanatics have been moved to adopt violence by clandestine means. Terrorism is precisely the means of choice by which the highly-motivated weak battle the strong.

Like it or not, a policy for combating terrorism must take account of its impact in motivating fanatics as well as killing them. Therefore, a war against Iraq becomes more problematic if all contingencies cannot be carefully controlled in advance, something that even the talented tacticians at the Pentagon would be hard- pressed to guarantee. Much depends upon the actual conduct of the fighting, how bloody it is and how many civilian casualties are suffered. Every child or parent who dies and leaves behind a disconsolate relative is a potential recruiting agent for al Qaeda.

It is so obvious that an invasion of Iraq has the potential to inflame the tinderbox of Islamic lunacy that it deflects the question of what the Bush administration is thinking to another level.

Furthermore, the administration seems to believe that a swifter military victory is possible than many senior military officers seem to believe. An "abracadabra" victory would be great, if it could occur; it could enhance the security of the United States and the Western world while doing little to inflame Arab and Islamic fanaticism. But credible reports in Washington suggest that military planners worry that an attack on Iraq will divert intelligence resources, spy satellites, reconnaissance aircraft and Special Forces members who speak Arabic from anti-terrorist efforts in Afghanistan and other theaters of interest. Retired Army General Henry H. Shelton, recently chairman of the Joint Chiefs, said, "If we get drawn into something in Iraq, then our forces will go very heavily there, and it will be hard to sustain the momentum in the war on terrorism."

Finally, President Bush may believe that war is a tonic for slack demand and recession. It is widely understood that the New Deal remedy for the Depression that followed the stock market crash of 1929 did not really lift the economy back to its full potential. That did not happen until the United States entered World War II.

This year, for the first time since the beginning of World War II, the stock market seems set for three consecutive down years. I am sure that Bush and his advisers are hoping to see a strong rebound in the last two years of his term. I have no specific evidence that President Bush feels that military engagement is a tonic for economic downturn or doldrums in the stock market. But it is entirely possible that he does.

This could help explain the eagerness with which the Bush administration seems to be approaching an invasion of Iraq.

"They don't know how to fight non-state threats"

Horsefeathers. Their proven ability to do so is why they exist in the first place, and what makes them states. States know all about dominating their own territory. By border controls, inspection regimes, police forces, paramilitaries, jails - and by propaganda, systems of legitimation, rewards, ways of soliciting feedback for subjects, etc. The article writer might argue that the technical conditions that made their methods succeed in the past are changing, certainly. But saying states only know how to fight other states is simply ridiculous. States have fought non-state attackers, from individual criminals to heretical sects to fifth columns and spies, to organized domestic rebellions and civil wars, literally since the dawn of recorded history. There is precious little new about it.

Indeed, if anything it is the expectation that states won't have to do such things so much or so intensively, that is a recent assumption in a few rich democracies, which enjoy such unprecedented levels of public support and legitimacy that they have been able to shift their major concerns to other things. The wholely pacified and unified population that regards its government as entirely legitimate is the historical innovation, not the state that finds itself resisted by various non-state actors within or abroad.

The primary means states employ to deal with such threats are isolation and marginalization of non-state actors, both politically and physically. Followed by the principle of localized concentration and tactically long odds, applied in sequence. All coordinated by centralized information sifting and event tracking.

Political lines and policies are set to divide potential supporters from non-state enemies voluntarily. Areas where such enemies enjoy widespread support are physically seperated from other areas, to isolate problems and reduce their ability to coerce opinion in their favor over wide areas. Then forces - military, counter-insurgency, or mere police - converge on such areas, on reported sightings and events elicited from agents or willing subjects. They use the fact that the state is overall much richer and has far more supporters, to get long odds against a given cell at any point of actual conflict. Without their security forces being larger in the aggregate than their non-state enemies (typically ranging from 1/250 to 1/10 the size of the subject population, in fact), they can accomplish this in sequence by "re-using" security forces that easily survive such lopsided local encounters. Which are often so lopsided they can, in addition, "pull their punches" for the sake of political support (e.g. using batons instead of rifles, or rifles instead of tanks, etc, up the chain of escalation). These engagements also function as deterrents, demonstrations, and "street theater", dissuading future opponents.

States also need information systems against non-state actors. The better these information systems are, the more discriminating the state's aim can be, targeting only committed enemies instead of broad classes of their potential supporters. As was the usual case in the long term past, precisely due to the limited intelligence capabilities of the small state organizations of the past. So they targeted as rebels entire subcultures or regions. With better intel, political methods can do more of the work (e.g. all the residents of Kabul that celebrated an anti-Taliban victory, who did not need to be fought house to house or blasted into submission.)

Marginal organizations stick to shadows for good reasons. States are not regularly replaced by a hundred small organizations inside them every other day for good reasons. States mostly win such conflicts, most of which are so lopsided they hardly ever rise to the level of public concern.

The cases that do, are ones where there is significant political appeal for the enemy side in the conflict, allowing continual recruitment to replace losses, high levels of dedication in the face of nearly suicidal objective and personal chances against a state machine, etc. Such positions need to be non-appeasable, or states defuse them easily with political methods, justice, rewards and punishments, etc. The number of non-appeasable, stable or long term, fanatical and violent objections to existing states, is not exactly large. Precisely because states adapt to the pressures on them to minimize such dangers to their continued control and importance.

But states can and do artificially create such objections to undermine the power of hostile powers. And such "stoked" causes can and do outlive their state backing. The present climate of anti-US opinion in parts of the 3rd world has some present causes, certainly. But a large portion of it is a "propaganda hangover" from three generations of global rivalry with great powers, wielding hostile ideologies. We are, in short, still cleaning up the political mess left by the 20th century.

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