Today I was reminded of the perils of forecasting while reviewing a Department of Defense document, the Joint Operating Environment 2010.
“JOE 2010” as it’s called, is designed to provide the various branches of the US Armed Forces a joint perspective on likely global trends, possible shocks and their future operating environment. If you’re interested in geopolitics and strategy, I recommend that you take a look.
Apart from its inherent interest, JOE 2010 opens with a defense planning timeline that business and financial strategy practitioners – and anyone who consumes their work – would do well to bear in mind. I have reproduced it verbatim here:
1900 If you are a strategic analyst for the world’s leading power, you are British, looking warily at Britain’s Age-old enemy, France.
1910 You are now allied with France, and the enemy is now Germany.
Posted in Case study, Theory
Tagged black swan, China, Defense Planning, DOD, forecasting, France, Geopolitics, Germany, grand strategy, Internet, JOE 2010, Korea, NATO, non-predictive strategy, prediction, strategic autism, strategic surprise, strategy, UK, USSR, Vietnam
China has long been touted as the next leading power, and for many it seems that the question is no longer if China will overtake the US but when. Recently, however, a number of dissenting opinions have started to be heard. Economists point to the strong imbalances in China’s economy; political analysts observe that the political and social structure is unstable; human right activists warn of increasing censorship and repression, while historians suggest that, like the USSR in the late 80s, China’s communist regime has run its course and is on an unsustainable path. Indeed, “hard landing” stories about China have started to appear, by Roubini or by Gordon Chang.
Like any such debate, or lack of debate (instead, it is a series of proclamations), positions are often taken being selective about facts, based on false analogies, shallow extrapolations, ideology, or just plain ignorance. This is problematic because regardless of what we think about China, the country does matter to us in many ways. What can we do about this, then?
In business and finance, statistics and quantitative comparisons are daily companions. Sometimes, however, key statistics can become too familiar, and reify, i.e. harden into “facts” that everybody knows. In so doing, they play a large part in strategic surprises.
In the late 1980s, for example, the US Intelligence Community “knew” that Soviet GDP was $2.5 trillion, i.e. about 52 percent of the US GDP of $4.8 trillion. How? Their computer models told them so. These models relied upon – among other things – assumptions about ruble-dollar Purchasing Power Parity (PPP).
Western academic Sovietologists also “knew” the USSR’s economy was about $2.5 trillion. How? Mostly, they relied on an authoritative source: the CIA.
Posted in Methodology & Tools, Theory
Tagged BRICs, Cassandras, China, CIA, Emerging markets, Geopolitics, Igor Birman, Intelligence Analysis, PPP, statistics, urbanization, USSR