Chaos and conflict will not rule the world

As the US-Israeli war on Iran approaches its fifth week, we have already learned a lot. Despite the growing appearance of global entropy, the contours of an emerging international system of greater cooperation and stability are coming into sight. All indications are that it will be a bumpy ride, but make no mistake, Trumpian turmoil will not be the model for the coming decades.

Telling this story will require a bit of a longer piece than my normal posts. It’s a first take at pulling together the strands of various developments to separate signal from noise, help make sense of what is happening, and try to understand where the world is heading.

There are four main strands to the story. First, concerns military power today. Second, the extent of global interdependence and complexity of our social and economic systems. Third concerns the form of governance that will prevail. These three phenomena are already manifest. The fourth strand derives from the former elements and relates to the forms global cooperation will take in the coming years.

Share

The speed and ferocity of the military campaign against Iran are remarkable testaments to the vast amounts of military spending that the US and Israel have used to develop technologically advanced hardware. These weapons systems are among the most powerful and capable ever created. Their ability to inflict untold damage on physical infrastructure and human lives is unparalleled. Yet, somewhat ironically they are inadequate to achieve political goals.

Despite America’s vast military expenditures, it’s been widely observed that the US has not won a major war in the past 80 years. When you consider that the US spent more than $825 billion fighting in Afghanistan, it seems likely that the outcomes will be similar with this conflict. The conditions affecting US military effectiveness are not unique but rather are true of war generally today.

Three days before the US-Israel attack on Iran, FT journalist Janen Ganesh wrote of the “increasing ineffectiveness of war” today. This state of affairs has been true for decades but with the Russian invasion of Ukraine the condition has become patent.

Despite a global military superpower mounting a full scale invasion, its efforts to conquer another country have obviously failed. There are many factors leading to this result but a significant contributor has been the development of new technologies, particularly land and sea drones. These weapons have created a new means of asymmetric warfare, which enable a far weaker adversary to repel much larger forces.

Asymmetric warfare has been a staple of post-World War II conflict. It was a critical aspect of the US losses in Vietnam, Iraq, and Afghanistan.

A main lesson is that brute military power can deliver lots of destruction but is insufficient to conquer territory. This contention is true even as military power has become more precise in targeting critical infrastructure and arms manufacturing. Similarly, it holds despite the willingness of hate-filled sadists to inflict unspeakable levels of violence on civilians. Given that even those tactics fail, they can only be of gratuitous value.

The ineffectiveness of military power today won’t stop populist or authoritarian leaders from ginning up nationalist sentiment to wage wars and likewise declare victory even when they utterly fail. But it does mean that the practical geopolitical utility of war is greatly diminished.

Yet the conflict in Iran has exposed not only the limited efficacy of military hardware but the Achilles’ heel of the high-tech defense industry, that is, its dependence on raw materials from overseas sources. A further irony to the story of today’s defense sector—something completely lost to the isolationist nationalists—is its utter dependence on foreign suppliers.

If Trump’s tariffs and the America first rhetoric of recent years have shaken assumptions that economic globalization would continue inexorably, the first month of the Iran war has shown its continued vitality. We live in a highly interdependent world, which is both a product and reflection of a new form of society that emerged during the post-Cold War period.

The logic and demands of the myriad interlocking systems that constitute global and national societies today make it completely atavistic to think that countries can extricate themselves from these interconnections. The nature of societies and global markets have changed profoundly.

Social theorists have understood these phenomena for decades. In the mid-1990s Manuel Castells’ captured the changed nature of governance, economic, and social relations from hierarchal to networked organizational models. In her incisive and nuanced work on globalization, Saskia Sassen showed how both cities and nation states have become the locus of transnational configurations of political, legal, and economic power. Niklas Luhmann captured the tightly engineered nature of the social world through processes so seamless and fluid that they appear to function automatically, even outside of human control.

It seems that everywhere one turns when examining the Iran war another strand of our interdependence is exposed. The most obvious is, of course, oil. The implications for business and consumers from North America to East Asia have been well documented. Countries have varying degrees of strategic reserves, but as prices at the pump illustrate, for the most part the reality is that the system works on just in time production.

It’s well recognised that oil isn’t just about automobiles or factories. It’s about plastics, fertilizer, chips, and many other products. All of these depend on steady supplies of raw materials.

The fertilizer markets, which are essential to global food production, also function on a just in time model. In the coming weeks, disruptions in the supply of urea and ammonia will affect this year’s growing season for everything from wheat to soy beans. Shortages in these commodities will in turn affect meat production.

Midstream in AI fever we see the utter dependence of the hyperscalers on oil to power massive data centers. Chip manufacturers depend on helium which is a byproduct of liquified natural gas production, much of which comes from Qatar. Bromine used in chip formation and circuit inspection equipment is also under strain.

At this point, claims about the dematerialization of our economies appear rather overstated as evidence of our utter dependence on physical minerals has become manifest.

Just in time production is evident in military procurement too. The components for the high tech missiles used by the US require germanium among other products. Sulphur shortages will affect extraction of critical minerals like copper and cobalt used in microprocessors, jet engines, and drone batteries. Likewise, radar systems demand rare earth minerals. Putting aside the time required to manufacture these weapons, obtaining the raw materials won’t be instantaneous.

The Gulf airport hubs that have become essential means of connecting everyone from international executives to holidaymakers to migratory workers rest on some basic levels of security as well as oil. The knock on effects of travel disruption affect everything from medical tourism in South East Asia to London sushi restaurants purveying tuna from Tokyo’s Tsukiyi market.

These disruptions to the global economy affect many people not only as consumers but also as investors. Both pension funds and individual retirees have most of their assets in financial markets. Downturns in company profits due to supply chain disruptions will cause significant economic pain. Many consumers will be hit with a double whammy of higher fuel costs and reduced value of savings and income.

But as I’ve discussed in earlier posts, though conveniently ignored by free market ideologues, a major part of today’s global economy involves state investors. Sovereign wealth funds and state owned enterprises control more than $150 trillion in financial assets. Huge shares of sovereign investments are held in listed and private companies around the globe. The ripple effects of the disruptions will affect underlying asset valuations. There’s been some reporting about how the Gulf-based sovereign investors may start to rethink their investments, but it’s not clear what options they have.

The reality is that we cannot uproot these interconnected systems without fundamentally changing our societies and economies. More plausible than replacing these systems, the manifold actors and interests involved in these interlocking production and consumption networks will seek ways around these disruptions. We can expect many ugly episodes in the coming period, but approaches to ensuring greater continuity and stability will be forthcoming.

The complex interdependent global society that we now inhabit cannot be steered or managed through feckless policies, performative stunts, or bullshit. Trump’s America is not a model for governing the US let alone the world.

With the decimation of competence and evidence-based policy that has upended the US regulatory state, there are only three principal plausible illustrations for how states can adjust and steer through these challenging societal conditions. These are China, the European Union, and the set of so-called middle tier powers Mark Carney referenced at Davos.

None of these systems are perfect by any means and they differ enormously in their levels of political freedom, openness, and rights protections, yet they share common attributes that are fundamental to managing the complexity of our world. That is, the ability to develop rational policy with a degree of long term perspective, which is not completely dominated by ideology or self-dealing.

As noted in my last piece, with the adoption of China’s latest five year plan, it has sought to continue advancing development and increasing its political and economic power for the coming decades. China’s involvement in international policy entails significant amounts of deliberation and consensus building within its vast bureaucracies.

The European Union has a complex system of governance, which is fundamentally premised on a high degree of technical and regulatory capacity. Its processes for the development of norms and standards that apply across its 27 countries, require incredible amounts of research and deliberation.

Although derided by Scott Bessent at Davos, intelligent policy does indeed require “working groups”. As Anu Bradford articulated well, the “Brussels effect” involves the ability of the EU to develop regulatory norms that establish global standards on everything from internet privacy to electronic wastes.

Likewise, the functional middle-tier states reflect levels of rationality and sensibility that will enable to them to manage the challenges of global interdependence. Aside from many EU states which also fall into this category, Canada, Australia, New Zealand, and Japan stand out. South Africa, Brazil and some of the Gulf States also show capacity to play important constructive roles.

The EU, Chinese, and middle-tier governance models reflect the type of disciplined policy making and judgment needed to work within today’s complex and rapidly changing social and economic realities.

Future US administrations could reverse course and rebuild technical capacity and reclaim a level of credibility in global policymaking, but it is evident that the needed changes are no longer merely technical but deeply cultural as well. It could take many years for the US to restore a degree of sane and sensible governance.

The ability of states to create disruption through raw military power, capricious economic coercion, and political grandstanding will no doubt continue, however, these activities will be sideshows to the real challenges the world faces. The levels of interdependence in which all states are participants will inherently require significant levels of cooperation.

Those arguing that the United Nations is now dead because of the current disruptions seem to forget that the first 35 years of its existence were marked by intense East-West rivalry, the Suez Crisis, the rise of the Non-aligned Movement and demands for a New International Economic Order, among other conflicts.

I don’t want to be sanguine about the urgency of today’s threats, but it is the nature of institutions to go through periods of stress verging on disintegration followed by renewals and reforms. Aside from the quixotic decisions of countries like Argentina and US to withdraw from the World Health Organization, virtually all states still see the value of engaging in international institutions.

Outlines of the shape of global cooperation have started to take shape this week. Although the world is poised to endure even greater Trumpian chaos in the coming months if not years, the importance of these nascent governance models should not be underestimated. If it seems premature to imagine the future institutional architecture, recall that preparations for the Dumbarton Oaks conference leading to the development of the UN were underway by December 1943, well before VE day.

A potential alliance of the 12-member Comprehensive Progressive Agreement for a Transpacific Partnership (CPTPP) and the EU trade blocs shows the forms this cooperation could take. This model is still taking shape and remains unproven. One use of such an arrangement would be supplement the WTO in the event that reform efforts currently underway there fail to materialize.

Regardless of the outcomes of the CPTPP-EU discussions, we should expect further similar innovations. These institutional forms are compatible with the continuation of the existing multilateral system but could also allow faster progress and deeper cooperation than might be possible in broader multilateral forums.

While the conflicts underway certainly belie optimism, neither are conditions hopeless. Many of the tools for reconstituting global cooperation may already be at hand. Amid the current uncertainty, it is important not to lose sight of the potential for a more sustainable and secure world.