"Experience is a hard teacher because she gives the test
first, the lesson afterwards."
- Vernon Law
DECIPHERING THE WAR DRUMS
By James Dale Davidson
Daily Reckoning Contributing Author
October 8, 2002
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.
Will such a tack succeed?
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.
James Davidson,
for The Daily Reckoning
_________________________________________________________
Editor's Note: James Davidson has enjoyed great success
founding new companies in a variety of industries. He's
a graduate of Oxford University, and a renowned author
and venture capitalist whose articles have appeared in
publications from The Wall Street Journal to USA Today.
He has been a guest on MacNeil Lehrer, Firing Line,
Today, Good Morning America, Larry King Live, and John MacGlaughin.
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