zenpundit.com

Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable by Mark Gilbert

Inside Cyber Warfare: Mapping the Cyber Underworld by Jeffrey Carr

Received courtesy review copies of two books that will serve to “stretch” my knowledge base and increase my cognitive map.

Mark Gilbert is a financial columnist and bureau chief for Bloomberg News in London and he has written a hard hitting deconstruction of the great credit collapse and crisis bail-out of 2008-2009. Gilbert is telling a story of breathtaking risk assumption, regulatory capture, academic hubris, central bankers as naked emperors and unrepentant banksters who have learned nothing and forgotten nothing from the crisis. My personal background in credit issues is rooted solidly in the dustily agrarian economic history of the 19th century and the painful transition from yeoman “book debt” to gold standard dollars, so I look forward to broadening my understanding of modern financial systems from reading Complicit.

I will probably review Complicit in a cross-blog conjunction with Lexington Green, who also has a copy in his possession.

Jeffrey Carr is the CEO of GreyLogic and a researcher, presenter and consultant on issues related to cybersecurity, hacking, cyberterrorism and asymmetric conflicts in virtual domains. Carr offers a cohesive and compact look at the major problems and players in the uncertain crossroads of national security and cyberspace. Non-geeks (like myself) will appreciate Carr’s focus in Inside Cyber Warfare on the connection to the worlds of intelligence, law enforcement, international law and military operations and doctrine. As an added bonus, the foreword is by Lewis Shepherd, another blogfriend and the former Senior Technology Officer of the DIA.

Originally, I had wanted to review Inside Cyber Warfare before last Christmas, so now that I have the book, I will move it to the top of my titanic reading pile.

To the legacy society of the nation-state and the hierarchical transnational corporation:

MILESTONE

….It’s time to up the ante and move onto the next phase:  the birth and rapid growth of new societal networks.*  This is going to be a fun ride!

* As in, new societal networks that can outcompete (trounce evolutionarily) all existing status quo organizational forms  (this should not be confused with the diminutive form of ‘social networking,’ as in Facebook and Twitter).

Long term, I think this is correct and that Robb is, as usual,  ahead of the curve on what will become the zeitgeist in the next few decades ( I will add that this evolutionary path appears to be happening much faster than I had considered, by at least 15-20 years). The movement in the 21st century will be toward networked civilizations on one end of the spectrum that will be pretty nice places to be and on the other, a kind of emergent, hypermobile, barbarism where life is hell on Earth. 

The proper response for existing institutions is to swing their resources, their mass and their remaining legitimacy behind the triumph of the former and gracefully adapt and acclimate rather than be disintegrated by the latter. I considered this in the essay ” A Grand Strategy for a Networked Civilization” that I wrote for Threats in the Age of Obama (p.208):

….Nation-states in the 21^st century will face a complex international ecosystem of players rather than just the society of states envisioned by traditional Realpolitik. If the predictions offered by serious thinkers such as Ray Kurzweill, Fred Ikle or John Robb prove true, then  technological breakthroughs will ensure the emergence of “Superempowered Individuals”[1] on a sizable scale in the near future.  At that moment, the reliance of the State on its’ punitive powers as a weapon of first resort comes to an end.  Superemepowered individuals, separatist groups, insurgents and an “opting-out” citizenry will nibble recalcitrant and unpopular states to death, hollowing them out and transferring their allegiance elsewhere.

While successful states will retain punitive powers, their primary focus will become attracting followers and clients in whom they can generate intense or at least dependable, loyalty and leverage as a networked system to pursue national interests.  This represents a  shift from worldview of enforcement  to one of empowerment, coordination and collaboration. States will be forced to narrow their scope of activity from trying to supervise everything  to  flexibly providing or facilitating core services, platforms, rule-sets and opportunities – critical public goods – that the private sector or social groups cannot easily replicate or replace.  Outside of a vital core of activity, the state becomes an arbiter among the lesser, interdependent, quasi-autonomous, powers to which it is connected.”

In other words, America and our “leaders” need a Boydian strategy and a ruthless commitment to honest clarity and sacrifice in order to weather the transition and retain some relevance. This is what makes the current cultural trend toward a political economy of oligarchy among the elite so worrisome. Their careerist self-interest and class values will push them to make all the wrong choices at critical junctures.

Matt Armstrong has sent out a call to arms on our most important structural problem in foreign policy – that the Department of State is broken as an institution and needs a complete overhaul on the lines of The Goldwater Nichols Act:

The State of State: A Proposal for Reorganization at Foggy Bottom

….The last major reorganization of the State Department was in 1944. That reshuffling was internally driven, and today’s change could occur within the bureaucracy’s walls as well. But the complexity of the department today likely requires a major realignment of fundamentals, something on the order of magnitude of the Goldwater-Nichols Act of 1986. That landmark legislation shifted the Defense Department’s operational focus from the services (Army, Navy, Air Force) to the regional commands (Central Command, Pacific Command, etc.).

Foggy Bottom’s regional bureaus are, on their face, like the Defense Department’s combatant commands. But in reality, they are merely support staff for the embassies (the “country teams”). If Defense were to mimic State’s structure, it would be akin to making European Command subservient to individual U.S. military bases in Europe.

Each of State’s regional bureaus are led by an assistant secretary who reports to the under secretary for political affairs. (The under secretary also has other responsibilities, such as overseeing development and implementation of U.S. government policies with the United Nations and its affiliated agencies, as well as the fight against international narcotics and crime.) The under secretary, in turn, reports to the Secretary of State. By contrast, the combatant commander, the assistant secretary’s ostensible counterpart in Defense, has a direct line to the Secretary of Defense.¹

The State Department’s hierarchy was fine for another era when issues were confined within state borders by local authority, geography, and technology. But in recent years, the structure’s flaws have become conspicuous. The department’s ability to respond to crisis is fragmented and sclerotic. When successes do happen, they tend to be the result of individuals working around or outside the bureaucracy. Secretary of State Hillary Clinton has circumvented the current system with crisis-specific czars called Special Representatives. These Special Representatives, like Richard Holbrooke for Afghanistan and Pakistan, operate like super ambassadors with regional powers that should reside – but don’t – in the regional bureaus.²

For State to be a viable national security actor, the old hierarchy must be flattened and power should be redistributed. It is hard to imagine isolating a combatant commander by reducing his rank to three-star general and having him report to a four-star general – who then decides what the Secretary of Defense should be bothered with.

Read the whole thing here.

This is a subject on which I have written many times and I am in complete agremeent with Matt.

We might even go beyond Goldwater-Nichols and think in terms of the creation of the Department of Defense in 1947 under Truman which saw the end of the Department of War and the absorbtion of the Department of the Navy into Defense along with the other armed services.  State’s perverse dysfunctionality and empty pockets budget ( blame Congress here) has crippled public diplomacy, international development aid and the interagency process in which State too often plays the role of bureaucratic obstruction or hapless bystander.

What are the civilian foreign policy tasks we need to accomplish as a country and how can we streamline and empower our agencies so that we can advance our national interests ?

John Hagel is in a small category of thinkers who manage to routinely be thinking ahead of the curve ( he calls his blog, where he features longer but more infrequent posts than is typical,  Edge Perspectives). I want to draw attention to the core conclusion of his latest:

Challenging Mindsets: From Reverse Innovation to Innovation Blowback

Innovation blowback

Five years ago, John Seely Brown and I wrote an article for the McKinsey Quarterly entitled “Innovation Blowback: Disruptive Management Practices from Asia.” In that article, we described a series of innovations emerging in Asia that were much more fundamental than isolated product or service innovations. We drew attention to a different form of innovation – institutional innovation. In arenas as diverse as motorcycles, apparel, turbine engines and consumer electronics, we detected a much more disruptive form of innovation.

In these very diverse industries, we saw entrepreneurs re-thinking institutional arrangements across very large numbers of enterprises, offering all participants an opportunity to learn faster and innovate more effectively by working together. While Western companies were lured into various forms of financial leverage, these entrepreneurs were developing sophisticated approaches to capability leverage in scalable business networks that could generate not just one product innovation, but an accelerating stream of product and service innovations.

…. Institutional innovation is different – it defines new ways of working together, ways that can scale much more effectively across large numbers of very diverse enterprises. It provides ways to flexibly reconfigure capability while at the same time building long-term trust based relationships that help participants to learn faster. That’s a key breakthrough – arrangements that support scalable trust building, flexibility and learning at the same time. Yet this breakthrough is occurring largely under the radar of most Western executives, prisoners of mindsets that prevent them from seeing these radical changes.

Read the whole thing here.

Hagel is describing a mindset that is decentralized and adaptive with a minimum of barriers to entry that block participation or information flow. One that should be very familiar to readers who are aware of John Boyd’s OODA Loop, the stochastic/stigmergic innovation model of John Robb’s Open Source Warfare, Don Vandergriff’s Adaptive Leadership methodology and so on. It’s a vital paradigm to grasp in order to navigate and thrive in the 21st century.

Western executives (think CEO) may be having difficulty grasping the changes that Hagel describes because they run counter to cultural trends emerging among this generation of transnational elites ( not just big business). Increasingly, formerly quasi-meritocratic and democratic Western elites in their late thirties to early sixties are quietly embracing oligarchic social stratification and use political or institutional power to “lock in” the comparative advantages they currently enjoy by crafting double standards through opaque, unaccountable authorities issuing complex and contradictory regulations, special exemptions and insulating ( isolating) themselves socially and physically from the rest of society. It’s a careerism on steroids reminiscient of the corrupt nomenklatura of the late Soviet period.

As the elite cream off resources and access for themselves they are increasingly cutting off the middle-class from the tools of social mobility and legal equality through policies that drive up barriers to entry and participation in the system. Such a worldview is inherently zero-sum and cannot be expected to notice or value non-zero sum innovations.

In all probability, as an emergent class of rentiers, they fear such innovations when they recognize them. If allowed to solidify their position into a permanent, transnational, governing class, they will take Western society in a terminal downward spiral.

My amigo Adam Elkus has an excellently constructed and well researched article up at OpenSecurity where he advances a Boydian critique for what ails us:

Science, defence and strategy

…Contemporary American strategic problems flow from the fact that we cannot adjust the ossified thinking of Washington D.C. to the constantly shifting observed reality of the outside world. A failure to match concepts to observed reality has amplified the already formidable entropy of the American political system. The corresponding failure to make strategy results in a search further inward towards the “science” of war.  Better strategy will come about only when the process by which strategy is made becomes supple, flexible, and less dominated by sacred cows and special interests.

Critics of American foreign policy often undermine their own case with conspiracy theorizing about the “military-industrial complex.” The real problem, however, is not James Bond villain-style secret plans and hidden agendas but basic human frailty. A largely homogenous group of people is not going to have all the answers to questions of war and peace because they are necessarily limited by their experience, specialization, and biases.

Nice work by Adam, read the whole thing here.

We face a number of problems when it comes to formulating strategy and grand strategy. Not least is that, whatever the shortcomings on that score within America’s officer corps, there is a yawning gap of comprehension between the senior brass and most of the civilian “influencer” elite in and out of government. Most of the latter tend to think in terms of a few simple paradigms into which they force-fit each new foreign policy problem – generally, everything is conceived either as appeasement at Munich or the quagmire of Vietnam. This tiresome dichotomy is the strategizing of simpletons.

The arch-Clausewitzians in the national security community fall down here. It is not enough to think of strategy in purely military terms. America is not Sparta or even the Roman Republic where politicians vied for a chance field command. The civilians here are masters of policy and the military are its servants – and are but one kind of servant among many in the DIME spectrum. Statesmen and general officers need to be speaking with a common vocabulary and have a shared understanding of what strategy is if we are to formulate effective ones.

There is a deficit of knowledge among the class of officials and staff members with the authority to make or not make the most critical decisions in matters of peace and war. It cannot be remediated by an uncertain and unhealthy dependency on the Pentagon’s advice and a frustrating dialogue where civilian and soldier talk past one another.

ADDENDUM:

Adam gets a nod from our friends on the Left at Newshoggers.com