A Multidimensional Puzzle

My current trip to Europe, Western China and (if all goes well) Indonesia was planned well before the tragic events of September 11^th. Although I could easily have canceled it, I felt I could contribute a better perspective on this tragedy’s consequences from a distance than I could by staying in New York.

I am fortunate to have partners whose investment experience and acumen easily equal mine, and there is little I could add to their wisdom if I looked at the same information from the same perspective. Fortunately, communications have so improved in recent years that there was no place I visited where I could not be in constant touch by phone or e-mail.

Only by watching local news and speaking with local citizens abroad can we understand the apprehension of many people and their governments toward the current situation. In this light, the coalition that is being built against terrorism is quite impressive, and I find that Mr. Bush and his team have been both tactful and skilled in assembling it. Still, this is only the beginning…

Tony Blair, Britain’s Prime Minister, gave a truly rousing speech at the recent Labor Party conference in Brighton. In it, he combined an uncompromising vision of right and wrong with a compassionate, open and forward-looking view of the global community of nations.

In particular, although the speech was intended primarily for a domestic audience, it offered a compelling plea for globalization. This described a world where countries are like individuals in a modern democracy: free to legitimately pursue self-interest, but bound to come together to pursue civic goals and enforce the rules that protect these common goals.

Some were quick to argue that Mr. Blair sounded more presidential than George W. Bush, the American president. I disagree. It is the special quality of European education to always integrate specific problems into larger historical and more theoretical concepts. Former President Clinton, who had benefited from a sprinkle of British grooming, excelled at this. American education is more geared to immediacy and problem solving – usually one problem at a time. It is more akin to business training and President Bush, in this respect, has so far performed quite well. In fact, my main reaction to Mr. Blair’s speech was to regret that France does not have her own Tony Blair.

For thirty years or more, French foreign policy has pursued the illusory goal of preserving France’s stature in world affairs, by acting as the self-proclaimed leader of European foreign policy and main counterweight to America’s perceived “hegemony”. To be sure, when the going got tough, France always has behaved as the close U.S. ally that it is. But during peaceful times its leadership aspirations have produced a constant stream of irritating piques toward the United States, along with wishy-washy policies toward rogue states and organizations. Unfortunately, one does not “aspire” to be a leader. Tony Blair came out of Brighton as an inspiring statesman, whereas no politician in France has come even close.

Beyond all this, Tony Blair’s speech was particularly powerful because it set the recent U.S. tragedy in the context of deeper global trends.

True, he said, globalization has its dark sides, with large segments of the world community having been deprived of its benefits. But, he argued, the answer is more globalization, not less. While nations legitimately pursue their self-interests, the global community needs to build a consensus on common goals that will transcend the realm of traditional foreign policy, while cushioning the worst effects of states’ individualistic pursuits.

In this effort, the U.S. is likely to emerge as a strong community leader, rather than as the benevolent autocrat it has been since the end of the Cold War. An understanding of this transformation will become increasingly important to Americans in general and to American investors in particular. The good news is that, beyond the simplistic slogans of old-style politics and new-style media, there has been a great deal of thinking going on about the emerging new world order in both Academia and political think-tanks – so we are not starting from scratch…

Still, we need to become accustomed to a more complex, multilateral world, rather than be needlessly unsettled and frightened by its most superficial manifestations – such an apparently more erratic and less determined foreign policy. This, of course, won’t be facilitated by the media, which will likely continue to chronicle daily developments in the international arena in their typically near-sighted, "us-against-them" sportcasting fashion.

Above of all, we need to acknowledge that self-interest is a legitimate goal of foreign policy, and that this reality applies not only to other governments, which we always have suspected of cynicism, but to ourselves as well.

In truth, it has always been so: the United States does not support and protect Saudi Arabia or Kuwait because it approves of their leaders or their domestic policies, but because these countries control a large chunk of the world’s oil reserves. We also support many regimes with less-than-commendable records on human rights, not because we condone their policies, but because we are (sometimes legitimately) afraid of the alternatives – domestic chaos or, worse, regional instability.

Obviously, this does not mean that our foreign policy has been or should be unprincipled. I have no doubt that human rights, working conditions, the treatment of women and children and a healthy environment will remain overriding goals for our present and future leaders. But, increasingly, these goals will be both defined and enforced by the global community as a whole. To make progress toward them, an international consensus will need to be built -- presumably under the leadership of the United States, but with a new consideration for other countries’ perceptions and constraints.

American public opinion may not be fully prepared for this, because foreign cultures often hold values that are radically different from ours.

In Asian countries, for example, community harmony is generally more important to individuals than human rights under our definition. As these views are more strongly asserted, more freely advertised and more visibly incorporated in local policies, even as they slowly evolve, westerners are bound to mistake the staying power of corollary customs for a lack of humanitarian progress.

Similarly, not all societies are ready for true democracy, which is as much about political responsibilities as it is about rights. I once met a Moroccan scholar who had fled the repressive regime of the late King Hassan II to work as a taxi driver in Paris. He strongly disapproved of the regime personally but explained that he could do no more than leave, because Morocco’s population, largely for lack of education, was just not ready for democracy. For the same reason, recent elections in the former Indonesian province of East Timor are a joke, regardless of the atrocities that were committed against its population under former President Suharto.

In spite of American politicians’ constant references to their faith (and the "In God We Trust" motto on our currency), we also have a problem with countries where other religions are too closely intertwined with political power. This sometimes has led us to paradoxical foreign policy decisions, such as the overwhelming blessing by western governments of the forceful voiding of Algerian elections, several years ago, after it became apparent that the party committed to build an Islamic republic was about to win. The result has been the comforting of a highly corrupt government, and years of abominable bloodshed at the hand of the Islamic opposition. No one will ever know if Algeria would have been any better with an Islamic government, but the fact is that we chose to delay a perceived threat at the cost of compromising our democratic principles.

One of the most complex problems of foreign policy is that of independence movements. Many countries have regions or communities that are seeking independent status. But other countries’ freedom fighters are often their home country’s terrorists. Britain has the IRA, France has the Corsican independentists, Turkey and Iran have the Kurd insurgents, Russia has the Chechens and even China has the restless Yuigurs of the Xinjian province, which I just visited.

In some of these cases, there is a temptation to help and support the insurgents, especially when they disrupt and weaken a regime that we deem hostile. But the stark example of Afghanistan shows that today’s heroes can easily become tomorrow’s troublemakers.

The governments of many countries whose help we are demanding today would like nothing better than to rid themselves of Islamic agitators on their soil. But the weaker among them, in the Middle East particularly, have for years been blackmailed by terrorist groups into providing safe harbor and financing. Even if the majority of such a country’s population also condemns the terrorists or the Islamic extremists, it often has an equal degree of distrust for its government. With little legitimacy or public support, such governments in the past have yielded to intimidation by the racketeers.

Today, for the first time, the coalition is providing a credible counterbalancing threat, thus leveling the terror playing field, so to speak. I believe that, over time, this will considerably weaken the terrorist movements, although this may well be at the cost of shoring up less-than-desirable governments, such as several ones in Central Asia’s former Soviet republics.

From now on, America’s foreign policy, more visibly than in the past, will be conducted at two different levels. Overriding, humanitarian principles will be promoted at the global and multilateral level, while practical and competitive goals will be pursued on a bilateral or bloc-to-bloc level.

To complicate matters further, these two spheres of foreign policy will often overlap, since human and worker rights or the ecology can be used to obtain concessions on trade or other matters of self-interest.

Finally, we will have to come to terms with the reality that different countries can only make progress toward democracy and humanitarian goals at different speeds.

All this probably means that our foreign policy discourse will become less uniform, less self-righteous and, at first, more confusing. For Americans voters, who think of themselves as the promoters and defenders of absolute values, and who like immediate results, this will require a substantial adjustment.

To descend from the sublime to the petty, it is important for investors to keep the ongoing change of political and economic backdrop in proper perspective. To be successful, we will need to keep track of the country’s net progress toward its foreign policy and trade goals, without becoming hypnotized by the meanders along the way.

All change is unsettling, and uncertainty always weighs on investors’ perception. But, beyond the trauma of the current crisis, there will be a return to normalcy. Of course, it will be a new type of normalcy, unsettling for a while because the guideposts will have been changed or moved. But we will adjust to this new normalcy as we have in the past.

Uncertain times are ones of opportunity for long-term investors who can detect, beyond conflicting signals and confusing change, the emergence of a new order. This is such a moment of opportunity and we should all keep our focus, not on the crumbling old order, but on the emerging new one.

Shanghai, October 7, 2001
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