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Regulation and Compliance > State Regulation

Investors Can’t Take Security for Granted as Chaos, Competition Intensify

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Growing chaos in the Middle East, economic tension in Europe and geopolitical competition in Asia signal the world is currently living through dangerously interesting times.

So says the Center for a New American Security’s Robert Kaplan at’s annual Inside ETFs conference.

Back by popular demand — last year’s 1,500 attendees ranked Kaplan highest among a lineup of speakers including fund managers and economists — the geopolitical analyst spun his trademarked fast-paced web of international actors grasping for power against sweeping forces of history and geography.

In the Middle East, Kaplan foresees two decades of relative anarchy ahead.

The key historical force driving this dissolution is the end of imperialism. It is fashionable for Westerners to view European colonialism as the original sin of the West, but Kaplan explains that “imperialism has governed the planet since antiquity,” and pointedly, that European colonialists merely took over for previously existing empires.

In every part of the world, groups blessed with greater resources and more power imposed sovereignty — and order — on other groups and regions.

Even when European colonialism, which began in the 1840s, ended in the 1960s, other “empires” — namely the U.S. and Soviet Union — assumed responsibility for world order during the Cold War.

When the Soviet Union collapsed and the Cold War ended, the U.S. was able to project its power through air and sea power, but could not usually manage actors on the ground. That job was left to strongmen, and it is their current fading from the scene — think Iraq’s Saddam Hussein, Libya’s Muammar Qaddafi, Yemen’s Ali Abdullah Saleh — that is exposing the region to the chaos of war and terror.

Kaplan explains that the rule of these strongmen was brutal but they brought order to regions that were more geographic expressions, with colonially imposed artificial borders, than they were places with history and a sense of poplar legitimacy.

“They ran mukhabarat states,” he says, using the Arabic word used for intelligence and security apparatuses. When the Arab Spring swept these authoritarian states away, “there was nothing between the regime at the top and the tribes at the bottom,” he says.

In other words, there was no civil society, no mediating institutions between state and society such as garbage collection or agricultural extension services.

“The Arab Spring was not about democracy,” he says, so much as a quest for order amid collapsed authority.

The ensuing void has opened the way for sectarian and religious leaders to seek power, often through the prism of violent doctrinal battles about the proper way of Islam, the analyst says.

Historic power centers such as Egypt and Tunisia (known millennia ago as Carthage) can hold up better amid these political storms as their state identities are recognized, with the only question remaining being who will govern.

But unravelling in Yemen, Libya, Pakistan, Afghanistan, Syria and Iraq require much more extreme forms of autocracy to hold power over the region’s disparate groups.

“When Qaddafi was toppled, there was nothing to fill the void. Tripoli is just a central negotiation point for rival gangs,” Kaplan says.

Were Syria’s Bashar al-Assad to fall, the ensuing bloodbath would claim far more lives than the current toll in that civil war-wracked country, mainly among Assad’s ethnic Alawite clan. “There are no good choices there,” Kaplan says.

In the current Saudi-Iranian rivalry for power in the Persian Gulf, Kaplan thinks the latter has greater ability to impose order. The Saudi monarchy has ruled Arabia for a couple of centuries, whereas Iran has been a state since antiquity, he argues.

While the Middle East is mainly a theater of outright dissolution, Kaplan argues that we cannot take even European security for granted, and drew particular attention to the continent’s dynamic north versus its lethargic south.

When the U.S. launched quantitative easing, he said, all 50 states participated, but in Europe remains unclear whether Germany will make sacrifices for Greece.

Kaplan had little time to discuss Europe and Russia, saving his main thrust (after the Middle East) for the brewing geopolitical competition in Asia.

His key point is that despite U.S.-Chinese collaboration on issues such as climate change and deep bilateral economic ties — deeper than U.S.-European ties were in the prewar period a century ago — China’s rising power is running headlong into U.S. dominance in the Pacific.

Kaplan set the scene with a view of how things look like in Beijing. China is a continental nation in a temperate zone, with Manchuria its Maine and Hainan its Florida Keys.

“China is geographically proportioned to be a great power,” he says.

The “claustrophobic, pessimistic view” of its leaders surveying their environment would include restive Mongolians in the north, a Turkic terror campaign in the West and Tibetans in the South who all dislike and distrust the ethnic Han majority.

As such, someone like the Dalai Lama is not just a spiritual leader, as Westerners see him, but in China’s eyes a geopolitical leader, given the vital water and mineral resources in Tibet that China needs.

Beyond land, China dwells by two adjacent seas — the East China Sea and the South China Sea — whose control is the prerequisite to China’s achievement of Great Power status.

Kaplan says the situation is like that of the Caribbean, dubbed by geographers “the American Mediterranean.” When the U.S. gained control of those waters in the late 19th and early 20th centuries, it gained the strategic dominance over the Western hemisphere which enabled it to “pivotally effect dominance in the eastern hemisphere in two world wars,” he says.

China has similar ambitions over its bordering seas, and if they can be realized, “its navy can gain dominance of the Indian Ocean, making it a world power that can compete with the U.S.”

Western political and military elites who view China primarily as a center of commerce are thus making a grave mistake.

“Asia is going through the biggest arms race in world” — not a dirty one like in the Mideast but a far more sophisticated one involving the acquisition of advanced weapons.

Most of the countries of East Asia were until recently internally focused — China with its Communist centralization under Mao and its building of capitalism under Deng, Japan with its quasi-pacifism under U.S. military protection.

But capitalist success, Kaplan warns, leads to military acquisitions and a quest for status, and China’s efforts to build a great navy and air force are stocking Japanese paranoia that is awakening that country out of its recent pacifism toward a more nationalistic direction.

Kaplan foresees the South China Seas as the key theater of conflict to watch. That is because China faces the “brick wall” of Japan’s powerful navy and U.S. support for Japan in the East China Sea.

But despite a U.S. treaty alliance with the Philippines, the U.S. commitment is softer in the South China Sea region, and Kaplan expects China to bully and intimidate Malaysia, the Philippines and other countries in the region.

“The U.S. and China are doing all they can to get along with each other,” Kaplan says. “But economics does not trump politics. The moment security can’t be taken for granted any more, these issues will matter.”

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