Escalation: Electrons are the New Bullets
Leaving aside the sinking credibility of the British Prime Minister, he is not wrong to say there is a possibility that we are on the brink of “the biggest war in Europe since 1945”. The threat of war has forced President Biden to meet President Putin at the negotiating table. A Summit is coming. But, President Putin has said that Russia (and implicitly China now too) intends to use “military-technical reciprocal measures” if the US and NATO don’t meet their demands. What does he mean by that? He means that electrons are the new bullets. He knows he won’t meet tanks with tanks on the stone-cold ground of Ukraine. He means, if you cut off our economy from SWIFT, we will cut off your economy from GPS and internet connectivity. This is an escalation we have not seen before.
We are distracted by the various ways Russia is showing conventional force escalation. All sides are moving various nuclear capabilities within closer reach of each other. There are Russian hypersonic missiles deployed now in the Baltic. America’s B-52 Long-Range Bombers have arrived in the UK last week and last year in Norway. American America’s P-8 Spy planes are increasingly met with pushback in the Mediterranean, off Australia and in the Baltics. The US now acknowledges that the theatre or conflict is the Indo-Pacific as well as Europe. It’s global now. All sides have shown they have definitive capabilities in space to disrupt, pre-empt, damage, destroy or dislocate the other side’s access to GPS and satellite command and communication systems. President Putin is about to personally oversee nuclear drills in Kaliningrad and Belarus, which is bound to create more than a few heart-pounding moments. NATO’s rapid reaction force response time may have accelerated from 45 days to 30, but Russia’s sudden and silent takeover of Belarus proves how fast and how quietly borders can be moved. Belarus is now Russia. Russia will shortly find a way to occupy the Sulwalki Gap and suddenly the Baltics will be surrounded by Russia. Things are escalating.
I was in Washington DC last week and all the talk is of “we can win this” and “no appeasement” and “Ukraine is a bluff”. It feels like going into a fight in the boxing ring saying, “I can beat this puny has-been who won’t dare go nuclear” not realizing that the opponent, and his quiet but more threatening new bestie, China, together already control the entire building and everyone in it is a hostage. Then the lights go out. That means no more Uber Eats. No guidance systems for kinetic weapons or smartphone connectivity. Try posting that on Tik Tok when the day comes. That’s why we need to de-escalate from this “almost war”.
Perhaps the most important and insightful work ever written on escalation and de-escalation was Herman Kahn’s book, On Escalation: Metaphors and Scenarios from 1965. Kahn said the first and most important thing in such an existential crisis is “to escape the inertia that tends to hold us captive to obsolete notions”. De-escalation is not about “winning” or having better equipment or capabilities. It is about being able to re-frame the situation which itself requires an empathetic understanding of the opponent’s situation and capabilities.
The situation is like the Cuban Turkish Missile Crisis. How soon everyone forgot that it was the American decision to put nukes into Turkey that prompted the Russians to threaten to put nukes into Cuba. Whether rightly or wrongly, the Russian side has long felt aggrieved that the US has treated them as a pathetic has-been with a puny GDP rather than as a nuclear superpower. Or, to be more specific, President Putin has long felt he wasn’t getting sufficient respect or a hearing for his take on reality. No doubt many will continue to speculate whether he is a madman on a messianic mission or a Head of State that isn’t being taken seriously or the leader of an organized crime gang whose cash flows have dried up. Whichever the case, the West needs to understand that we are all now in the midst of a dry tinderbox with a lot of matches lying around now. So, what can be done to de-escalate?
First, let’s be clear about the ask. Putin outlined some specifics that have already been declined, like Ukraine being prevented from ever joining NATO. But, these are just opening gambits for something bigger. President Obama’s former Ambassador to Russia, Michael McFaul, got it right when he said Putin is looking for the Helsinki Accords 2.0. This is what Russia and China both want. They have both long lost all faith in the American-led post-war system that promised equality and opportunity, but which has been used (in their view) to punish them at every turn. Both want recognition of their “territorial integrity”. The West threatens Russia with expulsion from SWIFT and kills China’s efforts to build a global brand (Huawei). All sides agree that the “Gentleman’s Agreements” of the post-war period no longer apply and the gloves are off. The US wants the old rules back. China and Russia want new ones.
The first new rule of global diplomacy is that electrons are bullets. We forget. We in the West went digital. Russia and China pretty much stayed analog. China turned all its data off and cut off the Chinese from the global internet altogether. They can live without these things. The West cannot. The easiest way to damage the West now is not via a cyberattack, though that’s underway too. Forget blockading the port in Odessa and instead imagine a blockade of your computer port.
The new escalation is simply to turn off the power, GPS and the internet. But, not for long. These mechanisms are needed to spread the news but their availability can become sporadic. All this can be done by China and Russia with almost unlimited plausible deniability. When electrons are weapons, wars become invisible and don’t need to be declared. Events happen and nobody quite connects the dots or can determine exactly who did it. Electrons can start fires, set off explosions, jam signals. That’s also why explosions in space have to be taken seriously. They can disrupt the core of modern economies.
The question, therefore, is not just “what is the correct position in the market”? The question is “Will there be a market?” Remember, we have the antithesis of decentralization. Most financial exchanges have been compressed onto a single computer chip. I know from being in The White House during 911 that the exchanges all say they have a backup plan but when the power goes out, the capacity to transact will be limited for all or for some. But, if it isn’t there or it’s disrupted in a way that gives some advantages over others, policymakers will simply close the markets to avoid unfairness and uncertainty.
The good news is that this lets everybody off the hook. Market makers will take a much-needed break and gossip about how long it will take to turn the exchanges back on. The bad news is that if this happens persistently enough, the Russians and Chinese - driven by their non-truly capitalist ideologies – may kill the underlying belief system of capitalism itself, the idea that you can price credit and deals and that you can always transact. All options become worthless if they cannot be exercised. The new nuclear option is to kill the idea that the future can be discounted. This is how you slowly murder the faith and belief in the concept of credit. The internet ate everybody’s lunch and gave us Uber Eats. In this scenario, there is no more Uber Eats. No more SatNav, GPS, or online anything. No more internet. No more metaverse. No more market.
The timing is almost perfect as well. We have the highest stock market prices, the tightest credit levels, and the lowest default rates in the West. Inflation is accelerating. The Fed is on the brink of tightening and the President is on the brink of remembering what he was about to say. Domestic protesters are forcing the leaders of the Western world into hiding (Canada) and causing severe police responses that make the public question whether they live in a free society. The West is vulnerable. Escalating this way will create a lot of pain for the West. One thing COVID taught was that one virus could disrupt the global supply chain. Imagine what a deliberate, even if temporary, loss of electricity, the net and satellites systems will do to disrupt the supply chain.
As Kahn said, you have to change your mindset to de-escalate. Remember that the West has fought tech wars with analog opponents. This is a tech war with tech opponents who can drop into analog at any time by falling back on an abacus or a slide rule. Americans can’t count on ten fingers at this point. Nor can they use a smartphone or launch a weapon without access to the grid. If the solution is to concede that the global economy is so deeply intertwined that we cannot excommunicate China and Russia but instead need a new set of rules and agreements to accommodate them, then why not start Helsinki 2.0? It beats sitting in the dark. If we do not like how Putin handles the management of the state and think his brand of poison is unacceptable (Novichok and Polonium), then we have to create a world where the new rules of the game address these behaviors.
On Friday the White House said, maybe we won’t kick Russia out of SWIFT after all. On Sunday night the French President announced that Biden and Putin will meet in person. The negotiation of a new strategic landscape has officially begun. But that does not mean that de-escalation is certain.
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