Financial Times Europe - 19.09.2019

(Jacob Rumans) #1
Thursday19 September 2019 ★ FINANCIAL TIMES 11



f it were anyone else, we might call
it poetry. US presidentDonald
Trump ompresses what millionsc
think into phrases that are more
like verse than prose in their
sparseness. “Sand and death” was his
take on Syriathis year, and, with that,
the Horace of Mar-a-Lago brought
home a couple of thousand soldiers. The
words rather short-change a country
whose capital predates Washington by a
millennium or five, but the point of a
Trumpism is not accuracy. The point is
to get lots of Americans nodding.
Each president since the end of the
cold war was elected on a sand-and-
death view of the Middle East. And each
has then failed to wean the US off the
region. Bill Clinton thought foreign
adventures a luxury when the home

front needed care. Six years later, he was
bombing Iraq. George W Bush called for
a more “humble” US abroad. He
ordered the two longest wars in Ameri-
can history. Barack Obama sought to
unwind both of those fiascos. He pre-
sided over new ones in Libya and Syria.
Withthe Gulf nce again so fraught,o
Mr Trump is leading the US through the
fourth iteration of this cycle inside a
generation. Each time, hopes are raised
of a quieter life. Each time, they fail to
materialise. Trust in government can-
not but suffer.
The problem, I used to think, is the
failure to honour these promises of
retrenchment. In truth, the promises
are the problem. The US accumulated
foreign interests over the course of the
20th century that cannot be divested at
speed, at least not without grievous cost,
and at least not in a region as intractable
as this one. A responsible political class
would not pretend otherwise every four
years. It would gird voters for a process
of extrication that might turn out to be
the work of a human lifetime.
Last month, thePentagon’s inspector
general warned ofa resurgent Isis ni

Syria, delicately citing Mr Trump’s
troop withdrawal as a potential cause.
It was hard not to think of Mr Obama’s
exit fromIraq n 2011. Within threei
years of that “departure”, the US was
back to fight Isis, though mainly from
the air. These are perhaps the two least
alike presidents out of all 45 in the his-
tory of the republic. Yet both fell for an
ideology we might call “bring-them-ho-

meism”. And neither was or has been
able to act on it in full. At some point,
the telling fault has to be with the idea
and not with the goodness of the execu-
tive’s word.
A country’s relative decline does not
bring about an automatic and commen-
surate reduction of its workload. Its for-
eign burdens can be a severely lagging
indicator of its power. Britain was

displaced as the largest economy in the
19th century but its empire would not
peak in size until the 1920s. It was still
fighting in Malaya as late as 1960. Some
of this was British vainglory, but some of
it was the sheer difficulty of letting go
without incurring chaos or ignominy.
And this was a nation that had a friendly
America to make way for. In the Middle
East, the US would be making way for
Russia, or Iran, or no alternative power
to speak of.
The problems with extrication do not
end there. The American homeland will
also continue to face terrorist threats
that are hatched or inspired in the Mid-
dle East. Even if it can provide for its
own energy needs, it will never be
relaxed about the region’s resources and
waterways coming under the control of
any one power. And none of this reckons
with the push-pull of local allies who
want the US to stay, but only on their
own terms.
Over the next year or so, Mr Trump
and assorted Democrats will have an
electoral incentive to pretend that none
of this is true. They will pledge to focus
more on the Midwest than the Middle

East, which worked to handsome effect
in 1992, 2000, 2008 and 2016. The presi-
dent’s recent dismissal of John Bolton,
his restlessly militant national security
adviser, cleared the way for this quietist
campaign line. There is no cost — except
to trust in politics, when the US is chin-
deep in some Gulf crisis within years.
The cycle of raised and dashed hopes
can only be broken with extreme can-
dour. Disengagement from the Middle
East, a budding president should say, is
going to be fitful and often humiliating
work, if it is ever completed at all. Dur-
ing the process, the US will often be
involved enough to sustain costs, but
not so involved as to make a decisive dif-
ference in the region.
This in-out state is the worst of all
available options, except for the others.
Even if an empire can be acquired in a fit
of absent-mindedness, as J R Seeley
alleged of Britain’s, it cannot be
relinquished in the same way. Nothing
will commend a pretender to the
White House so much as the frankness
to say so.

The cycle of raised
and dashed hopes can

only be broken with

extreme candour

There is no easy way for the US to disengage from the Gulf

This needed not only a technology
platform and design sensibility, but
making desk rental feel like member-
ship of a community led by Mr Neu-
mann. A similar conversion has been
attempted byJohn Foley, co-founder
and chief executive ofPeloton, the
digital exercise company. “At Peloton,
we believe that better is in all of us,” it
promises in its IPO statement.
But when IPO investors scrutinised
WeWork, they wanted to know not only
if Mr Neumann was trustworthy but
that WeWork would outlast him. A
charismatic founder attracts venture
capital by scaling a start-up into a busi-
ness. Institutions know that inspiration
has to be succeeded by discipline.
WeWork got the balance wrong, from
an inflated $47bn valuation when Soft-
Bankbought shares in January o Mrt
Neumann’s failure to realise quickly
enough that he had to reform. WeWork
hopes to revive its IPO soon but his
charisma is already fading.

More recently, leaders such asJamie
Dimon taJPMorgan hase andC Mickey
Drexler t firsta Gap nd thena J Crew aveh
turned lagging businesses into stronger
brands that attract new customers and
command loyalty from investors. In Mr
Drexler’s case, the magic later wore off
at both retailers, renewing doubts about
whether such transformations can
The ultimate charismatic chief execu-
tive wasSteve Jobs, who turnedApple
into one of the world’s biggest compa-
nies through technological vision and
force of personality. That it remains so
underTim Cook, more the kind of
leader Weber called “rational-legal”,
shows they sometimes do.
Jobs’ magical capacity to bend
an industry to his will is a model for
technology founders and investors.
Whatever Mr Neumann’s foibles, he is
a genuine entrepreneur, who realised
that shared workspaces — a dreary
experience for many of those forced
to work in them before WeWork was
founded in 2010 — could be enlivened.

company in an effort to salvage the IPO,
but repented too late.
Even if he had been pure as a prophet,
he would have faced resistance. The
broader difficulty is that venture capital
investors such as Mr Son — something of
a shaman himself — have been quick to
put huge valuations on technology com-
panies with fluent founders, confident
that stock markets will follow.
Charismatic leadership has its uses
when companies need to be trans-
formed. The original CEOs who broke
away from a bureaucratic style to turn
into business personalities were chief
executives such asLee Iacocca of
Chrysler nda Jack Welch fo General
Electric. They needed personal mag-
netism to achieve difficult changes.

quotidian rivals such asIWG. He is,
according to the We Company’sIPO list-
ing, “a unique leader who has proven he
can simultaneously wear the hats of
visionary, operator and innovator.”
Max Weber, the sociologist, called
charisma the “quality that makes an
individual seem extraordinary...
by virtue of which supernatural, super-
human or at least exceptional pow-
ers” are attributed to him or her. Mr
Neumann charmed his early backers,
particularlyMasayoshi Son, founder of
SoftBank, which along with the Vision
Fund invested a total of $10.7bn.
But charisma in business is not god-
given, like the charisms (gifts of grace)
described by theapostle St Paul, such as
speaking in tongues or performing mir-
acles. It relies on other people trusting in
the charismatic leader; as soon as they
stop believing, it evaporates.
One problem for WeWork was the gulf
between Mr Neumann’s lofty corporate
pronouncements and how he pursued
his personal financial interests.Weber
wrote ni Economy and Society 1921) that(
charisma is a calling or mission that
“disdains and rejects the economic
exploitation of the gift of grace as a
source of income”.
Not so Mr Neumann, who not only
gained more than $700m y selling andb
borrowing against WeWork shares but
placed his preposterous trademark
rights to the word “we” in an investment
vehicle and licensed them to WeWork
for $5.9m. Hereturned the money nda
reduced his voting rights to control the


ith his flowing locks and
gnomic pronounce-
ment that the “energy of
we [is] greater than any
one of us, but inside
each of us”,Adam Neumann as the airh
of a prophet. But the co-founder of
WeWork, the shared-office group, has
not converted stock market investors.
WeWork’s decision on Monday to
shelve its planned initial public offering,
even at a heavily reduced valuation, is a
severe setback for the company, as well
as its backersSoftBank nd Softa Bank’s
Vision Fund, and visionaries every-
where. Mr Neumann’s authority was
tested and has failed.
It is a touchy moment for founders
such as Mr Neumann, who convince
venture capitalists that technology and
a new business model can change
the world.Travis Kalanick, Uber’s co-
founder,was ousted s chief executivea
well before itsIPO in May nda Uber nda
Lyft ave struggled in public markets.h
Mr Neumann proclaimed that
WeWork was far more than just a prop-
erty company and that its “mission
to elevate the world’s consciousness”
merited a much higher valuation than

The prophet of

WeWork loses

his charisma

Investors have been quick
to put huge valuations

on technology companies

with fluent founders





lthough banks have been
going digital for years, and
“fintechs” have been
around for a while, the
industry has not fund-
amentally changed. That is because
disruption an happen only as quicklyc
as regulators allow it. The pace is limited
not only by valid safety and soundness
considerations but also the painfully
slow speed of regulatory innovation. We
are trying to regulate a digital world
with 20th century architecture that was
designed for physical assets.
The growing support for central bank-
backeddigital currencies ould finallyc
pave the way for change by spurring the
creation of 21st-century regulation. It
can do more than just disrupt the indus-
try, it can tackle oligopolistic banking,
too big to fail, systemic efficiency, and
fulfil the promise of finance.
Our current rules are rooted in phys-
ical assets and evolved as the industry
innovated. Deposit boxes were created
for safekeeping coins. Lending earned
returns on these deposits through
pooled investments.Deposit insurance
was created to prevent bank runs. Bank
account numbers became a source of
identity. This bundled offering of serv-
ices required new laws and regulations
to make the industry safe. As regulators
codified this model, economies of scale
created an oligopoly of conglomerates.
But politicians still worry about
banks that are “too big to fail”, regul-
ators struggle to supervise such big
institutions, investors remain dis-
appointed with returns, and customers
feel overcharged and underserved.

The widespread use of innovative
technology has made finance more
affordable and accessible by unbun-
dling the functions of banking. But this
can only do so much to modernise a
20th-century paradigm. There have
been attempts tocreate the veneer
of something new:Facebook’s Libra
mimics central bank-issued digital cur-
rency by promising convertibility into
notes. But finance works on trust, and it
is not clear that a digital currency issued
by a social media company outside nor-
mal banking rules can engender trust.
If central banks issued digital curren-
cies that would allow us to unbundle
many banking attributes that devel-
oped from physical assets. A cyber vault
can be used to store digital currency
holdings, secure protocols for digital
transfers and payments, and cyber
wallets for identification. Central banks
could offer this service, but so could
tech companies, custodian banks or
anyone else who agreed to follow a new
set of regulations that safeguard these
functions. A vault that holds digital cur-
rency would not need deposit insurance
but it probably would require cyber
insurance instead.
Central banks could pay interest on
digital holdings but financial services
companies would still play a significant
role. Market-based finance companies
could meet the demand for loans as well
as higher rates on savings. Any com-
pany willing to abide by safety and effi-
ciency rules could move “cyber vault”
deposits to regulated lenders who then
use them for loans.There are many pos-
sible iterations but, in all of them, bun-
dling would be a choice, not a necessity.
ny new paradigm has potential pit-A
falls. Who will control the money supply
and lending and keep the financial sys-
tem safe? We need to find ways to pay
for anti-money laundering controls:
until now depositors have helped subsi-
dise them. Then there is the issue of who
owns information and who accesses it.
I believe that we can find answers to
these questions and set up the context
that will allow finance to function in a
truly digital world. Central bankers
understand that unleashing competi-
tion in this new architecture would be
truly disruptive.
Competition can create a race to the
top or a race to the bottom. Regulators
must help point the system in the right
direction. Let’s direct innovation to sup-
port the system before someone figures
out how to bypass it.

The writer is chairman and chief executive
of The Orogen Group

Outdated rules

are holding

back financial


Unleashing competition
in a new digital

architecture would be

truly disruptive


t is the season for theUN General
Assembly, a meeting that often
feels like fiddling while Rome
burns. Perhaps this is true today
more than ever. The UN represents
the high-water mark of 20th-century
multilateralism, but the leaders of three
of the five members of the security
council — the US, Russia and the UK —
seem intent on returning to a unilateral
world of great power competition.
Yet while these antediluvian men
strut back and forth on the world stage
beating their chests, a different kind
of multilateralism may be on the
horizon. In June, the UN secretary-
general’s panel on digital co-operation,
co-chaired byMelinda Gates nda Jack
Ma, released areport hat envisagedt
a world in which states recede in impor-
tance and called for multilateralism

to be “complemented with multi-stake-
Beneath the clunky jargon is an insist-
ence that politicians take their seats
beside global leaders from other sectors
with a stake in solving specific prob-
lems: business, civil society, labour,
academia, faith groups, women and
other marginalised communities.
The panel members live up to their
own vision of participation in global
governance by asking all stakeholders
to sign up to a “Declaration of Digital
Interdependence”. The declaration is
short and drafted without the elegance
of Thomas Jefferson’s pen but with a far
more inclusive vision of humanity. It
commits signatories to “collaborating in
new ways to realise a vision of human-
ity’s future in which affordable and
accessible digital technologies are used
to enable economic growth and social
opportunity, lessen inequality, enhance
peace and security, promote environ-
mental sustainability, preserve human
agency [and] advance human rights.”
It is easy to scoff at yet another set
of well-meaning pieties put forward
by yet another UN panel. But Mrs Gates,
co-chair of the Bill & Melinda Gates

Foundation, and Mr Ma, founder of
Alibaba roup, are presumably willingG
to sign. By extension, presumablyBill
Gates ill, and why notw Microsoft hiefc
executiveSatya Nadella? Suppose pres-
sure builds on CEOs of all global tech
companies to sign. And of other comp-
anies as well. Suppose Klaus Schwab,
executive chairman of the World
Economic Forum, asks all participants
in its annual meeting in Davos to sign.

Why shouldn’t Pope Francis sign and
urge Catholics to follow suit? Students
could persuade their university presi-
dents. Mayors and governors are
already active in global networks; they
could join, which would make it harder
for national politicians to refuse. It’s a
UN product, after all.
What then? The answer may be found
in the history ofthe Universal Declara-

tion of Human Rights, adopted by the
UN general assembly in 1948 with 48
votes in favour, none against, and eight
abstentions. Just a declaration affirming
a set of universal rights, without legal
force — but the origin of an entire body
of law and practice that have shaped glo-
bal politics for 70 years. The same rights
that the digital co-operation panel now
proposes to apply online. The digital
declaration spells out nine shared val-
ues (inclusiveness, respect, human-cen-
tredness, human flourishing, transpar-
ency, collaboration, accessibility, sus-
tainability and harmony) at least as
concretely as individual human rights
are identified in its 1948 counterpart.
More words. Yet people of integrity —
and even those without integrity sub-
jected to pressure — must acknowledge
that words have meaning. Lawyers
make their living parsing those mean-
ings; shareholders, voters and groups
of many descriptions charged with
holding power accountable ultimately
decide whether that meaning has
been met. Even US PresidentDonald
Trump, a habitual liar, is determined
to deliver on enough of his campaign
promises to get re-elected in 2020.

Soimagine: with enough signatories
how then will these digital interdepend-
ence goals be achieved? The panel has
an answer there too, proposing ew gov-n
ernance structures for the digital world
of the future, which will supplement
and could ultimately swallow the UN, at
least as we have known it.
“Multi-stakeholderism” is not only
necessary, but impossible to stop.
Digital space does not recognise the
elaborate distinctions of power and pro-
tocol that governments have spent cen-
turies building and safeguarding. The
jihadist group Isis can recruit a global
army online, before and after its physi-
cal “caliphate” has been destroyed.
Companies can create currencies with-
out a national mint or central bank.
Digital tools will make global govern-
ance with actual global participation
possible, even as they create new dan-
gers and challenges. Digital and physical
power are already merging in frighten-
ing ways. The only way to counter this
threat, as in the physical world, is by
digital co-operation.

The writer is president of the New America
think-tank and an FT contributing editor

Cyberspace does not
recognise the elaborate

distinctions of protocol that

governments have built

A new kind of multilateralism is on the horizon








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