Thinking the Unthinkable: Why the World Misjudged Ukraine’s Coming Fury
By Michael Moran, Skytop Contributor / May 18th, 2022
Michael Moran is a geo-strategy and sustainability expert whose books and documentaries have won awards and influenced the global debate for decades. He currently serves as Chief Markets, Risk & Sustainability Officer at Microshare, a global leader in Smart Building and ESG data technologies, and is a Lecturer in Political Risk at the Josef Korbel School of International Affairs at the University of Denver.
Moran is a former Principal and Chief US/Macro Analyst at Control Risks and led digital content strategy at the Council on Foreign Relations, winning three Emmy Awards for documentary work while there. He also has launched successful editorial offerings for Roubini Global Economics, the Carnegie Corporation of New York and other clients and was a member of the launch team at MSNBC.com, where he served as a columnist and international editor for over a decade.
He is author of several books, including The Reckoning: Debt, Democracy and the Future of American Power, of which Ian Bremmer of Eurasia Group wrote: “Moran is a sharp thinker and fine storyteller, and The Reckoning is a terrifically engaging read.” Moran is co-author with economist Charles Robertson of The Fastest Billion: The Story Behind Africa’s Economic Revolution and a novel, The Fall (2015). His analysis of political risk and international affairs has appeared regularly on CNN, CNBC and other major broadcast outlets and in the pages of The New York Times, the Financial Times, Forbes, Foreign Affairs and Foreign Policy magazines and many other journals.
Shock and Surprise
If the air gets rarified enough, it can be easy to forget one of the most basic facts of human nature: alone among the species of the Earth, we humans organize ourselves for mass murder.
What else can explain the shock and surprise that western democracies and their leading corporates displayed when Russia invaded Ukraine? Or the fact that the World Economic Forum (WEF)’s risk survey of political, corporate and public intellectuals completely failed to register a war between two European states?
In its 2021-2022 Global Risk Report, the WEF’s annual survey of Davos Man and Woman, the closest thing to “War” in the list of top ten things keeping these folks up at night was “Geoeconomics Confrontation,” which squeaked into the Top Ten just beneath such feel good concerns like “extreme weather” and “biodiversity loss.”
Few in the universe of political risk consultancies did much better, though some, under pressure to say something substantive in their annual “year ahead” risk reports, carefully hedged their bets. “Russia will act if the West does not give Putin what he wants,” concluded the Russia hands at Ian Bremmer’s Eurasia Group.
Far better, and braver, was the solid conclusion reached by US intelligence that Putin absolutely intended to launch a full-blown war. As has been reported, the Biden administration made clever use of this intelligence by going public with it in an effort both to check Putin’s hand with international pressure and prevent NATO’s more flaccid members from breaking ranks. In the end, Putin ignored the world. It can’t have helped that China winked and nodded, and India decided it had no dog in the fight. But the West has remained remarkably coherent in its determination to make Putin pay, both economically and on the battlefield.
Not Just a River in Egypt
The war, of course, rages on. Ukraine’s defense of Kiev and its peoples’ refusal to give an inch without exchanging gallons of Russian blood should banish questions about Ukrainian sovereignty forever. But it bears asking: How could so many in the West have gotten it so wrong?
This is a particularly nettlesome question for the corporate world. Over the past two decades, corporate risk and strategy departments have made great strides getting themselves taken seriously in the C-Suite as so-called “Black Swan” events and other bolts from the blue trip up carefully laid plans.
Starting with the fall of the Berlin Wall right through 9/11, the Global Financial Crisis and COVID-19, the past several decades have proven beyond a shadow of a doubt that “models’ ‘ that purport to do the forecasting for us humans are dangerous engines of denial. As with public opinion polling and climate science, political risk modeling merely suggests possibilities. If the humans consuming the data take no action other than assuming the best case will prevail, they deserve what they get.
The perils of doing business in Putin’s Russia – even leaving aside the ethical issues raised by a regime that poisons and defenestrates its political opponents – have been evident for more than a decade. The losses being suffered by global giants like IKEA and BP and Nestle were predictable, and the risk teams within these huge firms – as well as the risk consultancies upon which they shower retainers – failed them miserably.
This war, telegraphed for decades by previous Kremlin skullduggery in Chechnya (Grozny), Moldova (Transdniestria), Georgia (South Ossetia, Abkhazia) and then Crimea and Donbass, should hardly have caught these firms and their investors with their pants down. And yet, that is precisely what happened.
Few, it appears, hedged against the spike in energy prices that the war has fueled. Fewer, still, stockpiled palladium, nickel or copper, all commodities vital to the modern tech economy and found in great volume in Russia.
Bob McNally, a former G.W. Bush “energy czar” and now CEO of Rapidan Associates, an energy consultancy, told me just before the war began that he could not predict the future. But he agreed with me that past behavior did suggest that Putin’s Russia had made a habit of attacking its neighbors when oil prices neared new peaks.
“Higher oil prices along with other measures Moscow has taken to protect its financial system from sanctions will help it withstand garden-variety sanctions,” he said.
How We Missed It
The mix of confirmation bias and denial that left so many nations, corporations and individual investors swimming naked in the Black Sea tide can probably be put down to wishful thinking.
The Nobel Prize-winning behavioral economist Joseph Kahneman, in his seminal work, Thinking, Fast and Slow, put it this way: “Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance.”
How did War, one of the most tragic yet persistent features of human history, fall so far off the risk radar? With all the warning signs ahead of the Ukraine war, and the significant and predictable geopolitical impact a war between these two states would have, why wasn’t this higher on the list of things keeping this well-read cohort awake at night?
The late Peter Wason, the pioneering English psychologist who coined the term “confirmation bias,” spent his career studying this phenomenon. A form of cognitive bias, confirmation bias is the tendency of the human mind to favor data that reconfirms previous assumptions or beliefs.
To its great credit, the WEF resisted the temptation to go back and “update” its 2021-2022 report and sprinkle the word “Ukraine” in with the worthy concerns like “Climate Action failure,” “Social cohesion erosion” and “Biodiversity loss.” Many of the world’s leading risk consultancies make it a point to take down annual forecasts when a Black Swan flies over and soils their careful, authoritative sounding forecasts for the coming year. (I won’t name them, but you know who you are!)
For consumers of political risk analysis, there are important lessons here. First, no one knows what’s going to happen tomorrow. That means you should be highly suspicious of consultants or colleagues who may be tailoring their advice to please you. Corporate counsels, too, know this peril: Get branded as “Dr. No,” and no one asks your opinion anymore. It’s up to the consumer of such warnings to prevent that freeze out from happening.
A second lesson: Beware the Black Swan. Not the genuine variety – true Black Swan events happen very rarely, and the Ukraine War is not one of them. This warning concerns anyone telling you that, because they didn’t predict it, it must be a Black Swan.
Nonsense. Condoleezza Rice and Amy Zegart, authors of a seminal text on political risk forecasting, Political Risk: How Businesses and Organization Can Anticipate Global Insecurity, wrote a fascinating chapter distinguishing “Black Swan” events from things that could have been predicted, or at least should have been characterized as possibilities. Resilient organizations plan for the worst and do scenario analysis even if the thesis flies in the face of what the CEO, Board and senior staff believe will actually happen. And models will fail because “… nothing in the past can convincingly point to [a black swan’s] possibility.”
Rice found out in the wake of 9/11 how tragically misguided a nation can react when the Black Swan appears. Corporations, too, can overreact and compound the damage of being unprepared. Factoring a war into scenario analysis and risk management processes is a no brainer. Think about how a Chinese invasion of Taiwan would affect staff and supply chains; or a conflict between Saudi Arabia and Iran.
War is hell. And this time in Ukraine, at least, hell turned out to be very real. Best take the lesson.