Economic Analysis
Study
26th ISMOR
Hampshire, UK
1-4 September 2009
Ted Smyth
[email protected]
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Why Economic and Finance Issues?
 Historical Terrorist Economic and Financing Methods:
- Non Governmental Organizations (NGOs)
- State support
- Wealthy individual donors
- Trade based donations
- Cash smuggling
 Example: Hezbollah
- NGOs; Jihad al-Bina (Lebanese construction company controlled by Hezbollah) and
the Waad Project (Hezbollah- affiliated reconstruction venture)
- Iranian support via The Martyrs Foundation (U.S. Branch = Goodwill Charitable
Organization)
- Wealthy donors: Tri Border Organization (Argentina, Brazil, Paraguay)
 “The crisis will impact relations between states”
Richard Haass
President, Council on Foreign Relations
 “The global economic crisis is the most serious security peril facing the United States.”
Dennis Blair
Director of National Intelligence
Enhanced risks of
February 13, 2009
regional and
 “Economic competiveness is going to be the battleground.”
international instability
James Jones
Presidential National Security Advisor
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Why a Game?
 Lack of appropriate economic/finance/national security models (LANL link)
 Seminar vs. competitive game
Simple, board game-like structure
 Scoped to address d-i-m-E-F issues
Seminar games
Economic
Issues
Umpired games
Pol-mil games
Military
Issues
War games
Seminar
3
Computer-assisted
games
Competitive
Game
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Objectives: Economic and Finance Game
Sponsor: OSD(CAPE)
- Develop and demonstrate a capability to support analysis of how
global economic and financial issues impact U.S. national security
and other specific issues of interest to DoD
- Inform U.S. decision-makers through:
> gaining an understanding of how global economic and financial
issues may impact DoD and U.S. national security
> development of alternative U.S. national security and DoD
responses to global economic and financial issues
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Phased Events
 Phase 1: Literature Review and Seminars
> Global Finance Seminar, 10-11 September 2008
> Global Economic Seminar (focus on energy issues),
7- 8 October 2008
> Game Design Seminar, 18-19 November 2008
 Phase 2: Game Development/Execution
> Economic & Finance Game: 17-18 March 2009
> First Known Game of this Type
Game and Seminar Participants: OSD; JCS; USJFCOM;
USPACOM; DoE; DoC; DoS; academia; “Think Tanks;”
banking/investment commercial sector
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Economic and Finance Game Design Considerations
18-19 November 2008 Seminar
- Restricted access to energy resources
- Energy supply disruptions
- Ascent of national oil companies
- Environmental/climate change
- China/Japan/Russia energy conflict
- China/India/Central Asia/Middle East
- China/India/African Oil Policies
- Implosion in North Korea
- Economic collapse in SE Asia
- Oil War in South China Sea
- Conventional small scale trading
- Non-linear synthesis
- Today’s economic crisis
- Return to the gold standard
- Non-hostile: loss of U.S. soft power
- Hostile: financial market attack
- Financial cyber attacks
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 SMEs offered 17 suggested
ideas
 Several have energy theme
 Several have political vs.
economic and financial focus
 Economic Models considered
 Overarching SME Guidance:
- Keep It Simple__ (KISS)
- 2008/2009 economic/finance
crisis is potential scenario
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Game Scope and Structure
Game Director
Three SME judges
White
Cell
Gray
Cell
“Rest of World”
(European Union,
OPEC, World Bank,
etc.)
(Japan, S. Korea, Taiwan)
United
States
China
Russia
Pacific
Rim
Negotiation/Summit Room
One APL Referee
Four primary players
(Economists, financial experts, national security, international affairs)
Output:
-Determine/understand U.S. and other nations’ actions and
reactions
- Validate game process as means of quick turn assessment
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2012 Scenario: Prolonged Global Recession
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Recovery from global recession remains slow
Realignment of global financial and economic powers and degrees of influence is underway
Climate change is having increasing impacts
- Water scarcity becoming widespread
- Crop failures occurring world-wide
- Hunger/starvation increasing
- Global tensions rising over CO2 emissions
Worldwide oil demand remains lower than projected and prices remain low
U.S.
- Aging population; fewer taxpayers
- Unemployment remains above 9%
- Continued loss of manufacturing jobs
- Second of “Big 3” automakers declares bankruptcy
- China is largest U.S. financial partner
China
- Slowing economic growth; unable to approach 8% per annum
- Increasingly dependent on foreign oil/energy imports
- Increasing demographic and health care issues
- Recipient of increasing environmental criticism
Russia
- Declining population numbers
- Low export earnings; oil is less than $70/bbl
- Capitalism increasingly viewed as failure
- Decreased international prestige
- Growing military dissatisfaction
Other Asian Allies
- Key U.S. allies (Indonesia, Philippines, Japan and Europe) are financially stressed
- Europe and Japan remain dependent on energy imports
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Scenario / Game Moves
 Base scenario (up to Jan 2012) / Situation 1 (January – March 2012)
 Russia - Japan long term trade agreement and reduction of Russian oil/gas to
China and “others”
 Chinese energy supplies disrupted
 Taiwan pro-independence resurgence
 Injects with cooperative / competitive events
 Plenary: Options / decisions as of 31 March 2012
 Situation 2 (April - June 2012)
 North Korea regime change appears stable but asks for outside assistance to
remedy famine and energy shortages
 Need for food/energy/refugee relief
 Ability of nations to respond/provide financial and humanitarian aid
 “Cooperative” but strained by situation 1
 Plenary: Options / decisions as of 30 June 2012
 Situation 3 (July - September 2012)
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Taiwan crisis
Pro-independence party elected in Taiwan
Taiwan adopts new policy to diversify reserve holdings (non-dollars)
China puts economic pressure on Taiwan—undermines Taiwan stock market,
dissuades foreign investment in Taiwan, restricts future investments with Taiwan
firms,
 Plenary: Options / decisions as of 30 September 2012
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Insights/Results
 Caution - game results represent but a single data point and are as
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much due to the mix of players as the issues addressed
Emergence of China/Pacific Rim and extent of global economic and
financial interdependencies
Economic and financial crisis due in large measure to U.S. actions
=> a crisis of confidence in U.S. economic and financial
competence
Recognition that U.S. and China are major forces in resolving
global economic crisis
Vulnerability of U.S. dollar as sole international reserve currency;
Russian game cell proposal to introduce gold-backed alternative
A cooperative vice confrontational strategy enabled specific cells to
increase their relative “national strength” and economic well being
during game play; influenced by player mix
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Insights/Results
 Serious impact of economic and financial crisis on developing
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nations => impact on World Bank/IMF and issue of wealthy nation
“donor fatigue”
Role and linkage of military forces/national security issues to
economic, financial, and humanitarian assistance on Korean
Peninsula
Although domestic policy was not specifically played, domestic
policies and needs may significantly impact national security
decisions
Nations and other organizations with deep antipathy to U.S. may
be encouraged to take hostile actions
Global economy needs to avoid signs of protectionism
Significant positive media (print/broadcast) and participant
response following the event
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Future Steps
 Competitive, adjudicated game format is an appropriate
and useful tool for future economic and financial
assessments
 Demonstrated need for increased and improved
interagency coordination and collaboration
 Game was an initial first step; more games are required
to gain an appropriate assessment of these issues and
their impact on U.S. national security
 Future game considerations:
> incorporate domestic issues
> other more volatile world regions (Pakistan)
recommended for potential analysis
> vary the mix and expertise of game participants
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Questions?
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