Asia and Managing New Global Risks

Ladies and gentlemen, if you would come to order we would like to quicken the face of these proceedings between now and lunch, we have two plenary panels to fit in the next couple of hours, so it will be a tight squeeze. Our speakers will have to be brief and the next panel will have to be ready to jump up here at the end of this session as there will be no coffee break between these two sessions. Our second plenary session stretches further the concept of security from financial trade and economic risks to energy security, global climate change and pandemic disease. Our speakers share some fundamental strengths and characteristics, they are all accomplished academics and policy makers, raw strategic thinkers and they all have depth on the Asia Pacific region. And this panel will be looking at these global issues very much to the prism of the Asia Pacific region just as the next panel will very much be looking at peace and security through a Middle Eastern prism. Our first speaker, I want to invite up to the podium is James Shinn, the US Deputy Assistant Secretary of Defense for Asian and Pacific Security Affairs. Dr Shinn was previously the National Intelligence Officer for East Asia at the Central Intelligence Agency, he was a visiting professor at George Town University, he has taught elsewhere, he actually earned his Princeton PhD after having succeeded as a high tech entrepreneur in Silicon Valley where he worked for 15 years and James Shinn will help us to track the Black Swans of Asia. I think that if something goes immensely wrong in Asia, that it's almost certainly going to be a Black Swan and I am talking about birds carrying avian influenza viruses in fact I think Allen DuPont may speak to you about that in a minute or two. But I am referring to the metaphor used by my current favorite author Nassim Nicholas Taleb, the author of Fooled by uncertainty and I use this metaphor to describe events and I quote "of rarity, extreme impact and retrospective they are out prospective predictability." For those of you you that who were reading the Financial Times for the last couple of weeks, the sub prime mortgage melt down and it's an effect on global risk premier or on a lot of hedge funds is a classic example of a Black Swan event. And actually inspired Taleb it to write that book since he was an options traitor in his previous life. But in the Asia unit at the defense department we are pretty seriously concerned about Black Swans in East Asia, in particular how you prepare to deal with low probability high impact events whose warning is very difficult to see. And we could probably come up in this room with the list of qualifying events for Black Swans in Asia. You could have another Tsunami like in 2006, you could have another EP-3 type incident although in this case perhaps you submarine would come up under an aircraft carrier matter than just its turn, you could have identified a nuclear war head or what appears to be a nuclear war hear under the shroud of a merchant ship heading somewhere in the Pacific, you don't know where. And you don't know why. I was very much concerned with this commercial type of Back Swan events when I was working in financial markets and then in Silicon Valley. And I used to spent a lot of time trying to figure out either how to make money from these events or when you are running a company how to keep being crushed by these; in fact Taleb refers to options treating as the art of picking up pennies in front of bulldozers. But when I I came down the river to the department of defense it occurred to me to sit on other team and actually apply of this risk management for that's what it is. Some of these basic rich risk management technique to the security events require us to react in Asia. So, we we made a list of candidates swans and then asked ourselves five questions. First of all, what event in the past most closely resembles this? Secondly, what plausible scenario could service the trigger for a similar event the next time? Third, when you go through the detail, who actually did what in the US government and in Asia in response, what were the lessons learned and finally and most of the point what would we have to do differently to get it right the next time and for added realism we conducted these sessions in the emergency, management of the Pentagon. It's kind of Dr. Strangelove place that precisely recreates the ambiance of Claustrophobia and Panic that I believe characterizes us a lot of national security decision making. So I would like to very briefly share with you five general lessons from our exercise, these are I think probably applicable to all regions besides Asia and they are also relevant to most of the security problems that you will be discussing at the panels today and tomorrow with the possible exception of low intensity conflict. First lesson, there is usually very little warning, hard warning for bad stuff. This is just a notional list of how much hard warning you have, none for the first two when I would probably throw in a asymmetric a big asymmetric terrorist attack in East Asia in that category. TD-2 refers to a Taepodong-2 type type of the launch. The issue is that hard warning really depends upon a combination of harried diplomats, furtive spies and very expensive satellites. The real problem however is that the Swan events tend to move to a clock faster than intelligence collection. So it appears that much of the chaos and confusion of handling Swans it has to do with how long it takes you to figure out that you actually in a crisis. And have some notion of the magnitude of the crisis that's upon here. Second lesson, no surprise here is that despite the short warning, diplomats is premium to speed, there is a real premium to speed in reacting. Diplomacy and de-escalation have to move very quickly in Asian security events if they are going to work, if they failed then military force has to be applied very quickly and in the appropriate scale, and for humanitarian efforts obviously within hours or days or it's too late. Third, it's extremely expensive to train and equip your armed forces for this domain of events given the wide range of things that you would likely have to do. And it's also extraordinarily expensive to actually conduct these operations, once you think you know what you are doing. For example, the US military relief operations after that Tsunami was very much like the mobilization for a small war. And within days we could move 26 ships, 45 helicopters, 15,000 people and about 15 million pounds of supplies into the region. And we didn't have a lot of money to do it with we were scrambling around to get budgetary authority. Now, more in line with the IISS often thinks about the defense budgeting is in large part of function of threats but perceptions and threats, I believe they are tied to these Black Swans. So the first question that a rational military planner would ask is all right give me the probability of one of these events. So I can train and equip in Asia. Unfortunately, it is a migraine inducing exercise to assign probability to these. So you can actually train and equip for them. These are classic factual events as traders call them. Well, these are events so far out on the asymptote of the distribution curve but it is very hard to model them. This is one reason why intelligence analysts my former colleagues absolutely refuse to give you a point or a distribution estimate of Black Swans. As a fall back I used to try to use financial markets when I was at the agency has kind of an early warning system because it is well established for those who are traders that aren't used future markets are much better and predicting whether in United States than the US weather service by a significant margin in fact. Unfortunately it turns out that it turns out that it's very hard to extract a security signal from a financial market noise. As I can do for those of you who are used to looking at Bloomberg screens, I was I start looking at this for a while during the drawn out North Korean exercises in 2006. That happens to be CASPI and that you can see that apparently did not anticipate did not give us any warning of the TD-2 shop on July, didn't react much afterwards and the nuclear explosion a few months later barely budgeted it if it budgeted that all maybe one and a half to two percent. Thailand is even more instructive. Any rumor monitoring capital like Bangkok I don't know many more than that you do thought that have been some trading anticipation of the of the palace scuba you couldn't tell it from this, rather a small drop in the set 50, but just few months later when the Bank of Thailand, I think in a fit of absent mindedness imposed as additional reserve controls on foreign traders, there was a swing about ten times more then in the then in the two. And last Avian Flu now here is one that actually works. The there are lot of traders apparently that have huge trades, complicated trades in place of response to an avian flu pandemic because the economic consequences have been fairly well modeled. Apparently they are tracking press releases from the World Health Organization which is actually just down the road, just down the road here I think. One afternoon in May the WHO issued their release of the lab test of an apparent Avian Flu case I think it was in Sumatra and within minutes the SNP went right through the floor as those trades were executed. The bet is there was a false alarm. So the fifth and the final take way the regard from our tempt to risk manage the security Swans in East Asia is that are really prudent strategy would try and anticipate and prepare to exploit some mix of both good and bad Swans, not all Swans are bad and and prepared to capitalize that even though they are individual appearance maybe close to random, on closer examination they maybe causally linked. For example an accidental collision is been a sub and an aircraft carrier could be the stimulus both to back off in terms of military alertness and be an impetus to establish some real serious crisis control connections between the US and the PRC by the same token if peace would have break out on the Korean peninsula either on the margins of the six party talks or through some other other forum they it have to prepare for a TD-2 launch a drops down significantly. Some people are given I think this is a strictly new answered one, that it was the Tsunami of 2006 that's so devastated, Sumatra in fact it brought the Indonesian government and the GAM, the Gerakan Aceh Merdeka liberation movement to the table and alternately produced a really good Swan peace arrangement in that part of the world that I haven't seen in press very much. So in conclusion and watching the clock as Patrick instructed me, a serious reader full by randomness and my hero Nassim Taleb would consider this entire risk management exercise of ours a triumph of hope over experience I would prefer to paraphrase Karl Marx, my second favorite author, that history always repeat itself, first time is tragedy, second is farce, and third as a Pentagon war game. Thank you. Our next speaker is Dr. Yoon Young-Kwan, who served as Korean minister of foreign affairs and trade early in President Roh's cabinet his successor in fact was Ban Ki Moon, the current UN Secretary General, Dr. Yoon earned his PhD at the Johns Hopkins University SIAS in Washington DC. He is taught at the University of California Davis and he is currently a professor at the prestigious Seoul National University, I invites Dr. Yoon to take the platform to speak about energy and economic security. Thank you very much Dr. Cronin for your kind introduction and it's my great pleasure and privilege to have this important opportunity to talk at a distinguished forum like this. The Flips global strategic review and I would like to express my deep gratitude to the organizers of this conference for inviting me. I was requested to talk about economic and energy security in East Asia but I would like it's I would like to expand the scope of my discussion even further to include military security also. I am an ambitious person and since I was only be given two big topics and then why not three? There are two reasons why I wanted to include military security in my talk. First, I believe that these three dimensions of security are crucially intertwined so, I think it is better to think about the economic and energy security in conjunction with military security so then we can have a broader and more realistic picture. The second reason is that I can't see a kind of gradual long term trend toward the establishment of multilateral order in both military and economic security areas taking place in East Asia. I know I have to be cautions even I say it and it may be a little too early to make the generalization but it seems that there is a gathering momentum toward a more multilateral regional co-operation in East Asia today. In the area of energy security, the momentum is still relatively weak but it does exist. I also think this trend toward the regional multilateralism is inevitable and even desirable. Let me briefly overview the general trend in each of these three dimensions of national security. First a military security is a cliché that East Asian military security is based on a hub and spoke model composed of of few alliances with the United States. Although than Asian regional forum, East Asia does not have it's own multilateral institution for military security co-operation while Europeans have their own such as NATO or OSCE. The US has been taking on us stabilizers role and a merely erective, but security dilemma problem in the past half century rather efficiently. However since the end of the cold war the regional dynamics in East Asia seems to be under going a gradual but important change. The collapse of the Soviet Union, and the rapid rise of China's power and its political reparations in the region, I think contributed to gathering the momentum for adding a multilateral element to East Asian military security order, China which has been which had been reluctant about setting up a regional frame work in this region began to a hub of the idea of establishing a regional frame work probably because it has become more confident than before, and also it wanted to carry on a softer and sophisticated diplomacy, to assuage the anxiety of its neighboring countries above this rising power, from the American perspective, engaging China, a rising power in search for a new role in International system, into a multilateral frame work, and may be more stabilizing and beneficial than just trying to confront and contain it, especially when China put first priority on domestic development. Further more, the US will continue to be busy for the time being, with handling the complicating methods in other parts of the world especially in the Middle East, also how end spoke module and the multilateral mechanism will not have to contradict each other if the US government carries out a nuanced and sophisticated diplomacy establishing a multilateral security mechanism in addition to a hub and spoke arrangements, we will have stabilizing impact especially because it will provide an institutionalized channels for corporation amongst spoke countries or between spoke countries and former adversaries like China and Russia, in fact engaging China into a regional multilateral context has become a reality, for instance through the February second a six party talk agreement this year on resolving the north Korean nuclear issue, six countries decided to set up a working group for establishing a multilateral mechanism for secrete the corporation in North East Asia. Let me come to the economic security issues, the Asian financial crisis in 1997 marked an important turning point in the history of economic security order in East Asia, especially the fact that the US government was reluctant to rescue Thai economy in the early stage of of the crisis in the summer of 1997, affected the ways how East Asians viewed viewed the Global economic governance system, in their views the global financial governance system led by the IMF, was ineffective in preventing the crisis and un fair in managing the crisis, the one size fix all policy prescriptions like the IMF based on all stock economics were believed to have cause too much damage to the society and political economy of that two countries and the burden of resolving the financial crisis was unfairly distributed between credit of banks and that of countries, the credit of banks which were also responsible for the moral hazard problem in lending their money recklessly to debtors did not suffer much while that two countries had to suffer severely, so India's East Asian policy makers, the Global governance system led not only efficiency, but also legitimacy. This perception on the part of East Asian people galvanized their efforts to form their own regional multilateral mechanisms for economic corporation. The results of these efforts were if I name a few, the idea of building Asian monetary fund, the Chiang Mai initiative, the Asian free trade agreements, and several other FTA agreements between Asian in the one hand and each of three North East Asian countries, China, Korea and Japan. Ten years after the crisis, the economy security of East Asian countries has improved significantly. They put a mass huge amounts of foreign reserves and could manage themselves relatively well in the recent sub prime financial crisis. However I think the trend toward more multilateral corporation in the economic areas were continued to be there in this region. Thus I assume that there is a negative correlation between the effectiveness and legitimacy of global governance system on the one hand and the regional efforts to beard its own multilateral mechanism on the other. As that trend toward economic globalization intensifies, they were likely to be more frequent disturbances which in turn require an effective global leadership that can provide the global economy with the public course. However the US has been less willing to provide an effective global leadership as they used to do in the cold war years. It seems that the US is more concerned of our pursuing not only defined the interest of its own. So my guess is that they efforts for more Regional Corporation among East Asian countries will gather momentum in the future. Considering the shear size of the Chinese market, this may mean the rise of Chinese influence in both regional and global economy. So the US will have to face an important policy choice about what to do regarding East Asian regionalism. From the US point of view, it may be more advantageous to try to join and actively participate in this trend of Asian regionalism as an important Asian Pacific power instead of staying out of this movement. Finally energy security order, since the energy supply is so close related to military security, it may be difficult to argue that we have to approach the energy issue purely from the market perspective. This means that again there exists a security dilemma problem in the East Asian energy security relations. In the eyes of the US policy makers, China's energy strategy issue has been too aggressive and more cartelistic. It has been trying to lock up energy supply all over the world. China has been pursuing its policy of security energy so aggressively that it engaged even such countries as Myanmar, Sudan, Iran and Venezuela which have either human rights problem or nuclear proliferation problem. From the Chinese point of view, it is a little different story. China views that the USA is trying to contain it in energy security area by trying to limit its expedition of energy resources. China is also worried about the possibility that the superior US naval force exercising dominant influence in the Malakas Stait might threaten the security of all measurements from the Middle East to China you know contingency of the Taiwan issue. China also views the Japanese efforts and the recent success in persuading the Russian government to beard oil pipeline from Siberia to Nahotka in favor of Japan as an intension to check China. There are many other potentially dangerous paths where major country's interest can collide, for example the US - China competition in the Middle East and central Asia, China - Japan confrontation in the east China side, China Asian confrontation in the south China side for example. A China specialist in a university in Hong Kong, Professor Lee says "oil words instead of oil in the pipeline". In the second East Asia summit on January 15th this year, the heads of East Asian countries promised to cooperate more closely in order to improve energy security. I think even in these areas of oil security it is better for the US national interest from a middle and long term perspective to expand more efforts to build a multilateral mechanism for Energy Corporation and engage China in to it. It may begin from those areas that are less sensitive and where corporation is more easily achievable like improving energy efficiency and reducing environmental problems. If the US does not try to engage China in this way, then the race between the two and among the major powers will intensify and it will worse in the global economic and political situation. History teaches us that energy blockage blockage has become the Japanese pretext for attacking Pearl Harbor. History teaches of a more optimistic lesson tool. The west European decision in the early 1950's to co-manage key strategic issues such as coal for establishing the European coal and steel community was a wise decision based on a historical foresight. It might have looked too idealistic or visionary at the time, but in retrospect it worked and could achieve - and they could achieve the goal of peace and prosperity in Europe in the last half century. As in those days, we may need a more imaginative and forward leaning international leadership today. Thank you very much. Dr. Yoon, thank you very much for amplifying on the themes I think our chairman François Heisbourg set out when we opened up last night on terms of the struggle that multilateral institutions are facing in this modern era. I want to move next then to our third speaker Professor Alan DuPont. He holds the Michael Hintze Chair of International Security and directs the International Security Studies Program at the University of Sidney. His previous positions have included posts at the Louis institute, the Australian national university and if you look down for in of on his impressive resume, even as a free lance journalist in south America professor DuPont's paper addresses the risk of global calamities. I want to thank John Chipman in then the IISS for giving me the opportunity to exchange the on world of Sidney for the relative tranquility of Geneva. For those of you whose governments have not yet hosted an eye peg hits of government meeting, I can assure you that it's a privilege that many ordinary citizens would willingly forego. In any event what I would like to do in the 10 or 15 minutes allocated to me is to take up Jim Shinn's comments about the Black Swans. Black Swans of Asia and globally and to trying to rate for you what I see is some of what Don Rumsfeld might call some of the known unknowns and even unknown unknowns that might dislocate political and strategic order in this part in Asia. I thought it might be useful just to quickly conceptually locate this discussion. Last night the secretary general of NATO made the point that we are in the midst of a paradigm shift and I do agree with him. Now what we are starting to see now is the host of transnational issues, most of which have nothing to do with competition between states for power but have everything to do with the human induced disturbances to what I call the fragile balance of nature. Now the consequences of these kinds of emerging dangers and threats which include among other things climate change, pandemic diseases, concerns about food water and energy, environmental degradation, drug trafficking and these kinds of issues and now starting to have a quite demonstrable impacts politically and economically on the stability of the globe and particularly in the Asia pacific region. So why should we think about these security issues essentially for the same reasons we think about conventional military threats as dangers to stability. Some of these disturbances, some of these new threats are bringing about enormous destruction causing millions of preventical deaths and as I said they are actually undermining political and strategic order particularly in the developing world and if you think about East Asia or the the whole of the Asian region, most of the states, they are developing states which simply do not have the resources and the resilience to do with a lot of these these emerging challenges because they are coming at us from many-many different sources and they are not challenges that we can deal with unilaterally not can we deal with them each alone. So these are multiple challenges that we are facing here. Far upon I like to make the first conception is that we often talk about these issues as hard and soft security issues personally they are labels that I hate because they don't really I suggest that some how hard security issues, military conflicts between states first order real security issues and the sort of things that I going to talk about our self and second order and therefore we need to worry about them less. I actually think a better way to characterize these dangers as being on the same spectrum, it is continuing and a lot of the emerging transnational challenges to security are actually exacerbating into state conflicts as well as undermining the security of developing states, I think we do have to think about them as continuing and not as too discrete boxes of security challenges that confront us. Now a couple of key points about climate change I mean this is a - an enormous subject and I can't obviously do justice to do it in a few minutes. But I think the points I would like to make here this morning are as follows, there is now sufficient data to include with a high degree of certainty that the speed and magnitude of climate change in the 21st century will be unprecedented in human experience posing dotting challenges of adaptation and mitigation for all of us. Now the central problem is the rate at which temperatures are increasing rather than the absolute size of differential warming, let me just again try and put out in a context for you 15 thousand years ago as we came out of the last last ice age, temperatures were about on average five degree Celsius cooler than they are today, sea levels were 18 meters lower than they are today, it was already 15,000 years ago. The situation we are confronting in this space of this single century is that temperatures will almost certainly move, will increase by perhaps 3 degree Celsius at least and sea level rises almost certain to be in the order of half a meter. Now scientists are recently confident about these kind of predictions these are not unknown unknowns, these are things that we can reasonably predict based on the empirical evidence we have before us. The other point I want to make is that these - that the source of climate change the climate change I am talking about here is us, these are not naturally occurring patterns this is about the impact of our human life styles on the climate of the planet. So we are the ones causing these changes and obviously we force us to try and fix them if we can. Now what are the implications from history I will give you, five very quickly. The first is that climate change is going to change the productive landscape of Asia and about major changes in rainfall distribution for example in a part of the world which relies very heavily on rainfall for - to grow crops, for example it takes five thousand kilograms of water to grow one kilogram of rice, Asian economy is hugely dependent on rice, what happens when rain ceases to fall or diminishes, clearly there is going to be major implications for food productivity in the region. Fresh water scarcity is linked to food to food production in the way that I am indicated, 70 percent of China's grain is actually grown from irrigation. So if the water fails it's going to as I said have impact on food, diseases - infectious diseases in particular like malaria, Ross river fever will spread as the climate heats up forcefully there will be an increase in a natural disasters, a more severe weather events are almost certain and that's going to have a tremendously damaging impact on the infrastructure and on people everywhere not just in the developing states. Finally the impacts on the movement of people is going to be very substantial as some of the estimates I have seen are up to a 150 million climate change refugees by 2050, even I give about the sorted numbers but I think they quite closer when you look at the bases for them, so there is no doubt we are going to see people forced to move across borders and within states because of climate change over the next 50 or 60 years. Second point I wanted to make is the way in which climate change is interacting to increased anxieties about future energy security, we know that the world is going to use about 50 percent more fossil fuels in the next 15 years than it is now that's going to put an enormous extra burden on the atmosphere in the form of Green house gas emissions so, if I can summarize climate change is going to increase energy security for three reasons. First of all the environmental cost of using fossil fuels may in my view become a great constraint than their availability because as I said fossil fuels are a major source of the green houses gases that are heating up our planet. The second impact is that we are saying already a major reassessment of the utility of nuclear power which ironically is now saying as an environmentally clean source of energy where as 10 or 15 years ago it was saying as a dirty and dangerous fuel. We are having a major reassessment of nuclear power but that's going to have the implications for nuclear proliferation and potential nuclear terrorism which I can happy to draw out in the Q&A section. The third point I want to make is that as the polar icecap melts, resources which would come previously in-accessible beneath the polar icecap and as well as in the Antarctic, are going to be the subject of what some have dubbed a new gold rush. We have already seen last month in fact on the second of August the Russians sent two submersibles to the bottom of the polar icecaps to claim them for Russia. We are going to see an increase in tensions between states and disputes at sea rising because as islands submerged that will actually change the judication of [0:41:46] ____ and sea bed boundaries in quite fundamental ways. An international law does not yet give us any answers to these problems in the future. The third point I want to just touch on very briefly is infectious diseases. Many of the infectious diseases that we are now starting to see a manifest ourselves we have not seen before. There had been approximate 30 new infectious diseases identified over the last 30 years. Some of you will be very familiar with them, names like Ebola, HIV AIDS, H5N1 bird flu, these sorts of diseases are new, they have the capacity to morph into pandemics to become more than just micro bio problems with public health issues, they are not coming under the security agenda of states everywhere, I am including United Nations. So, we now need to just start thinking about some of these emerging infectious diseases as issues that people like their selves to think about the strategic consequences on them. A lot of these new diseases and on more add some of them old scourges are reemerging in more virulent form -- for example, Diphtheria, Tuberculosis, Typhoid fever and so on, these new diseases are primarily work because synoptic pathogens such as they have the capacity to go from animal and bird host to infect humans, and the big concern in the Asian region, is whether the H5N1 bird flu will actually leap the species barrier, infect humans and then we might see human to human infection. Now I am not saying that it is likely to happen, if you ask me to put a probability on it and I would say probably it's around 10 percent in the next 30 years, but that's that's a threat that I think is worth thinking about very seriously because if it does break out, if we do see an H5N1 bird pandemic in - bird flu pandemic in Asia, I can tell you it's going to be very serious and let me just illustrate how serious it could be by extrapolating from the 1918 1919 influenza pandemic we saw that devastated much of the world, if that were to occur extrapolating from those figures, we could see up to 142 million deaths globally and a loss of $4.4 trillion which is about twelve and a half percent of global JDP, that's the worse case scenario, almost same is going to happen, but it is certainly not out of the question, so these are some of the issues that are now coming under the security agenda in this part of the road and as I said I believe we need to take it very seriously, so let me conclude with one thought - being it destroyed and actually we have lots of black swans and so a black swan is not some thing that's un usual or different, so what I want to tell you is that there are lot of white swans and black swans out there that is here are things that we know I got to impact on security and things that we can reasonably predict, so what I am saying to is the issues that I have just touched on climate change and infectious diseases, these are actually things that we can see, we have got a fair idea, the trend rights we can extrapolate with reasonable high levels of certainty about the impacts, but there are other things out there that may come out of this field, the strategic dislocations in climate change is one of them, because for example if we go to get a major melting of the Green Land ice cap, you could see sea level rise is being not just half a meter its about six meters globally and is going to have an enormous impact on food production and population and so these are things we need to worry about and most importantly it's what [0:45:46] ____ has called the risk of synchronous failure that is we have multiple crisis occurring at the one time that pushes over an environmental tipping point from which there will be no winners, thank you very much.