Sun Tzu and Machiavelli do scenario planning during a plague

There are two broad categories of forecasting. There are systems about which you understand enough to model their inputs, functions, and therefore forecast their outcomes. Supply chains, manufacturing, even retail sales to some degree. These tend to be reasonably deterministic in their causal dependencies.

Then there are complex, chaotic, loosely coupled systems. Almost anything to do with human group behavior, climate, macro economies, health, etc. So many systems, so little data, such loose couplings and dependencies, such a proliferation of tipping points and log effects.

These systems do not lend themselves to modeling. We do model them, but not very successfully. With such systemic uncertainty, you have to rely on scenario planning. You can't predict what the price of oil will be in five years but you had better plan what you might do if the prices are at $X, $Y, or $Z.

A well managed enterprise does both model forecasting as well as scenario planning. Some do neither, Some do one or the other. And quality of forecasting and planning can be highly variant.

Modeling is hard but it does have some good science behind it (even if we often ignore that science).

Scenario planning is much less disciplined than modeling. Many enterprises don't do it at all or don't do it meaningfully. They go through the motions but without conviction. And without conviction, you do not really uncover the nuances and implications of scenarios.

At the lowest end of scenario planning, it is pretty vanilla: current trend continues for five years. It is just modeling with longer/larger compounded growth or decline numbers. Good scenario planning introduces black swan events. Things which are absolutely possible but not a high probability.

Good scenario planning scans the ground between possible and plausible. The scenario that the entire civilian vehicle fleet will be electric in five years is certainly possible and it would be enormously consequential if it came about. But while possible and should at least be considered, it is not plausible.

We get easily disoriented in that no-man's land of possible-plausible.

My father's career was in the international oil industry on the exploration and production side of the business. In one of the oil shocks of the seventies or eighties, in response to my parroting some apocalyptic headline or another about peak oil and the decline of oil stocks he observed something to the effect "My entire career in the oil industry, people have been forecasting peak oil in five years and the exhaustion of oil stocks in twenty years. And every year we consume more oil and our reserves increase."

Apocalyptic models paint possible futures. Just not necessarily plausible ones.

In the example of the oil industry, models rarely take into account multiple realities - people respond to changes in price incentives; oil companies have little incentive to maintain unused and unusable stockpiles of oil (they will always look like they are going to run out in twenty years); technological frontiers open up (fracking and earlier directional drilling); substitutes develop; etc.

Those weaknesses of modeling is what makes scenario planning so important.

On the other hand, it is too easy to couch future scenarios in hyper-imaginative scripts. What would we do if . . . followed by implausible assumption built on implausible assumption.

Which is a prelude to observing that speculative scenario development is worthwhile and important to be done but can easily be done so badly as to be nonsensical, conspiratorial, or simply not useful.

Which brings me to the pandemic. We are four months in, still trying to understand the causal mechanisms, the dimensions, and even the history.

Which leads me to a scenario I had not considered but I suspect verges on plausible.

The rise of China in the past forty years after their adoption of something resembling a market economy has been inspiring, wonderful, raucous, beneficial, and unsettling. The new market freedom ushered in by Deng Xiaoping has freed hundreds of millions from grinding poverty, raised global prosperity, created personal and national riches. It has changed the form and direction of global trade. While there have been winners and losers, on balance, most people have come out ahead.

But . . . it is an unresolved development.

Market reform came without political reform. It is still an authoritarian, centralized communist state with no internal freedom and a centuries long inferiority complex. Not exactly a comfortable combination.

There have been multiple threads of concern, discussions which have been occurring, just not getting much sustained attention.

Will China get rich before it gets old? Increasingly looks like the answer might be yes but still uncertain.

Is there a limit to market growth in the absence of personal freedom and free speech? Still uncertain but it seems increasingly to be true that continued growth has to incorporate increasing personal freedom.

Can the Chinese Communist Party maintain an iron hand on internal politics when an increasingly prosperous people make more demands? They have doubled down on repression and it has worked so far but it seems like there are going to be limits.

Can a centralized and strategically planned economy sustain the growth rates of 10%? Definitely not, the richer they have become, the slower the improvements. And there are still hundreds of millions in the rural countryside who have not partaken in the forty years of market freedom and riches.

To what extent is the evident prosperity of China a Ponzi scheme made possible by opaque financial dealings? A sustained concern with no ready answer.

To what extent will the Chinese Communist Party attempt to deflate rising domestic tensions by jingoistic and nationalistic ventures? Plenty of evidence for that.

My speculation is predicated on the observation that growth has been slowing, political tensions rising, local challenges becoming more frequent, citizen demands becoming more obstreperous, international complacency less accommodating, etc.

Were I in the position of the CCP I think I would be facing a pretty delicate balancing act.

And then along comes Covid-19. It is possible that they have arrested its spread and that the economy is relaunching. But there is plenty of information that suggests that the death toll has been far greater than acknowledged, that the spread is till continuing, that economic relaunch will not happen soon, that global exasperation about Chinese obduracy and absence of transparency in the face of a global pandemic is rising. As are, apparently, internal citizen complaints and actions.

If I were the CCP facing global hostility, an epidemic I can't control, and cannot provide the benefits my people are demanding, what might I do.

Well, if I can't stop the domestic epidemic, then the best I can do is 1) weaken my global opponents sooner and faster, and 2) make it obvious to my domestic population that other countries are suffering more and doing a worse job containing Covid-19 than is said to be the case in China.

No doubt that Western institutions, cultural cohesion and economic prosperity are declining while perceived mortality from Covid-19 is rising. And no doubt that the CCP is trying to place the blame for Covid-19 in the west and to paint a picture of CCP competency and effectiveness.

Which leads to a secondary question. Is this war by other means?

China cannot seem to continue to deliver rising prosperity to their own people owing to the constraint on a free market in a non-free political system.

I doubt that Covid-19 was deliberately developed. But having accidentally spread, I wonder if the CCP might not have reached the conclusion that the only way for China to come out ahead is for it to spreader faster and more consequentially in the West than it has in China.

The absence of transparency takes on a more sinister aspect under that scenario. Perhaps they are waging a war they cannot credibly be claimed to have started and yet which bolsters their global position, weakens their Western rivals, and reassures their own restive domestic population. Perhaps they are turning an existential domestic threat (the negative consequences of Covid-19 piled on top of a repressive regime) into a positive global strategy. If so, very Sun-Tzu/Machiavellian.

Some of Sun Tzu's strategies take on especial significance when contemplating this scenario.

Be extremely subtle, even to the point of formlessness. Be extremely mysterious, even to the point of soundlessness. Thereby you can be the director of the opponent's fate.

All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.

All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.

If your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. If your opponent is temperamental, seek to irritate him. Pretend to be weak, that he may grow arrogant. If he is taking his ease, give him no rest. If his forces are united, separate them. Attack him where he is unprepared, appear where you are not expected.

Hold out baits to entice the enemy. Feign disorder, and crush him.

Pretend inferiority and encourage his arrogance.

If your opponent is of choleric temperament, seek to irritate him.

Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions. He who can modify his tactics in relation to his opponent and thereby succeed in winning, may be called a heaven-born captain.

Like fortune cookies, these can be read to mean anything.

Still, I wonder. This scenario is somewhere in that neverland between possible and plausible, but closer to which I do not know. Still, it suggests it is time for the West to game out the alternate responses to such a strategy.