The Conservatives: the Party of Government? Barely a party at all 

Self-evisceration? Or self-immolation? Take your pick. The Tory party really cannot decide which is the best way to send itself to oblivion, but it seems determined to get there one way or another.


It is the nature of the beast and a statement of the obvious that governments are formed of politicians. Even in mature democracies, politicians simply cannot resist ‘doing’ politics: the plotting and planning and whispering in dark corners like some latter-day Tudor court, knives up the sleeve; it’s in the blood, the intrigue gets their juices flowing amid the cut and thrust and the quest for power or holding on to it. The best-led, most enduring parties focus their energy on constructive, cohesive and consistent policies, underpinned by ideology and principle. They win the argument by persuasion rather than merely beating up the opposition; the weakest resort to beating themselves up.


All parties are susceptible to bouts of in-fighting at some stage in their own cycles, but the Tories are making an art-form of it, at risk of being in a permanent state of internecine warfare between their own multitude of rancorous domestic factions. The party’s propensity for casual regicide, carelessly slaying its own occupants of No 10 while in office, is prodigious. 

Zero political principle or ideology leads to permanent drift 

Boris’s enduring elasticity with his memory, and he and his advisers ignoring the old defence lawyer’s best instruction to a client to “let’s agree on one version of the truth, preferably the right one, and stick to it”, finally did for him.


But much the greatest, indeed the fundamental problem of Conservative leadership is its total ideological vacuum; it is simply an empty vessel, a policy black hole. Made of anti-matter there is nothing around which to coalesce. On the economy, taxation, post-Brexit Britain, defence, public sector reform, energy policy, law & order, indeed every facet of government, it has neither conviction, coordination nor coherence. Until that is resolved by Boris’s successor, the Tory party will remain trapped and sinking in a midden entirely of its own making.


The Opposition is little better: if it were, presented with a gaping open goal, Labour and the LibDems would be over the hill and far way in the polls, not 7pts ahead and 21pts behind respectively, as they are according to Politico. As it is, the BBC’s political ‘editor’, Chris Mason, is the new High Priest of Public Political Opinion, his own brand of insidious, attack-dog editorship daily dripping poison into the national ear, a sure sign of a parliament and political system in trouble, as it has been almost consistently since the Brexit referendum in 2016. 

It’s not much better abroad 

It is of no consolation, but we are not alone! Others have their own problems, if not quite of the same comedic meltdown magnitude as confected here.


In France, President Macron might have retained the Presidency in April but in the June national elections he lost his majority in a parliament which has polarised itself with big wins both for the far left and the far right leaving him adrift in the middle, needing to make unlikely and unholy alliances to achieve any policy progress.


In Germany, Olaf Scholz’s new coalition government is already deeply unpopular; less than 6 months in to his administration his own social democrat SPD has gone backwards in the two most recent regional elections in North-Rhine Westphalia and Schleswig Holstein which showed big gains for Angela Merkel’s old party, the Christian Democrats, and also the Greens; just to add to his personal woes the Green leader Anna Baerbock, his Foreign Minister, is regularly ahead of Scholz in the hypothetical “who would make the best Chancellor” polls.


In America, Joe Biden already branded by some as the worst President in history (even with the likes of Trump and Carter for competition) is in trouble with the left wing of his party, even before the November mid-term elections which could see his reduced to a lame duck Presidency. Socialist radicals such as Congresswoman Alexandria Ocasio-Cortez refuse to endorse him for a second term and she is even suggesting she might stand against him; that is not supposed to happen to a sitting first term president, being hung out to dry by your own side. How familiar does that sound?


Political dislocation is not the sole preserve of the UK, even if it is the principal preoccupation of our national media and the Westminster kindergarten. Out in the real world, Boris’s defenestration has consequences, handing a significant propaganda coup to Putin, and pulling a major personal prop from under President Zelensky. 

NATO: upping its game? 

Why labour this? Because when attempting to present a strong and united front to deal with the travails of the world at the recent G7 and NATO summits, it will not have been lost on the autocracies or theocracies of Russia, China, Iran and others, that the domestic political foundations of the principal players above are less than surefooted, or now in Boris’s case non-existent (the EU turns up to these shindigs too, but is so confused about who it is that it has to field two ‘presidents’, neither with any direct authority other than presiding over talking-shops: one, the President of the Commission, the EU’s civil service, Ursula von der Leyen; the other the President of the Council of Ministers, Charles Michel. Why both? Why either? Answers on a post card). Mindful of that, and behind the façade of “we’re all behind you, Volodymyr (well behind)”, there are still canyon-wide differences dividing countries, whether members of NATO, the G7 or the EU, about what is an acceptable outcome to the Ukrainian conflict.


Nevertheless, as speculation rises amid Russian territorial gains in the Donbas, however laboured, that in the absence of a significant increase in military aid Ukraine might not survive the winter fighting season (there is even talk that Zelensky’s government may fall sooner than that), NATO members agreed that more needs to be done to bolster its own defences. To be clear, not to provide boots-on-the-ground assistance to Kiev, but to shore up the defences of NATO’s eastern flank countries from the Baltic to the Mediterranean, that flank now significantly extended by the accession of Sweden and Finland.


A key NATO initiative was to increase the number of “immediately deployable” troops in its Rapid Reaction Force (RRF) from 40,000 to 300,000. On paper it seems easy; in practice, it is extremely complex. As a former Deputy Supreme Allied Commander Europe once observed, the RRF is a heterogenous hotch-potch with little inter-member compatibility or commonality in weapons, ammunition and communications systems, and little opportunity for joint training on any scale. Then there are the inevitable international politics of command-and-control authorities and managing the chain-of-command conflicts of interest between the troops on the ground, their national governments and the various NATO headquarters (especially were the military conflict to be in Europe); even getting 40,000 troops to the start-line in operational, fighting order before it is too late was deemed pie-in-the-sky.


If the new proposal is not to be completely dominated by the US, which has much the greatest manpower and military capability (but is five thousand miles away on the wrong side of the Atlantic for a fast response), quickly putting 300,000 into the field with all the logistics required to support them increases the complexity significantly. 

Conservative defence policy: full speed ahead (in reverse gear)  

Germany has already committed to spending 2% of GDP (as it should have all along but failed to do so serially for years) and in March, stung by its critics, announced €100bn of expenditure on a big and very long overdue catch-up programme. It remains to be seen with what energy this is prosecuted.


Last week, Boris announced that the UK would increase defence spending from ‘2% to 2.5% of GDP by the end of the decade’. Any relief that Secretary of State Ben Wallace’s cuts announced last year would be reversed was short-lived. Declaring the new numbers ‘fine’, Boris breezily confirmed the Army establishment will still see regular troops reduced by 10,000 to 72,500 and with it, the number of tanks, guns and armoured fighting vehicles; the RAF’s already significantly hollowed-out combat aircraft capability will dwindle further; the Royal Navy’s destroyer and frigate force, even now too small to provide adequate anti-air and anti-submarine protection to its two new aircraft carriers and to be able to fulfil any other obligations simultaneously, will still be reduced by 10% to 17 ships. 

Opposing military camps dig in at the MoD 

The military community itself is divided about what is required in a world of fast-changing technology and strategic imperatives, whether the threat be from China, Russia, Iran, North Kora, or non-state aggressors such as Al Qaeda, Daesh and others. In terms of technology, new hypersonic delivery systems for nuclear and non-nuclear warheads, and cyber, compete with conventional means of waging war and, as importantly, the ability to defend against them. The Russian campaign has polarised opinions: crudely, one camp says we need fewer people, tanks and guns, Ukrainian success shows you can do much with cheap, low-tech drones and a smattering of some advanced missiles; battlefield armour, like the Dreadnoughts, has had its day. The other says that offensively, you’ll always need to have at least as much man-and-firepower and mobility comprising coordinated infantry, armour and artillery, as well as aircraft and ships, to defeat an enemy and push him off your lawn; as our foes are building such capabilities, so we need to keep up.


However lethal one’s armoury, common sense says that at least matching the enemy in numbers is a prudent starting point. What is militarily illiterate and irresponsible is to have so little kit that you dare not use it for fear of losing it, a situation in which the UK finds itself very close to being. Of course, there are subtleties and nuances to warfare (as illustrated by the British Army’s very successful and highly regarded approach to ‘Hearts and Minds’). However, two truisms are enduring: 1) there are no podium places and silver medals for coming second in a war and 2) Admiral Jackie Fisher’s dictum that ‘the essence of war is violence, moderation in war is imbecility’ (to which he also added, ‘Hit first! Hit hard! Keep hitting!’). Members of the government need to read, learn and understand their modern military history. 

Third party fire & theft? Or fully comprehensive? If not Russia, China should concentrate the mind 

In context, before the Berlin Wall came down, the UK was spending 4% of GDP on defence. In a case of Whitehall smoke and mirrors, the current 2% headline expenditure only reaches the target by including all the fully loaded employment costs of the army of non-combatant civil servants manning the MoD and other support structures. As we discussed in our February analysis of the then impending invasion, ‘Anatomy of a Crisis’, the UK military procurement process and its careless and prodigious ability to waste money and time is the embodiment of dysfunctional decision making and poor execution, allied to fantastical accounting systems. As we concluded, it is not just how much we spend, but with what level of efficiency it is spent. It is ironic that in being much the most effective leader within the NATO block putting some political backbone behind the effort to help Ukraine, but binary in vision and seduced by cyber and shiny kit in an either/or argument with boots, boats and bombs, Boris was so misguided regarding the defence of his own back yard. It will not be lost on those who would do us harm that even going to 2.5% expenditure over 8 years, barely keeps up in real terms and still leaves large gaps in our capability and will still see us punching well below our weight beyond 2030.


As if Russia is not bad enough, this week there are reports that China is building up war chests of reserves, both financial and of all forms of materiel to be able to withstand sanctions if/when it decides to attack Taiwan. Two simultaneous conflicts half a world apart would be virtually impossible for NATO to deal with. It is at this point that a really effective Chief of the Defence Staff would use the opportunity to spell out in no uncertain terms to a new prime minister the urgency and magnitude of what needs to be done to mount a credible deterrent comprising a balanced conventional and nuclear capability. The emphasis is on those key words, “balanced” and “deterrent”. 

Why does it matter to you? 

As to the relevance to investors? Two global exogenous shocks have dominated the past two years, one a pandemic, the other a war. ‘Anatomy of a Crisis’ discussed in some detail how a slow-burning geopolitical and deficient defence policy fuse rapidly went from flash to bang creating a febrile and volatile investment backdrop. The world is a much less stable and safe place particularly in the context of the strategic ambitions of players such as China, Russia and others. The response to the current situation and the willingness, or lack of, to prevent further destabilising actions (and the knock-on economic impacts arising from them) are reflected in risk premia in equities, term premia in bonds, volatility in raw material prices and currencies. It has also had a profound effect on the debate surrounding energy and food security, and defence policy, and has thrown a critical spotlight on the complexities and tensions within ESG. It matters! 

Two pieces of related recommended (required) summer reading for you: 

2017; War with Russia (Gen Sir Richard Shirreff): written in 2016 and presented as a novel (admittedly an indifferent one with stilted unrealistic dialogue), nevertheless as a former NATO Deputy Supreme Allied Commander Europe (DSACEUR), Shirreff gives a fascinating and realistic insight to the inner workings of NATO and its member governments when confronted with the ‘Russian President’ invading the Baltic States having already invaded Ukraine. Prescient and visionary, six years on, the prologue could have been read fresh in any newspaper today.


Freezing Order (Bill Browder): we are all aware (or we should be) of the Russian kleptocracy. It is easy to be seduced into thinking that it is just casual corruption, a bit of foreign money laundering, it is just what Russians do, and it doesn’t really matter so long as they keep it to themselves. Think again. It is on an industrial scale measured not in billions but in trillions of dollars, it is all-pervading, insidious, corrosive and the nakedly self-interested and the criminal motivation behind it goes to the root of how Putin thinks and how he maintains his grip on power, as would his successors. Bill Browder was CEO of Hermitage Capital; ‘Freezing Order’ is the sequel to his earlier book, ‘Red Notice’, and is the autobiographical account of a brave man who defied Putin’s attempts to silence him in his fight with the kleptocracy having himself been framed on a trumped-up charge of money laundering. If you are puzzled about the machinations of the sanctions against the oligarchs and Putin himself, relating to Ukraine, read this book and you will begin to understand the byzantine complexities lying underneath, and the extent to which internationally Putin’s asymmetric influence behind legal, judicial and government machinery in the west, and the media, has the power to undermine the rule of law and the norms of democracy. That the international sanctions regime exists at all is thanks to Browder’s single-minded pursuit of justice for the murder of his friend and lawyer, Sergei Magnitsky, after whom the eponymous US sanctions Act was named. It’s sobering stuff.


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