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AFRGA1 0020
AFR28-29 May 2016
The Australian Financial Review | www.afr.com
20
Perspective
Swedish sub in Stockholm harbour: The small size of Sweden’s defence force relative to that
of Russia means it may eventually rely on the power of NATO. PHOTO: GETTY
It helps clear up
uncertainties about
Sweden’s potential
role in a crisis.
Magnus Nordenman, Atlantic Council
RUSSIA GOADING
NEUTRAL SWEDEN
Nordic tensions Sweden has voted to give NATO more
room to operate in its country, writes Reid Standish.
S
ince the annexation of Crimea
and the outbreak of war in east-
ern Ukraine in 2014, things
have got tense between Russia
and Sweden. Russian jets have
repeatedly prodded Swedish
airspace, a huge hunt was launched for a
foreign submarine – suspected to be Rus-
sian – off the coast of Stockholm, and the
closure of Swedish airspace last November
might have been caused by a Russian cyber-
attack. Adding to the tensions, Russian For-
eign Minister Sergei Lavrov told the
Swedish daily Dagens Nyheter in April
Moscow would ‘‘take necessary measures’’
if neutral Sweden decided to join NATO.
And so tensions might only grow after
this week’s vote by Swedish legislators to
ratify an agreement that would allow NATO
to more easily operate in the country.
The deal, known as a host nation support
agreement, will grant NATO more room to
operate on Swedish territory for training
exercises or in the event of a conflict in the
region. Russia’s role in the war in Ukraine
and the changing security environment in
theBalticisforcingStockholmtoreconsider
its 200-year-old policy of neutrality in
armed conflicts, and the agreement brings
Sweden closer to the alliance than ever
before.
‘‘It’s very significant in practical terms,’’
Magnus Nordenman, director of the
Transatlantic Security Initiative at the
Atlantic Council, told Foreign Policy. ‘‘It
helps clear up uncertainties about Sweden’s
potential role in a crisis or war in the
region.’’
The vote easily passed with a broad
majority, but the debate in the Swedish Par-
liament highlighted the difficult tightrope
Stockholm must walk between Russia and
the West. Before the vote, there were
rumblings that the opposition Left Party
and far-right Sweden Democrats, both of
which are against NATO membership,
would combine their votes to send the legis-
lation to review, where it could have been
delayed for up to a year. But the Sweden
Democrats at the last minute agreed to back
the closer military co-operation, denying
the Left Party the necessary support to table
the vote.
‘‘This was the next big step in terms of
deepening Sweden’s co-operation with
NATO,’’ Nordenman said. ‘‘But it’s not close
enough yet for membership. Domestically,
there is still tons of hesitation.’’
Neither Sweden, nor its neighbour Fin-
land,aremembersofNATO,athrowbackto
both countries’ histories of military neutral-
ity and complex relations with Moscow.
Since the end of the Cold War, Helsinki and
Stockholm co-operated more closely with
the military alliance and debated potential
membership. In late April, the Finnish For-
eign Ministry published an independent
reportexploringtheconsequencesofNATO
membership for Helsinki. The report’s cent-
ral finding was that the Nordic duo should
stay together: either by both joining the alli-
ance or abstaining.
But taking the leap towards NATO has
been difficult for Helsinki and Stockholm,
which are increasingly under domestic
pressure to respond to Russia without pro-
voking a Kremlin backlash.
Meanwhile, Moscow and NATO’s
duelling rhetoric and actions have only fur-
ther inflamed tensions in the Baltic. NATO
members Estonia, Latvia and Lithuania
have sounded the alarm that their region
may be the next flashpoint with Russia. In
responsetothegrowingnumberofairspace
violations, Sweden remilitarised the island
of Gotland in the Baltic Sea in February for
the first time since the end of the Cold War.
Violations and provocations near borders
are part of a long pattern by the Kremlin to
test its neighbours’ resolve, but it is one that
is not always effective, Tomas Bertelman, a
former Swedish ambassador to Russia, told
Foreign Policy.
‘‘Some may actually see it as a reminder
of the dangers we may face if we challenge
the Russians by becoming members of
NATO,’’ Bertelman said. ‘‘But the large
majorityinSwedenobviouslyperceiveitthe
other way around. It reminds them that
being non-aligned means being undefined.’’
Public opinion towards NATO has risen
overthepastfewyears,butsupportremains
jittery. A September 2015 poll conducted by
the Swedish newspaper Svenska Dagbladet
showed that 41 per cent of Swedes were in
favour of membership, 39 per cent were
against and 20 per cent undecided. Simil-
arly, only about a quarter of Finns are in
favour of joining NATO.
But analysts contend that, while support
has not significantly increased for the milit-
ary alliance since the Ukraine crisis, the
number of those undecided has risen
sharply. P
FOREIGNPOLICY
FINDING
THE FUTURE
IN THE PASTThe optimistic realist Niall Ferguson tells Kevin Chinnery
why history is more like a perilous pile of sand than a
continuous line, and why Henry Kissinger still matters.
H
e’s running late. It’s
an occupational haz-
ard for a rock star
professor juggling
the global lecture cir-
cuit, high-brow talk
shows and oped
pages, and advising
boardrooms on what might be lurking
around the corner.
Harvard’s Niall Ferguson has single-
handedly propelled economic history – a
subject sadly underdone in Australian uni-
versities – into the global limelight.
His 2009 Channel Four series, The Ascent
of Money, made sense of the forces behind
the global financial crisis for an interna-
tional television audience. He has written a
dozen hefty books on subjects like why the
West got rich while other societies fell
behind, or what made the period from 1914
to 1945 so peculiarly violent.
His Australian visit this month was hec-
tic: speaking to a mini-Davos event at Hay-
man Island, and at the Sydney Opera House
on the 40th anniversary of the think tank
Centre for Independent Studies.
We have squeezed in afternoon tea, and
it’s an earnest Scotsman who finally arrives,
apologetic, but keen to talk shop.
I ask Ferguson where future historians
will place us right now. It’s been a very long
aftermath to the GFC. Even the cheapest
money in history doesn’t seem to be lifting
the world off the bottom or restoring us
back to normal growth and progress.
He’s the optimist. We’ve passed the point
where so-called secular stagnation could
take permanent hold in the US. That’s still
imperceptible to most, but ‘‘it always takes
ages for people to realise we have turned a
corner’’.
He reckons that happened in the first
quarter of this year, and he recalls it was
1982 before most realised that the great
inflation of the 1970s was over, and began
changing the way they thought.
Peoplearestillsayingscarythingsthough,
I say, like bond king Bill Gross’s suggestion
this month that we will need ‘‘helicopter
money’’ – cash created and scattered by
central banks – to provide incomes for the
millennial generation when they all lose
their jobs to robots.
Doesn’t that sum up our predicament:
caughtbetweenrecklessmonetarystimulus
on the one hand, and the inexorable force of
technology pressing on the other?
‘‘You can’t really say the US needs heli-
copter money: they are at full employment,’’
he replies. ‘‘The labour market indicators
are screaming. Why would you throw pet-
rol on the flames?’’
And the much-feared technological
unemployment as digitisation destroys
swaths of white-collar jobs does not even
pass the historian’s sniff test: ‘‘I think all the
people who predict mass unemployment
through robotics have forgotten all of eco-
nomic history.’’
Digital tech is not even as disruptive as
petrol engines or jet engines were. ‘‘It’s
simply a claim that there is some magical
difference between digital innovations, and
all previous innovations, which means that
humans will be permanently redundant.
We’ll see. I doubt it.’’
Ferguson’s worries about the post-GFC
world go beyond just the usual concerns of
economists with slow growth or debt.
In his 2012 book The Great Degeneration,
he wrote that the West had succeeded
because it developed institutions. Now our
institutions are failing, and even working
against us.
England’spoliticalstabilityafterthe1600s
created trust and a financial system based
on credit – but that has led now to unpay-
able intergenerational debts.
Rule of law has, in the US, become rule of
lawyers. The state has crowded out civil
society, all the things we used to do for
ourselves. All this, he fears, is leading to
what fellow Scot Adam Smith called ‘‘the
stationary state’’,the 18th-centuryversion of
secular stagnation.
‘‘My story is, our institutions are contriv-
ing to lower our growth rate through a
whole complex combination of disincent-
ives. Public finance now represents a
massive transfer of resources from younger
generations to baby boomers. Regulation
makes it hard for many sectors to innovate.
Rule of lawyers is why the US is not the
dynamo it was. And if we can’t make our
kids numerate to Chinese levels, we risk
making them unemployed.
‘‘We have done a lot of work on how cre-
ating better institutions have helped emer-
ging economies grow, but not much on the
opposite story: on how developed countries’
institutions can deteriorate.’’
As growth slows and opportunities nar-
row, is it also killing America’s meritocracy,
where a self-serving elite have simply
slammed the door behind them – especially
in prestige higher education?
‘D
id we ever have a merito-
cracy,’’ he asks. ‘‘When we
talk about inequality and
socialmobility,rememberthe
mid-20th century was a very odd time.
Because of two wars and a Depression we
had low inequality and high mobility. If you
want equality, it’s a good idea to conscript
the entire male population, put them on
militarypayscales,andconfiscatebytaxthe
wealth of the pre-war elite.’’
Former US Secretary of State Henry Kis-
singer [of whom Ferguson is writing a two-
volume biography) went to Harvard on the
GI Bill – a fund to send returned soldiers to
university – not some local college as he
might have done.
‘‘World War II was a fantastic egalitarian
policy – a golden age for those who survived
it. But we should not see it as anything other
than an aberration. In a normal peacetime
society it is very hard to sustain equality and
social mobility.’’
And education? ‘‘Every human being is
hardwired by evolution to privilege his or
her children. Everyone does it. We are not
really designed by nature for meritocracy;
we are designed by evolution to be nepo-
tists,’’ he says.
‘‘True meritocrats, and I am one, won’t lift
up the phone to try and rig the system for
their kids, and are letting their kids down.
Everybody else is picking up the phone. My

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RUSSIA GOADING NEUTRAL SWEDEN CLOSER TO NATO

  • 1. AFRGA1 0020 AFR28-29 May 2016 The Australian Financial Review | www.afr.com 20 Perspective Swedish sub in Stockholm harbour: The small size of Sweden’s defence force relative to that of Russia means it may eventually rely on the power of NATO. PHOTO: GETTY It helps clear up uncertainties about Sweden’s potential role in a crisis. Magnus Nordenman, Atlantic Council RUSSIA GOADING NEUTRAL SWEDEN Nordic tensions Sweden has voted to give NATO more room to operate in its country, writes Reid Standish. S ince the annexation of Crimea and the outbreak of war in east- ern Ukraine in 2014, things have got tense between Russia and Sweden. Russian jets have repeatedly prodded Swedish airspace, a huge hunt was launched for a foreign submarine – suspected to be Rus- sian – off the coast of Stockholm, and the closure of Swedish airspace last November might have been caused by a Russian cyber- attack. Adding to the tensions, Russian For- eign Minister Sergei Lavrov told the Swedish daily Dagens Nyheter in April Moscow would ‘‘take necessary measures’’ if neutral Sweden decided to join NATO. And so tensions might only grow after this week’s vote by Swedish legislators to ratify an agreement that would allow NATO to more easily operate in the country. The deal, known as a host nation support agreement, will grant NATO more room to operate on Swedish territory for training exercises or in the event of a conflict in the region. Russia’s role in the war in Ukraine and the changing security environment in theBalticisforcingStockholmtoreconsider its 200-year-old policy of neutrality in armed conflicts, and the agreement brings Sweden closer to the alliance than ever before. ‘‘It’s very significant in practical terms,’’ Magnus Nordenman, director of the Transatlantic Security Initiative at the Atlantic Council, told Foreign Policy. ‘‘It helps clear up uncertainties about Sweden’s potential role in a crisis or war in the region.’’ The vote easily passed with a broad majority, but the debate in the Swedish Par- liament highlighted the difficult tightrope Stockholm must walk between Russia and the West. Before the vote, there were rumblings that the opposition Left Party and far-right Sweden Democrats, both of which are against NATO membership, would combine their votes to send the legis- lation to review, where it could have been delayed for up to a year. But the Sweden Democrats at the last minute agreed to back the closer military co-operation, denying the Left Party the necessary support to table the vote. ‘‘This was the next big step in terms of deepening Sweden’s co-operation with NATO,’’ Nordenman said. ‘‘But it’s not close enough yet for membership. Domestically, there is still tons of hesitation.’’ Neither Sweden, nor its neighbour Fin- land,aremembersofNATO,athrowbackto both countries’ histories of military neutral- ity and complex relations with Moscow. Since the end of the Cold War, Helsinki and Stockholm co-operated more closely with the military alliance and debated potential membership. In late April, the Finnish For- eign Ministry published an independent reportexploringtheconsequencesofNATO membership for Helsinki. The report’s cent- ral finding was that the Nordic duo should stay together: either by both joining the alli- ance or abstaining. But taking the leap towards NATO has been difficult for Helsinki and Stockholm, which are increasingly under domestic pressure to respond to Russia without pro- voking a Kremlin backlash. Meanwhile, Moscow and NATO’s duelling rhetoric and actions have only fur- ther inflamed tensions in the Baltic. NATO members Estonia, Latvia and Lithuania have sounded the alarm that their region may be the next flashpoint with Russia. In responsetothegrowingnumberofairspace violations, Sweden remilitarised the island of Gotland in the Baltic Sea in February for the first time since the end of the Cold War. Violations and provocations near borders are part of a long pattern by the Kremlin to test its neighbours’ resolve, but it is one that is not always effective, Tomas Bertelman, a former Swedish ambassador to Russia, told Foreign Policy. ‘‘Some may actually see it as a reminder of the dangers we may face if we challenge the Russians by becoming members of NATO,’’ Bertelman said. ‘‘But the large majorityinSwedenobviouslyperceiveitthe other way around. It reminds them that being non-aligned means being undefined.’’ Public opinion towards NATO has risen overthepastfewyears,butsupportremains jittery. A September 2015 poll conducted by the Swedish newspaper Svenska Dagbladet showed that 41 per cent of Swedes were in favour of membership, 39 per cent were against and 20 per cent undecided. Simil- arly, only about a quarter of Finns are in favour of joining NATO. But analysts contend that, while support has not significantly increased for the milit- ary alliance since the Ukraine crisis, the number of those undecided has risen sharply. P FOREIGNPOLICY FINDING THE FUTURE IN THE PASTThe optimistic realist Niall Ferguson tells Kevin Chinnery why history is more like a perilous pile of sand than a continuous line, and why Henry Kissinger still matters. H e’s running late. It’s an occupational haz- ard for a rock star professor juggling the global lecture cir- cuit, high-brow talk shows and oped pages, and advising boardrooms on what might be lurking around the corner. Harvard’s Niall Ferguson has single- handedly propelled economic history – a subject sadly underdone in Australian uni- versities – into the global limelight. His 2009 Channel Four series, The Ascent of Money, made sense of the forces behind the global financial crisis for an interna- tional television audience. He has written a dozen hefty books on subjects like why the West got rich while other societies fell behind, or what made the period from 1914 to 1945 so peculiarly violent. His Australian visit this month was hec- tic: speaking to a mini-Davos event at Hay- man Island, and at the Sydney Opera House on the 40th anniversary of the think tank Centre for Independent Studies. We have squeezed in afternoon tea, and it’s an earnest Scotsman who finally arrives, apologetic, but keen to talk shop. I ask Ferguson where future historians will place us right now. It’s been a very long aftermath to the GFC. Even the cheapest money in history doesn’t seem to be lifting the world off the bottom or restoring us back to normal growth and progress. He’s the optimist. We’ve passed the point where so-called secular stagnation could take permanent hold in the US. That’s still imperceptible to most, but ‘‘it always takes ages for people to realise we have turned a corner’’. He reckons that happened in the first quarter of this year, and he recalls it was 1982 before most realised that the great inflation of the 1970s was over, and began changing the way they thought. Peoplearestillsayingscarythingsthough, I say, like bond king Bill Gross’s suggestion this month that we will need ‘‘helicopter money’’ – cash created and scattered by central banks – to provide incomes for the millennial generation when they all lose their jobs to robots. Doesn’t that sum up our predicament: caughtbetweenrecklessmonetarystimulus on the one hand, and the inexorable force of technology pressing on the other? ‘‘You can’t really say the US needs heli- copter money: they are at full employment,’’ he replies. ‘‘The labour market indicators are screaming. Why would you throw pet- rol on the flames?’’ And the much-feared technological unemployment as digitisation destroys swaths of white-collar jobs does not even pass the historian’s sniff test: ‘‘I think all the people who predict mass unemployment through robotics have forgotten all of eco- nomic history.’’ Digital tech is not even as disruptive as petrol engines or jet engines were. ‘‘It’s simply a claim that there is some magical difference between digital innovations, and all previous innovations, which means that humans will be permanently redundant. We’ll see. I doubt it.’’ Ferguson’s worries about the post-GFC world go beyond just the usual concerns of economists with slow growth or debt. In his 2012 book The Great Degeneration, he wrote that the West had succeeded because it developed institutions. Now our institutions are failing, and even working against us. England’spoliticalstabilityafterthe1600s created trust and a financial system based on credit – but that has led now to unpay- able intergenerational debts. Rule of law has, in the US, become rule of lawyers. The state has crowded out civil society, all the things we used to do for ourselves. All this, he fears, is leading to what fellow Scot Adam Smith called ‘‘the stationary state’’,the 18th-centuryversion of secular stagnation. ‘‘My story is, our institutions are contriv- ing to lower our growth rate through a whole complex combination of disincent- ives. Public finance now represents a massive transfer of resources from younger generations to baby boomers. Regulation makes it hard for many sectors to innovate. Rule of lawyers is why the US is not the dynamo it was. And if we can’t make our kids numerate to Chinese levels, we risk making them unemployed. ‘‘We have done a lot of work on how cre- ating better institutions have helped emer- ging economies grow, but not much on the opposite story: on how developed countries’ institutions can deteriorate.’’ As growth slows and opportunities nar- row, is it also killing America’s meritocracy, where a self-serving elite have simply slammed the door behind them – especially in prestige higher education? ‘D id we ever have a merito- cracy,’’ he asks. ‘‘When we talk about inequality and socialmobility,rememberthe mid-20th century was a very odd time. Because of two wars and a Depression we had low inequality and high mobility. If you want equality, it’s a good idea to conscript the entire male population, put them on militarypayscales,andconfiscatebytaxthe wealth of the pre-war elite.’’ Former US Secretary of State Henry Kis- singer [of whom Ferguson is writing a two- volume biography) went to Harvard on the GI Bill – a fund to send returned soldiers to university – not some local college as he might have done. ‘‘World War II was a fantastic egalitarian policy – a golden age for those who survived it. But we should not see it as anything other than an aberration. In a normal peacetime society it is very hard to sustain equality and social mobility.’’ And education? ‘‘Every human being is hardwired by evolution to privilege his or her children. Everyone does it. We are not really designed by nature for meritocracy; we are designed by evolution to be nepo- tists,’’ he says. ‘‘True meritocrats, and I am one, won’t lift up the phone to try and rig the system for their kids, and are letting their kids down. Everybody else is picking up the phone. My