At a press conference earlier this year President Obama was asked to define the “Obama doctrine”. After initially scoffing at the idea, he told reporters that insofar as he has a theory of foreign policy, it is about “avoiding errors”. To explain, the president adopted a baseball metaphor: “You hit singles, you hit doubles; every once in a while we may be able to hit a home run. But we steadily advance the interests of the American people and our partnership with folks around the world.” In private, Obama is said to express this philosophy even more succinctly: “Don’t do stupid stuff.” (“Stuff” is the polite version.)
Another of way putting this is that Obama conceives of foreign policy as a loser’s game. In 1975, an investment analyst called Charles Ellis published an article called “Winning the Loser’s Game” which he later turned into a best-selling book, regarded as a classic of its field. Ellis also used sport as an analogy. He cited a study which found that in professional tennis, 80 per cent of points are won through superior stroke play, while in amateur tennis, 80 per cent of points are lost, due to errors.
Amateurs and professionals, said Ellis, are playing two different games. Professional tennis is a winner’s game, in which it pays to take the initiative. Bold and aggressive tactics are the path to victory. The professional player thinks carefully about strategy and executes it ruthlessly. Amateur tennis is a loser’s game: the way to win is simply to be the player who makes the fewest errors. In golf too, the winner of an amateur tournament is usually one who eschews risky strokes and avoids penalties, letting the losers defeat themselves. The most common mistake made by amateurs is to play as if they are in a winner’s game.
Ellis used this distinction to turn the whole notion of investing expertise on its head. Investing, he argued, is a loser’s game for professionals and amateurs alike: the way to win, whoever you are, is to make the fewest errors.
Professional investors, including most fund managers, seem to be playing a winner’s game, in which the rewards go to the most skillful and smartest players – it is almost irresistible to believe that a successful investment manager is like a brilliant tennis player, outsmarting his peers and thus outperforming the market. But our faith in the superior performance of professional investors is, said Ellis, misplaced. The evidence suggests that most “investment managers aren’t beating the market; the market is beating them.”
This is as true now as when Ellis wrote his book. A new study of US investment funds, published in Financial Analysts Journal, concludes that while fund managers who did poorly in their first few years tended to lose their jobs, the ones who stayed in place for the long term weren’t consistently out-performing the market, but merely avoiding periods where they did particularly badly. The key to success in the mutual fund industry is to avoid underperformance, rather than achieve superior performance – much as it is in an amateur golf tournament.
President Obama takes a very cautious approach to the exercise of diplomatic and military power, and like his British counterpart David Cameron, he does so partly in reaction to the stance taken by a controversial predecessor. Bush and Blair approached foreign policy as if it were a winner’s game: they played aggressively, took risky shots and held to a theory of the game.
For Blair, it was an approach that reaped dividends in Sierra Leone and Kosovo, and in the wake of 9/11 Bush was widely acclaimed for his decisive action in Afghanistan. But in Iraq, the risk taken by both leaders on behalf of their countries appeared to backfire disastrously. The game changed.
Obama has caught the mood of the times by being far more conservative in his willingness to exercise America’s military power. But his first year in office, even he appeared to think of foreign policy as a winner’s game, albeit in a very different way from Bush. He aimed to fundamentally change the relationship between America and the countries of the Middle East. His Nobel speech reverberates with a desire to change the world.
But events shrunk his aspirations. In his second term, Obama has sought to win by playing a loser’s game. With the exception of very limited interventions in Libya, and now Iraq, he has eschewed the use of military power as a tool to shape the world. His determination to avoid making errors even led to him to allow President Assad to cross America’s “red line” by using chemical weapons, and get away with it.
President Obama’s startling admission last week that he did not have a strategy to deal with ISIS was not an accident. His strategy is to not have a strategy (he recently said that foreign policy is not “a chess game”). If you’re playing in a loser’s game, strategy is unnecessary. You take each move as it comes, avoid errors, and eke out incremental victories where you can. You play safe.
Here the analogy between investing and foreign policy breaks down in an instructive way. In investing, given a relatively stable economic environment, there are always low or no-risk choices: bonds, or cash, or firms that promise slow but steady growth.
But in foreign policy, even when you are the most powerful country in the world, there are no safe options. When the world is as volatile as it is now, each seemingly low-risk policy comes with a high risk attached. By deciding not to intervene in Syria, Obama may have allowed its civil war to spread to Iraq. By not confronting Russia more directly over the Crimea, he may have given it the confidence to seize Kiev.
This is the problem with playing the loser’s game in dangerous times. Attempting to play safe shots in a risky environment, you put yourself at the mercy of less cautious actors like Vladimir Putin or ISIS who play the game as if they are winners and occasionally bring off audacious victories.
Buffeted by events, and with no organising principles to guide your responses, you find your power leaching away even as you try to conserve it. Playing the loser’s game, you become the loser.
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