Obama: how will he influence global security?

05 Nov 08

By Brian Sims, John Honovich

With Democrat senator Barack Obama duly elected the first black president of the United States, what does this monumental result mean for security ‘across the Pond’, in the UK and on a global scale?

“It has been a long time coming, but tonight change has come to America.” These were the words uttered only a few hours ago by senator Barack Obama – the president-elect of the United States of America – during his triumphal address to a jubilant crowd attending the victory rally in Chicago.

John McCain, Obama’s rival for the White House hot seat and a war veteran, accepted defeat in typically gracious form, commenting: “I deeply admire and commend Barack Obama,” before calling on his own beleaguered supporters to lend the next president their goodwill.

The leaders of Britain’s three major political parties have already united in their praise for Obama’s victory. Prime Minister Gordon Brown believes the winner ran an “inspirational campaign, energising politics with progressive values and his vision for the future”. Conservative supremo David Cameron this morning referred to the president-elect as “the first of a new generation of world leaders”. Liberal Democrat leader Nick Clegg explained that the US result is “vital to our future”.

The US-UK Relationship

The Prime Minister, who held talks with Obama in London during the summer, added: “The relationship between the United States and the United Kingdom is absolutely vital to our prosperity and security. I know Obama and we both have determination to show that Government can act to help people fairly through the difficult times now being experienced within the global economy.”

Brown described Obama as “a true friend of Britain” and his election to The Oval Office as “a moment that will live in history”.

John Honovich is a prolific commentator on security matters in the US. Honovich said: “This Presidential Election result will have a huge impact on the United States. Without a shadow of doubt, the American people have made two fundamental statements about themselves: that they are profoundly unhappy with the status quo, and that they’re firmly slamming the door shut on a past filled with racial tension.”

Once the landslide victory was confirmed, Obama appeared with his family and running mate Joe Biden before a crowd of tens of thousands in Grant Park. Many had queued for hours and wept as the next Leader of the Free World spoke.

Obama opined: “If there’s anyone out there who still doubts that America is a place where all things are possible, who still wonders if the dream of our founders is alive in our time, who still questions the power of our democracy, then tonight is your answer.”

The shape of things to come?

Tellingly, Obama spoke from behind bullet-proof screens. With death plots hatched by White Supremacists having been foiled in the past few weeks, could this be the kick-start of a fresh approach to security management in the US and – by extension – beyond?

“Various theories are already developing,” explained Honovich. “One is that the security bubble is now burst. With the election of Obama, US demand for security products will drop significantly as subsidies for security technology are reduced and global tensions eased.

“In turn, this would place significant pressure on businesses to justify the real Return on Investment of security technology and eventually contribute to dwindling industrial growth.”

One forecast suggests that many (if not most) US projects in development will be put on ice until February next year when Obama has been inaugurated. If that reality materialises, expect 2009 US spending on Government-related security technology to drop by 10%-20% relative to the past 12-month period. That would include direct military spending as well as homeland security and municipal projects funded by Government grants.

Demand set to drop

What else can we expect to happen? “Overall US security demand may drop by 4% to 8%, given the large impact Government already has on overall security spending,” said Honovich. “Expect some reductions, too, in global demand as other countries reduce their perceived need for anti-terrorism security measures.

“All the pointers suggest that Obama will reduce spending on defence and accelerate withdrawal from foreign wars (with timescales already set for US troops to exit Iraq). It’s entirely possible that other countries – including those traditionally or recently hostile to the US – will decrease their ‘hatred’ as Obama reduces tensions relative to the outgoing Bush administration.”

60% of voters said the most important issue for them when heading for the Ballot Box was the state of the economy. Only 10% referred to the war and 9% focused on the terrorism issue. There’s now a Democratic president with a mandate from voters to focus on the economy. As such, it’s reasonable to assume the war on terrorism will receive less of a priority than the recession/financial crisis.

Honovich feels that Obama is likely to engage in public work projects, but those projects will only have modest security needs and will probably not have an impact in the States until 2010.

Has the US been in a security bubble?

“It’s fair to say that the US has been in a security bubble for the past seven years,” stated Honovich. “The response to 9/11 caused hundreds of millions of dollars – at least – to be spent on highly questionable security and defence projects. In the last few years, it has become abundantly clear that many of these projects turned out to be significant failures. The US-Mexico Border Project and the New York City Security Project being notable examples.

“Blatant fear and subsidies have driven so many poorly thought-out and unnecessary projects. The need for companies and the Government to demonstrate a response and the stream of federal subsidies resulted in the security bubble in the first place. It has increased the public’s lack of faith in security technologies.”

While John McCain’s odds of winning the race for the White House plunged in the last month, so too have many security/defence stocks. As McCain’s chances of victory slipped away, some of those stocks (L1, Northop and Smith & Wesson among them) dropped 10% to 20% lower than the overall pace of the S&P 500.

“Given the correlation of McCain’s odds falling and security/defense stock prices, one could infer that investors believe Obama’s presidency will significantly reduce the available opportunities for these security/defense companies,” said Honovich.

Decreased spend on terrorism projects

Relative to the Bush administration, Obama will almost certainly decrease spending on defence and terrorism-related security projects. There are already signs that the general recession is impacting on subsidies for security.

By itself, the now deepening economic downturn will place undue pressure on these grants/subsidies such that reduction is the favoured option. Obama’s political positions and his Democratic base will accelerate those reductions, at the same time hastening withdrawal from foreign wars.

“These grants and military build-ups have been critical to the growth of security projects, not only for the US military (a very significant buyer) but also for states, local Governments, the utilities and transportation companies,” continued Honovich. “All of these organisations have significantly used grants to justify security projects that would otherwise not have been feasible or justifiable. The drying up of these grants will cause significant reduction in the industry.”

The demand for anti-terrorist solutions is driven by – or at the very least enhanced by – the level of tensions surrounding (and opposition to) the US Government. While the Bush administration accelerated worldwide hostility to the US, the world appears to dramatically prefer – and is more comfortable with – Obama. The fear and the tension of the past few years is likely to subside thanks to Obama’s temperament and his international policies. Though this is certainly good for peace, greater stability and reduced risk decreases demand for security.

“It’s likely that Obama will engage in significant public work projects, yet those projects will have far less benefit to the security industry than the Bush administration,” added Honovich. “Given the current plunge in consumer spending and its projected continuation, economic growth will be severely constrained. The textbook economic approach to such decreases is to compensate and offset this through increased Government spending. Just look at the New Deal in the Great Depression for a mighty reference.”

Could a ‘new’ New Deal emerge?

“On that note, we’re very likely to see a ‘new’ New Deal emerging as hundreds of billions of dollars in new infrastructure projects receive final approval during the New Year. However, the impact of those programmes will take time, and only involve small elements of security.”

Such funding will not pass until Spring 2009, and it takes time to allocate such funding. Actual security projects may not begin until the first half of 2010. In addition, these are likely to be infrastructure projects that will certainly have a security component, but a far smaller percentage than military and homeland security works.

The recession and Obama’s election combine to create a new world for the security industry. One in which many are absolutely not prepared. For John Honovich, that preparation needs to focus on key areas.

For instance, waste must be cut. Any time an industry grows for years based on stimulated Governmental demand, it’s inevitable that waste accumulates. Extra people, inefficient processes and the carelessness of planning all contribute. The waste needs to be cut immediately, particularly for private sector companies where this could be the difference between surviving and going bankrupt.

“Tangible Returns on Investment have to be highlighted. The security industry has had it ‘easy’ for years selling into the fear of terrorism and the easy money of Government funding. As this tightens, everyone needs to make sure that their products and services truly solve day-to-day criminal and operational problems.”