He identified four factors that caused major conflict and upheaval in the last century as being economic volatility, ethnic disintegration (in south Eastern Europe), empires in decline; and eastern resurgence. All four factors exist today: there is volatility in the Middle East; ethnic meltdown in Iraq; US empire in decline; and the advance of China and Iran.
He said the US, which fails to see itself as an imperial power, has three deficits: financial, manpower and attention deficits. We are, he argued, on the verge of what he called 'The Great Middle Eastern War' spurred by the 'civil war' in Iraq and a possible US strike against Iran.
Looking for parallels in history, he pointed to the last period of globalisation between the years 1880 and 1914 during which there was a similar disconnect between the views of the financial press, which was confident and even complacent owing to a benign economic environment (e.g. low interest rates) and the political press, which was aware of the impending dangers.
Right up to the assassination of the Austrian Archduke Franz Ferdinand in June 1914 (which precipitated the Austrian declaration of war against Serbia, leading shortly thereafter to world war) The Times, for example, failed to foresee any financial risks. Immediately after the assassination, the paper began to worry. A few weeks later on 1 August the major financial markets of the world closed down for five months as the world was plunged into war. The biggest financial crisis of the last century therefore - bigger even than the Wall Street Crash of 1929 - happened with alarming speed.
In an exclusive interview with World Business, Professor Ferguson said he still believes that humanity and not the weather will be the greatest threat facing our world this century. It is war, not climate change, that is our greatest danger, he told World Business.
How close to 1914 are we?
I don't think we're going to plunge into world war. I don't think it's Armageddon in the sense that it's hard to imagine any major power intervening say on the side of Iran against the United States. Whereas, of course, in 1914 everyone joined in and even ultimately the United States declared war. This is partly because they were all quite evenly balanced militarily. Whereas today the United States still has its full spectrum of dominance at every level except for the street level. They can do everything except policing.
So I would see this more as a regional conflict [focused in the Middle East where there is greatest volatility]. I cannot imagine Russia or China or anyone else wanting to get directly involved. I mean they will be indirectly involved, certainly the Russians will. Because the Russians have an incentive for this kind of thing to happen. They gain if there's instability in the Middle East because oil prices will go up to the $100 a barrel range. But I don't think it will be a world war. On the other hand, I think we're close in terms of timing. I think if there is going to be a military strike against Iran it will be this year. It may even be this summer because President Bush junior is running out of time and he doesn't think his successor has the balls to do it. So I think there's a strong probability of action. And that would really set off an unforeseeable sequence of events. The only factor holding him him back is the fact that the US army is appalled at what this might do to them sitting in Iraq. So I think we are closer [to wider conflict in the Middle East] than many people assume in the City or Wall Street, where all of this is just regarded as noise.
How will the rise of China change the geopolitical world?
Naval power is power and China's big mistake historically was to underestimate that. They are building their naval capability up very fast. There is no question there is a military dimension to [China's rise]. I think there is a truly imperial quality to what the Chinese are doing. It's not just about economics. They think in imperial terms. That's why African natural resources have been snapped up. It's a scramble for Africa, only this time with one scrambler. Nobody else has quite latched onto this yet.
So I think we should take seriously the idea that China sees strategic and imperial power being the consequence of economic power. Now they are on a quiet ascent mode - they don't want conflict. But I don't see why that will necessarily continue for ever. Right up to the Olympics we can be sure they will be on their best behaviour. But sooner or later there will be conflict of interest. There will be conflicts of a geopolitical nature about the future of Korea, about Taiwan and about Japan's security. So I don't think we can assume that 'Chimerica' (a reference to the symbiotic financial and economic relationship between China and America in which China's savings and purchasing of US bonds helps to drive US consumer spending and the purchasing of Chinese manufactured goods) will be a permanent fixture.
It may be like the Anglo-German relationship which went through a friendly period and then turned very poisonous at the time over a very insignificant country - Belgium - leading to war with Britain. I would see Taiwan as the Belgium of our time. Right now the United States is committed to upholding Taiwan's quasi-independence. That's the formal deal. So if China were to make a sudden military move the [US] President would have a huge dilemma on his hands. He'd either have to follow through on his commitments or wimp out massively. Not a good dilemma to face.
How will the Chinese 'empire' shape our world?
China is unlikely to be an empire without an agenda. All empires have some sense of exporting their own way of doing things and civilisation. China is interesting because it is hostile to western democracy as an institutional form. Their basic assumption is you don't need it - you have an orderly one party state of mandarins who rise up by examination so to speak. So when they go abroad they don't go abroad with a bag full of human rights complaints; they don't go abroad saying here are the improvements in property rights and representation you need to establish before we lend you this money. They go abroad saying here are the natural resources you need to commit to us. So I do think they represent a kind of counter-or-anti-liberal dimension in the imperial game. Wherever they go, African dictators will feel comfortable - more comfortable than if they were asking us for money.
Is the international community ready for the kind of crisis you believe might take place?
Well, if you ask yourself what the consequences of a nuclear strike on London would be, this is an interesting question. London is a soft target and I've been saying for a while that we should expect the next 9/11 to be in London not in New York. It would involve multiple institutions and it seems to me they vary enormously in their core quality. Central banks think about this and war game it, the private sector even more so. So we can assume that Goldman Sachs has a plan to cope with the obliteration of their London office which is effectively their head office now. But the problem is at some level a disaster like that would involve legislatures as well as bankers. It's impossible to imagine a bail-out that wouldn't involve government.
It's also impossible to imagine something like that happening without a popular desire for revenge or retaliation. Retaliation is a really critical part of foreign policy. Most American foreign policy has been based on retaliation rather than aggression (Iraq is an odd exception to this rule). And I sense that even in Britain something like this would bring out the old vengeful instinct. But there might not be an obvious return address. So you could imagine a situation whereby the financial system actually coped. We wouldn't plunge into a great depression but there'd certainly be quite a temporary shock.
My worry would really be how this was dealt with politically and how it was dealt with strategically. And at the moment we are in many ways failing to contend with the problem of nuclear proliferation already, failing to nail down the arms that are floating around central Asia, the former Soviet Republics and ultimately failing therefore to reduce the risk of [a nuclear strike]. We are devoting our energy to all sorts of trivial things like making people take their shoes off at airports and remarkably little energy to the big thing which is to make sure that nobody can detonate a nuclear device in one of our major cities. So we are already failing this test. There's not enough effort being made on nuclear non-proliferation. The Non-Proliferation Treaty itself is in danger of dying on its 40th birthday next year. So I'm a little nervous. I see [a nuclear strike against a major city] as one of the black swans that are not really a black swan (an unforeseen risk), it should be obvious. It should be possible to attach at least the probability to such a risk and do something about it. If it does happen, I think there'll be a mixture of financial recuperation and political chaos. Nobody can predict how Britain or the United States would react to that kind of attack. But I don't think it will be in a necessarily rational way.
Does the main responsibility to head off the risks you mention rest with the United States?
What are the implications of the Presidential election?
They're huge. It's alarming to me that so many candidates are campaigning on a 'get out of Iraq' ticket which is just plain irresponsible. Anybody who gives this any serious thought can see that the absence of American troops will lead to a spike in violence. So we enter into an appalling auction between the Democrats to see who can be most irresponsible about foreign policy with Hilary Clinton and Barack Obama tying at the moment on this. The only candidate who is talking any sense is John McCain and he's being punished for doing so in the polls because he says the US can't walk away from Iraq. Nobody wants to hear that. Then there is a second order worry which is whether in the course of the next year protectionism is going to become a part of the story. I think that could happen if the US economy slows down to the point of recession which I don't rule out at this point.
So you would get a series of possible second geopolitical negatives if the protectionist issue started to become something that is really salient in the campaign. Right now immigration is taking that strain. It could easily shift to being about trade and the Chinese-American relationship that would be in the firing line. Any major presidential campaign in the US is dangerous because the domestic political considerations which dominate become even more dominant over any geo-political rationality. And those who talk in what I would regard as a sensible way tend to get punished by voters whose attention span is frankly pretty short. They've had enough of Iraq. They want that story to be over. They're ready to change channels.
Do you need good articulate leaders to counter this trend?
Absolutely. It would be great if there was some kind of premium on wisdom in American politics. If there were a premium on wisdom in foreign policy experience then McCain would be unassailably out in front. But as it is he's been punished in favour of candidates who frankly know nothing about these issues. What does Barack Obama really know about international relations? Nothing. He has no experience, zero experience of this area. And indeed the only experience that Hilary Clinton has is second hand, gained during her time as First Lady. Everything else she has done has been concerned with domestic political issues. Meanwhile comic book characters like Fred Thompson have been brought into the presidential race, in his case by Republicans who don't trust McCain. It's enough to make you weep because the prospect of an experienced foreign policy president is now very low - the probability is one in ten at best. The US is almost certain to end up with a novice. The last time it had this choice it went for the novice. George Bush Junior was the foreign policy novice and here we are six years on and it doesn't look like a particularly good prescription does it?
Do you think the problem of global warming is a black swan that we should be worrying about to the extent that we do?
Well, I don't discount it. It's conceivable that we can see a really big discontinuity in global weather. But I'm much more worried about the possibility of nuclear terrorism. And I think that although obviously we need to act to reduce CO2 emissions, we don't yet have a credible way of stopping China and India and other rapidly growing economies from putting out all that we reduce. It seems to me that the problem is going from a change in public attitudes which there clearly has been even in the United States to something that actually works. And we're a long way from a global carbon tax. I have a sense this is a little bit like poverty in Africa. It's something that people love to worry about but not necessarily do anything really effective about. And interestingly, it's the same people who worry about Africa who also worry about global warming. Of course, if they solve the problem of poverty in Africa they are almost certainly going to increase global warming because economic growth in Africa will add to the problem. I think there is a lot of fuzzy thinking on this and frankly I think the short -term major threat to humanity is still war. It's still humanity rather than the weather.