07 Jul 10 To trust or not to trust?

Arguably two books, published over the last twenty years, have made a profound impact on the way that business leaders see the future world. One is Fukuyama’s The End of History and the Last Man[1] arguing that western-based liberal democracy will spread across the globe. The other is Friedman’s The World is Flat [2] making the case for “corporate globalisation”.

Both have been interpreted as predicting a world free of conflict and the emergence of a new era of trust. Indeed, if we look back at business plans prepared before the Great Recession, it would probably be hard to find reference to conflict, protectionism and mistrust. And an unprecedented era of global economic growth appeared to give weight to the argument that history had ended – the world was entering a new phase of trust, co-operation and wealth for all.

Of course, if we had looked at the world from more than an economic perspective, then a different picture may have met our eyes.

But the above writings only represent one end of a continuum of thought regarding the future path of international relations and therefore globalisation. Others took a more questioning perspective found in Emmott’s Rivals[3] , Cooper’s Breaking of Nations[4] , Bobbit’s Terror and Consent[5] and finally at end of the continuum, Huntingdon’s Clash of Civilizations[6]. In varying degrees, these writings paint pictures of suspicion, mistrust and conflict.

So, what will the future hold?

Can we look forward to a new era of co-operation and trust spurred on by the need to mitigate the catastrophic effects of climate change and the eradication of poverty?

Or is this just a Panglossian wish? Will, for example, resource shortages and, in the developed world, the need to fundamentally restructure economies and industries lead to a fragmented world characterised by mistrust?

NB: For those interested in the negative pressures of globalisation from the perspective of the developed economies, then Andy Grove’s[7] – the co-founder of Intel – article provides an interesting perspective.

References
[1] F. Fukuyama, The End of History and the Last Man, New York: Avon, 1992.
[2] T. Friedman, The World is Flat: The globalized world in the twenty-first century, London: Penguin, 2006.
[3] B. Emmott, Rivals: How the power struggle between China, India and Japan will shape the next decade, London: Penguin, 2009.
[4] R. Cooper, The Breaking of Nations: Order and chaos in the twenty-first century, London: Atlantic Books, 2003.
[5] P. Bobbitt, Terror and Consent: The wars for the twenty-first century, London: Penguin, 2008.
[6] S. Huntingdon, The Clash of Civilzations and the Remaking of World Order, London: Simon & Schuster, 1997.
[7] A. Grove, How to Make an American Job Before It’s Too Late, Bloomberg, July 1, 2010.

Tags: mistrust, protectionism, trust

14 Sep 09 Back to Globalization or Back to Protectionism?

The news of the decision by the US to impose a duty on Chinese tyre imports (following pressure from US unions)[1] and the threat of response from China, really does raise the issue of protectionism.  It also questions the hopes of a new era of post crash global co-operation signalled at the G20’s first meeting and adds weight to the observations of others that the degree of post crash co-operation may be poor[2].

We can only hope that this is not an accurate leading signal.  If it is an accurate leading signal, then this is a key step to the type of economically divided world described in my “Jigsaw” scenario.  To avoid this outcome, leaders will have to stand firm against populist pressures for protectionist measures.  The voices for protectionist steps will grow stronger in the coming months as the advanced economies struggle with a slow and uncertain “U” and “L” shaped recoveries and the emerged economies spring back on the upward path of their “V” shaped recoveries[3].

What this does highlight is that firms must take a pluralist view of the future when preparing their plans.  Just staking your business’s future on one future view of the world (probably benign globalization) is just too risky.

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References
[1] Dyer, G and Braithwaite, T US tyre duties spark China clash FT.com, September 2009.
[2] Dunaway, S A Pretty Slow Recovery Council On Foreign Relations, September 2009
[3] Dyer, G and Lau, Justine China’s economic recovery gains pace FT.com September 2009.

Tags: globalization, protectionism, protectionist measures

27 Feb 09 Strategy and the Future World: Why the next three months may hold the key

Those of you who have been following my scenarios will know that I hold that future, not the past or even current events associated with the current financial crisis, will determine the shape of the the future business world.

In my scenarios as described in 2009: Signposts to where? – I refer to a range of shaping events that will separately, or in an inter-related manner, form the shape  of the future world.

These are the events to actively monitor.

In all, there are five shaping events.

The Real Issue
The real issue is that a range of these shaping events could be triggered over the next three to four months and alone or together they could have a tumultuous effect.

The five shaping events, which over time work together in an inter-related manner, are:

#1: Industry Contagion a widespread domino effect as the crisis spreads from the banks into the major employers of at least the developed economies.  The loss of an iconic employer could place massive pressure onto politicians to impose what others would see as protectionist policies.  Such a move would be a big step to a divided world – The Jigsaw in my scenarios.

#2: Banking Future Shocks the view being that not all of the bad news is behind us. More is to be revealed.

#3: Global Fragmentation in other words the emergence of protectionism.

#4: Energy arguably one for the medium term. At some point we will face an oil supply crisis following a lack of investment in production infrastructure.

#5: Conflict The unhappy fact is that there is a correlation between recession and social and national – upheaval.

My point is that three of these shaping events could be triggered in the next quarter.

Firstly, industry contagion. Both GM and Chrysler stand on the edge of an abyss. By the end of March, Chrysler must demonstrate progress to viability if it to received more state loans[1]. Massive corporate failures in Detroit could result in over 3m additional unemployed in the US alone[2].

Secondly, some observers feel that there is even more bad news to emerge for western banks especially from Eastern European operations[3], [4].

Thirdly, we have the spectre of conflict in the form of social unrest particularly in Eastern Europe that could, at an extreme, challenge democracy[5],[6].

These, I suggest, are the events to monitor now.

Each has the power to reshape our world for a generation. Ultimately, it may well not be the economists that define the future shape of our world but public reaction to these shaping events.

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References
[1] J. Reed, GM future in doubt after $31bn loss, FT.com, Feb. 2009.
[2] R. Scott, Automaker bankruptcies would cost up to 3.3 million U.S. jobs, Economic Policy Institute, Dec. 2008.
[3] N. Roubini, Roubini Interview On The Severe Global Recession And The Risks Of A Financial Crisis In Emerging Europe, RGE Monitor, Feb. 2009.
[4] A. Evans-Pritchard, European banks’ toxic debts risk overwhelming EU governments – Telegraph, Telegraph.co.uk, Feb. 2009.
[5] A. Aslund, Baltic Protests and Financial Meltdowns, Peterson Institute, Feb. 2009.
[6] S. Wagstal, Analysis – Variable vulnerability, FT.com, Feb. 2009.

Tags: economic recession, financial crisis, meltdown, protectionism, recession, scenarios, social unrest