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Assessing risk: business in global disorder

    The Aspen Dialogue
    • London
    • 17 May 2018

          Proceedings at this International Conference got underway with an acknowledgement that the increase being witnessed in political risk factors — both in number and intensity — is linked to certain adverse effects of globalization, namely: the perception of growing inequalities, the rapid introduction of new pervasive technologies, the sense by nation-states of loss of control over their own destiny, and the shift in the balances of power between states. There is currently a systemic shift taking place at the international level, involving not just power balances but also the very rules of the game and the models of development, from which stems a tendency to seek to secure advantages that are “relative” (with clear winners and losers) and short-term, instead of “absolute” (that is, potentially beneficial for all players) and long-term.

          It was noted that the global economic cycle is presently undergoing a positive phase, but volatility is increasing, for reasons that are financial (including the heavy indebtedness of many major economies), trade-related (including the protectionist pressures at work within a market characterized by complex value chains), and energy-linked (with uncertainty in the transition to different sources). Political and economic variables have become intertwined and could reinforce each other, triggering negative trends should there be a simultaneous decline in overall public trust both in the effectiveness of the recipes proposed by democratic elites, and, ultimately, in democratic-free market institutions themselves. The paradox is that the solutions sought are national or even sub-national in scale, yet the magnitude of the problems to be addressed is global while the degree of interdependence is higher than in the past — even for the larger economic blocs.

          The technological challenges were seen as directly linked to the enormous opportunities offered by digitalization, it being a well-known fact that technological leaps produce undesirable effects and at least temporary forms of “disruption” often more heavily felt in some of the most vulnerable sections of society. It was suggested that governments should certainly legislate and bring order to the fraught area of online social networks, but in doing so should strike a balance that safeguards the freedom of private initiative and avoids measures such as censorship. In this regard, the participants were uncertain as to whether open and liberal societies have a competitive advantage or, conversely, a disadvantage compared to authoritarian ones. What is clear is that the modus operandi of the latter will remain different, with original approaches to new technologies emerging in countries such as China and perhaps India. The security implications are however evident, and the cyber sector is already playing a central role in the defense planning of governments, as well as in the security measures of major companies.

          The financial sector was highlighted as being directly affected by the current surge in technological change, which is further contributing to the volatility. Indeed, the existing forecasting models have proven not very reliable and have tended to underestimate the political variables (partly because they are difficult to quantify) but also the structural data vis-à-vis short-term episodes. Certain financial imbalances are a natural consequence of major trade flows, hence why surpluses are invested in deficit economies. In this respect, it was observed that the attempt to reduce these imbalances through diplomatic moves and the application of various forms of pressure, to the point of imposing duties and tariffs, is the subject of widely varying opinion.

          A separate but increasingly important issue discussed was that of the frequent resort to economic sanctions against countries such as Russia and Iran, which — despite having produced rather limited tangible results thus far — impacts on relations between allies, and in recent times particularly on energy prices after a period in which they had held at relatively contained levels. Extensive use of this mechanism, especially if coupled with heightened trade tensions and the abandonment of various multilateral forums, could push other actors — including Europeans — to look for solutions that are not reliant on the dollar and which at any rate exclude the United States. Already certain intimations in that direction can be discerned.

          In more conventionally geopolitical terms, the participants viewed the international system as primarily marked by the anticipated growth of China’s influence in all key sectors, with its role set to increase still further, despite many uncertainties regarding how China’s greater integration and expansion might be achieved, particularly in light of various internal weaknesses and the state of the country’s relationship with the United States in Asia. Russia, on the other hand, was seen as posing a very different challenge, effectively acting as an opportunistic power in the Middle East and exploiting its energy and political leverage in Europe. In the Middle East and part of Central Asia, even countries like Turkey have ambitions of stepping in to fill potential power vacuums, with questionable results up till now in the presence of serious regional rifts — especially as between Iran and Saudi Arabia.

          In all of these areas, the changing face of American foreign policy was considered an additional factor of uncertainty, given the very special role played by the United States since the Second World War and the unpredictability which characterizes the short-term choices of the Trump administration.

          It was felt that the global scenario emerging consists of an unbalanced multipolarism of sorts, with continued American dominance but a decreasing capacity to forge solid partnerships and achieve lasting goals.

          Brexit was singled out as introducing a further wildcard, both at the European and transatlantic level, with Britain’s egress undoubtedly destined to deprive the EU’s international efforts of significant resources and capacity. The ongoing Brexit negotiations have not as yet resolved several thorny issues, and have demonstrated that the European legal framework (of which the UK will naturally no longer be a part) will constitute a serious obstacle to concrete cooperation in certain cases, notwithstanding the awareness on both sides of the strong mutual interest in cooperating. On the one hand, the British will need to reconcile themselves to the economic but also political costs of the divorce (as well as the implications for internal cohesion within the country), while, on the other hand, the EU member states cannot ignore the anti-establishment groundswell that has also hit the continent hard (and which played a decisive role in the outcome of the Brexit referendum). This — it was concluded — speaks to an overall collapse in popular consensus for the economic policies and worldview embodied by the greater part of today’s still-reigning elites.

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