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Assessing risk: business in global disorder

International Dialogue
Venice, 03/03/2017 - 04/03/2017, International Conference
Press clippings

In taking stock of prevailing business conditions, the participants at this international conference characterized the global economic climate as one marked by a high level of volatility, with closer interconnections and shorter cycles than in the past. While the juggernaut of emerging markets has suffered somewhat of a slowdown, the United States has come out of the crisis that broke in 2008 in better shape than other advanced economies – particularly Europe, though it too has bounced back to near potential growth levels. Nor is it any longer correct to point to the major emerging economies as “peripheral” to the global economy, given that some of them – certainly China – are now heavily integrated into many regional markets as well as in supply chains. In short, it was observed that against a backdrop of short- and medium-term uncertainty, a genuinely new geopolitical and geo-economic order is taking root.

The participants discerned a clear trend, starting from before the Trump administration, that has seen world trade’s share of global GDP diminish as a result of constraints (often consisting of obstacles and inconsistencies of a regulatory nature) imposed on the free movement of goods and services.

The heightened risks and uncertainties, difficult to assess for policy planning purposes, were seen as stemming from continual and rapid technological change, inequalities, and the social and political feedback effects thereof – especially economic nationalism and protectionism.

It was submitted that the choices pursued by the Trump administration have added a further element of uncertainty, aligned as they are to an “economic nationalism” that raises many questions regarding the ways in which competitiveness is sought to be boosted, as well as apropos of increased public spending, particularly on infrastructure and defense .

An acceleration in the country’s growth rate – favored by the apparent buoyancy of Wall Street – will be crucial to the success of Donald Trump, underpinned by a combination of tax cuts and infrastructure investments. Yet it was noted that what has thus far served as Trump’s rallying platform also requires tangible benefits to be delivered to the most disadvantaged socioeconomic groups, the achievement of which would in turn seem to be predicated on trade protectionism. In addition, certain measures announced by the president, especially those aimed at encouraging the repatriation of capital, will tend to strengthen the dollar, with detrimental effects for various industries and segments of the population.

It was suggested that greater continuity can be expected on the foreign policy front, despite the many misgivings created by the administration’s first international moves. In any event, the American approach, which had already emerged in part under the Obama presidency, poses a challenge first and foremost for Europe: the continent’s security requires a definitive assumption of direct responsibility (with the attendant political and military apparatus) that Europeans have hitherto shirked. While it was conceded that Washington’s relations with Iran will certainly not be cozy, it was deemed too early to say whether there will be a real shift in regional alignments, especially if the interest in avoiding excessive US direct involvement in local conflicts prevails. As for Russia, the possibilities of a real rapprochement or even of coming to a broad overall understanding have quickly evaporated in light of the profound divergences of interests that persist and the resistance encountered by Trump among key members of the Republican Party (including among his closest advisers).

The participants pointed to Asia as the region where the geopolitical risks seem higher, starting with the Washington-Beijing relationship (which could be directly affected by any protectionist measures adopted by the US). Indeed, the installation of the new administration comes at a delicate phase for the economic transition underway in China: new comprehensive structural reforms will be crucial, even for China to be able to fully take on an international role in keeping with its size and historical ambitions. Many issues remain unresolved, however, partly due to the reluctance of the government to take decisive steps in the direction of liberalization and the institutionalization of the “rule of law”. The country is still partially transforming its growth model, but there are serious vulnerability factors, linked particularly to public debt and the financial sector as a whole (with its over-reliance for growth on infrastructure investment). For that matter, with this being the situation, the authorities are aware that a trade war would be truly disastrous for Chinese growth prospects.

The Middle East was held up as a region that remains characterized by severe underlying problems, both from the point of view of state apparatus and from that of the economy and society. Even in places where the instability of the “Arab uprisings” seems to have been overcome, such as in Egypt, socioeconomic conditions persist that could once again explode into conflict and violence. Meanwhile, radical movements resorting to terrorism often find fertile ground in the fragile (albeit often authoritarian) grip and scant legitimacy of the regimes in power.

It was noted that while the region is still an arena for competition between external powers, with Russia now firmly active in various theaters (including Libya), Europe is confronted with the dilemma of finding forms of constructive “engagement”, given its geographic proximity and the evident risks of contagion. So far, however, it seems to have instead attempted to pursue a blanket “containment” approach, which in reality has not proved particularly effective.

In terms of its internal political landscape, Europe is having to reckon with contradictions and unresolved tensions that the economic crisis has brought dramatically to the surface. In particular, the goals of bringing the various national growth trajectories into line with each other and overcoming imbalances between member states are far from being reached. It was emphasized that reforms are needed at a national level, as are functional changes to European-level institutions (at least so as to bolster the implementation of policies formulated in consensus). In any event, the political climate calls for an urgent major push to recapture the support of a large proportion of citizens, with a focus on offering pragmatic solutions to the concrete problems raised – albeit with calls for measures that are usually neither effective nor farsighted – by assorted “anti-establishment” movements.

Lastly, the participants also discussed the role of the media as a rapidly changing crosscutting factor that directly influences political debate and consensus building, especially in Western societies. There are substantial differences between traditional media and “social media” that impact on civic engagement and public communications. It was stressed that the responsibilities and specific skills of professional journalism remain crucial for the healthy exercise of democratic rights, though at the same time it was acknowledged that leaders should carefully heed signals from all networks bearing information and opinions.