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Assessing risk: business in global disorder

The Aspen Dialogue
Venice, 08/03/2019 - 09/03/2019, International Conference
Press clippings

Prospects for the global system, in economic/financial as much as political/strategic terms, are suffering the lack of a clear-cut ordering principle. There is no doubt that the international order is changing: Fragmentation and insufficient governance are a serious risk, with the rise of problems that cannot be confronted at national, and possibly not even regional level, ranging from financial rules to big data and privacy, and from climate change to migration. A high rate of interlinkage has created a constant threat of contagion, making it necessary to keep close guard even against what may seem minor miscalculations and the unintentional consequences of apparently innocuous policy choices.

On the economic plane, according to almost all estimates, the global growth slowdown should not be alarming and, despite the recent tensions, international trade is destined to remain a driving factor. Moreover, many countries have introduced key measures (and to some extent in a coordinated manner) aimed at limiting the impact of an eventual stagnation or even recession. Nevertheless, some serious concerns persist regarding the banking sector, overall debt (public and private) and rising social inequality, especially within national borders, and the inevitable concomitant political/social implications that can appear in various forms. One possible area of risk is associated with the continued application of measures adopted during the acute stage of the 2008 downturn, especially in monetary policy terms, which have generated some significant distortions. Added to this is the particular vulnerability of several emerging economies to external shocks and their possible political and security repercussions at least at regional level.

Looking at Europe, the main problem seems to lie in a sort of decisional paralysis or, in any case, in common choices proving not to be a very timely response to rapidly developing global phenomena. Meanwhile, the sovereignist forces gaining ground in all EU member countries tend to consider intra-European relations a zero sum game, making it almost impossible to further coordinate policies and harmonize regulations and markets; while, on the contrary, greater European policy efficiency would demand a willingness to share risk. On the other hand, sovereignist/populist parties’ ability to achieve a critical mass in European institutions is limited precisely by the existence of analogous parties in many member states given the inherent difficulties they encounter in forming lasting alliances outside national borders.

For its part, the United States is struggling with serious domestic tensions and a certainly not optimally functioning political system affecting decision-making processes even at the highest levels. Traditional policies are being adjusted, as much as that may be necessary, often in the absence of sufficient analysis and without consideration of the indirect and medium-to-long term implications. The unilateral approach preferred by the Trump administration can cause lasting damage to a multilateral governance already not adequate to confronting many international issues, but nevertheless useful in reducing tensions and limiting the dangers of insufficient data exchanges.

The geopolitical and economic picture in the Middle East continues to be heavily conflicted and unstable: three violent hotspots – Syria, Yemen and Iraq –, at least one failed state (Libya), fierce competition for regional influence, primarily between Iran and Saudi Arabia (with Israel currently aligned with the Saudi position on Iran), as well as external pressure from various assertive powers such as Turkey and Russia. No true multilateral cooperative mechanism is emerging as the uncertainties linked with a shrinking American presence continue to multiply. Meanwhile the domestic socio-economic situation of various countries (Algeria is the latest) is essentially not much different from that of the 2011 protests. The ambitious reform agenda of the Saudi leadership (and the proactive responses of other Gulf monarchies) has its pros and cons, but for the moment is not contributing to generating a climate of greater trust in the region, with the exception of relations with Israel, which however still need to be tested within the framework of possible new negotiations on the Palestinian question. 

China wields the greatest weight in the changing global balances, not least in light of the country’s increased impact in high technology sectors. The American attitude has shifted practically overnight away from a sort of “containment” to an outright confrontation with overtones that herald a protracted “cold war”. Nevertheless, comparison with the Soviet Union would be highly misleading, given that China is heavily integrated into the global value chain and, despite its both dirigiste and authoritarian political system, is in many ways pragmatic and open to experimentation. The challenge to the global system is complicated by the speed of the changes under way – especially in the application of new technologies – but also by various domestic imbalances making the Beijing government not always predictable when confronted with a no longer passive civil society and strong nationalist impulses. There are numerous conflictual fractures in the East Asian and South East Asian regions, the danger level of which has thus far been limited by a strong American presence with a considerably stable alliance network; a situation that is now subject to new uncertainties both on the part of Washington as well as several major Asian allies. With this as a backdrop, Europe risks finding itself wedged between the desire to best exploit economic relations with China and American pressure to keep security factors in mind: an ulterior front for possible divergence in the delicate transatlantic relationship.