Column

The Global Risks Report 2016: A Commentary by Endika Aboitiz

PREFACE

1. Global risk materializes in new and UNEXPECTED ways. They are becoming more imminent as their consequences reach people, institutions and economies.
2. Stable societies are becoming more fragmented.
3. A weak global economy is facing headwinds.
(EMA: It is much harder to face challenges with weak balance sheets)
4 . Advances in technology and rapid digitization are fundamentally transforming societies, economies and ways of doing business.
(EMA: “Uberization”)
5. Changing employment patterns, widening income equality and rising cyber-dependence.
(EMA: I maintain the main reason for much of the above is the widening educational disparity. The poor go to public schools. The rich go to private schools. The former costs double the amount of private schools and gives half the quality of education so to speak.)
6. Collaboration across all sectors is needed more and more to deliver resilience. Yet we are seeing more and more struggle among decision makers to find common ground.
(EMA: Governments across the world are not adapting to change as rapidly as necessary.)

EXECUTIVE SUMMARY

Risks in focus

1. (Dis) empowered citizen
2. Food security – climate change context
3. Global disease outbreak
(EMA: NOBODY KILLS LIKE GOD)

Risks to doing business

1. Unemployment and Underemployment
(EMA: Underemployment in PH is a more serious problem than unemployment. Anyone can get a job today–here or abroad. But what kind of a job?)
2. Energy price shocks

GLOBAL RISKS 2016 – PART ONE

1. Humanity on the move – the impact of large scale involuntary migration

– The risks of interstate conflict and state collapse.
– The risks of climate change and water crisis.
– In 2014, 60M people were forcibly displaced. People stay longer in host countries than they used to. The longer they stay, the harder it is to return. Effective integration policies are common. Global humanitarian architecture is ineffective. Most forced migrants move to developing countries where social and government systems are already weak.

2. Economic Growth 4.0

– Asset bubbles. Structural unemployment and underemployment.
– Corporate and public debt built up by emerging markets in times of low interest rates, China in particular.
(EMA: Structural change around demographics is not happening. People are productive above 65 to 75 years of age and they are not producing. We need to change employment where the costs of people above 60 start flattening or coming down as their productivity continues to rise or contingent liabilities will eat us up. As China gets old before it gets rich it will not be able to produce enough to handle the old and it will not consume as it could.)

THE SECURITY OUTLOOK – PART TWO

The landscape – Vacuum created by frail or weakening states. The rise of well organized, armed, non-state actors in the global security space and the spillover crisis. The return of strategic competition between strong states with conflicting interest. This impedes effective responses by global institutions to crisis and or problems. Military solutions can only go so far. Aerial bombardment without a coherent strategy for long-term stability may merely extend the vacuum in which terrorists can survive.

Managing the demographic youth bulge in Africa will be critical for security outcomes, implying major investments in skills building and job creation. Latin American governance challenges with organized criminal gangs influencing many aspects of society- steady stream of drugs. A major transformation is underway in China’s armed forces emphasizing expeditionary, air, maritime and space technologies over its traditional emphasis on the Army and the defeats of the home turf. Japan’s security posture is evolving. The role of the US remains uncertain. Does it have the will to remain the world’s dominant superpower? Russia? Europe? TRUST IS WANING IN THE CAPACITY OF EXISTING MULTILATERAL MECHANISMS TO RESOLVE FLASHPOINTS.

International economic relations, international security and geopolitics are closely related. Intense times, politics may trump economics.

7 Driving Forces of International Security

1. Technological innovation
2. Resources, climate management and security
3. Efficient governance
4. Geo-strategic competition
5. Demographic shifts
6. Social cohesion and trust
7. Hybrid and asymmetric threats – black swans from a more interconnected world

A Call for a Resilience Imperative

1. Private sector leaders to put international security firmly on the radar screen.
2. The traditional security actors to adjust their own frameworks and processes to build in more public-private participation at the most appropriate levels.
3. A renewed focus on prevention, preparedness and resilience rather than reaction and compliance.

RISK IN FOCUS – PART THREE

(DIS)EMPOWERED CITIZEN
Social stability at risk analysis.

Social stability is being challenged by multiple and profound transformations that affect most countries worldwide. These transformations result from fast paced technological progress, globalization, wealth and income concentration, shifting demographics, lack of job opportunities and a changing climate.

Social instability is not per se always a negative factor, because it can drive towards another and potentially better new equilibrium.

The (dis)empowered citizen- the emerging interplay of two trends: one empowering and one disempowered. Individuals feel empowered by changes in technology that make it easier for them to gather information, communicate and organize. At the same time, individuals, civil society, social movements and local communities feel increasingly excluded from meaningful participation in traditional decision making and disempowered in terms of their ability to influence and be heard by institutions and sources of power.

The Drivers of (Dis)empowerment
Social structures around the world are being transformed on three levels:

1. At the individual level, there are changes on how people feel and how they perceive the world and identity with particular values; this is combined with people’s increased ability to express and transmit their views, which in turn influences behavior.
2. At a collective level, rapid changes in new social groups form and solidify have taken place, and how these groups debate and envelope common values and viewpoints and how they interact with other stakeholders.
3. Often driven by and in response to the individual and collective levels, formal institutions are also changing the way that they relate to and interact with both groups and individuals.

– Economic drivers – policies that neglect exacerbate
– Political drivers – perceived inability of governments to respond to major global challenges. Combined with a diminishing separation between the private and public sectors, governments are perceived to be either unable or unwilling to regulate
– Technological drivers – technology amplifies dissatisfaction

Repressive reactions fuel social disruption.

New approaches and risk resilience strategies
1. Governments to re-empower their citizens

– Transparency and accountability
– Opening up space for dialogue
– Enlist citizens as collaborators in the public space.
– Maybe technology can facilitate this
(EMA: If they do this the won’t get elected. If politicians tell citizens the truth, they get kicked out. There are always two reasons why people do things: the right reason and the real reason. No one wants to hear the real reason. No one wants full transparency. Now they do want accountability when people fail. But hey, he who does not believe in miracles is not a realist, because they happen.)

2. Business must take every opportunity to build trust, build resilience by committing to transparency, responsibility and higher standards.

3. Civil society has the opportunity to find ways to leverage new technologies and collaboration models to strengthen the fabric of society.
(EMA: And not be C.A.V.E. Men – Citizens Against Virtually Everything)

CLIMATE CHANGE AND RISKS TO FOOD SECURITY

LAND IS A FINITE RESOURCE BASE. It is already stressed.

Wealthier people eat cereal-intensive meat. Demand is set to increase by 60% by 2050. Agriculture competes with forests and urbanization. More worrying is the fierce competition for water. Climate change will slow this global yield growth needed. Then comes extreme weather and its disruption in production and transportation. The poorest countries are at most risk once again. High food prices result in the increased risks of riots and instability.
(EMA: Man’s long-term greed will act when the crisis is super imminent. Until then we will most likely talk more than we do.)

GLOBAL DISEASE OUTBREAKS

(EMA: There are many ideas on how to mitigate this. I won’t bother you with them because we will not do anything until a serious crisis comes.)

SARS – it comes and we react. The advantage now is that it gets communicated quickly and people freak out and stay away.

BUT WE MUST REMEMBER – OUR TIME ON THIS PLANET IS NOT PERMANENT. THERE HAVE BEEN MANY BEFORE US AND THERE ARE MANY TO COME AFTER US. MAN WILL BE WIPED OUT. IT IS A MATTER OF TIME. DISEASE NEVER WIPES OUT ALL. IT JUST CLEANS UP. DISEASE IS A PRESSURE COOKER VALVE.

IT IS WEATHER THAT WIPES OUT.

RISKS FOR DOING BUSINESS–AT A GLANCE

The risks vary by area in the world.

Economic

– Asset bubble
– Deflation
– Energy price shock
– Failure of Financial mechanisms or institutions
– Fiscal crisis
– Unemployment and/or Under employment
– Unmanageable inflation

Societal

– Failure of urban planning
– Food crisis
– Large scale involuntary migration
– Profound social instability
– Spread of infectious disease
– Water Crisis

Environmental

– Natural catastrophe
– Biodiversity loss and ecosystem collapse
– Extreme weather events
– Environmental catastrophe

Geopolitical

– Failure of national governance
– Interstate conflict
– States collapse or crisis
– Terrorist attacks

Technological

– Cyberattacks

For South Asia:

– Energy price shock 67%
– Failure of national governance 67%
– Fiscal crisis 50%
– Unemployment or Underemployment 50%
– Failure of climate change adaptation 50%

For the Philippines:

(EMA: Our biggest risk is the failure of national governance. We have seen that in the last administration the promises made were not followed to any extent of materiality. The PPs promised were under achieved. The traffic situation in Manila is moving towards a disaster level. I will leave corruption issues to you but collection efforts of government have gone up 1% in six years – I would not write home for this. These elections are showing that professional behavior in politics is just not possible. Now our fiscal situation is healthy. Low energy prices are good for our people and our current account surplus. Underemployment is an issue.)