Home .Globalization 7 megatrends or 7 black swans
7 megatrends or 7 black swans
Sunday, 01 March 2009 01:48

Ernst & Young are brave.  At a time like the present when no-one knows which way the world is heading, they have published a pamphlet entitled "Global Megatrends 2009". 

This is very useful in that it is important to think about scenarios for the future.  But as Nassim Nicholas Taleb argues in the "Black Swan", life is often dominated by highly improbably events.  So, let's review these magatrends and try to imagine what might be the black swan scenarios.

1.  Accelerating shift of power from West to East.  Economic power is shifting to the emerging world which now accounts for 44% of global GDP.  This is now going beyond the BRICs of Brazil, Russia, India and China, to the "Next 11" which includes Korea, Mexco and Turkey.  Associated with this is the rise of a new middle class, as 600 million people from the emerging world have reached middle class status since 2000.  The rise of multinational enterprises from emerging markets has also been swift, companies like Tata, China Mobile, Gazprom, Lenovo, Mittal, Cemex, Wipro and Infosys.  In 2007, 70 such companies were in the Fortune Global 500, up from just 20 a decade ago.

So, what would be the Black Swan scenario?  The reality is that despite the growing importance of the BRICs and the Next 11, in terms of big economic weight, only China really counts.  The others are still economic dwarfs.  But China is now stumbling as its exports to the US and Europe are falling dramatically, and exports to the US may not bounce back fully for a long while as US citizens will have to learn to save more and consume less.  The other BRICs are also now bumbling along.  Russia is badly affected by lower oil and gas prices, and Brazil by weaker commodity prices.  In short, the power shift to the East may be halted or even reversed by the financial crisis.   

2.  Changing financial landscape.  Capital markets are increasingly globalized, with emerging markets becoming net exporters of capital.  New power brokers have emerged on the financial landscape like sovereign wealth funds, private equity and hedge funds.  The global financial crisis will no doubt change the nature of banking with a backlash against the excesses of financial innovation and securitisation, and the free-wheeling nature of investment banking.  There seems to be a return of state capitalism, not only in emerging economies, as developed countries partly or fully nationalise banks.  It may take some time to return these to the private sector.

Black swan?  Sovereign wealth funds will be more subdued due to the large losses many have made and also due to weaker oil prices, while suspicions about private equity and hedge funds may restrain their activities too.    

3.  Overhaul and globalization of the regulatory environment.  The financial crisis has demonstrated the need for more robust financial sector regulation.  And regulation that certain sectors cannot escape and which is more consistent.  Such consistency applies to regulation within the US where there are many overlapping regulatory agencies, and within Europe where there is no one system of regulation.  Ideally, such consistency should also apply at the global level.

Black swan?  Notwithstanding the financial crisis, there are still big differences of view on financial regulation.  Harmonising and unifying financial regulation both within the US and within Europe look difficult, especially in light of the intense squabbling in Europe at the moment.  And the US opposes any moves for global financial sector regulation.  

4.  Rising economic importance of energy and commodities.  Global demand is rising for not only energy, but also water, fertile land and clean air.  But supply is very much at the mercy of geopolitics and the security of supply (most energy resources are located in politically unstable countries), as well as the battle between growth and sustainability.  Two dominant trends will be investment renewable energy sources and a drive for energy efficiency.

Black swan?  The rising importance of energy and commodities depends on a return of economic growth especially in China.  It may take some time.  And despite the naive appeal of renewable energy, it is not very competitive and only accounts for less than 4% of total energy production.  

5.  Responsibility firmly on the corporate agenda.  Enterprises are being increasingly held to account by stakeholders for their activities with respect to the environment (especially climate change), public safety, labour standards, and supplier and community relations.  The map of these stakeholders is vast, covering consumers, employees, civil society, the media and local communities.

Black swan?  So many corporations are now struggling for sheer survival.  Corporate responsibility may prove to be a luxury for the good times.  

6.  Next wave of technological innovation.  Technology has transformed all aspects of life in the past few decades, with the Internet and mobile telephony being the most visible examples.  The pace of technological change may be accelerating.  We may be only at the early stage of the digital technology revolution.  With technology becoming more open-sourced, emerging economies are contributing more and more to innovation.

Black swan?  History shows that technology comes in waves.  While technology futurologists like to forecast more of the same, the wave could recede, as in the past.

7.  Increasing challenges of managing and developing talent.  Enterprises are being challenged by the talent cycle of recruiting, managing, retaining and dealing with retirement.  Ageing populations affect all countries, while low birth rates affect countries from China and Japan to Germany and Italy.  At the same time the Generation Y (broadly speaking, those born after 1980) has greater expectations about their career, not only for work/leasure balance, but also regard inclusive management and job satisfaction.  

Black swan?  The cohort of retiring, healthy babyboomers may be so desperate to stay in activity that enterprises could pick and choose high quality staff at low costs.  (This will be particularly the case for those who lost their pensions in the financial crisis.)  If so, the fussy GenYers may adjust their expectations down or they will lose the job competition with their parents and grandparents.

As Taleb advises us, it is important to watch for black swans.  They may provide us with new unexpected opportunities.  But the list above represents just a few possible black swans.  There are bound to be many others if you think about it.   



"Global megatrends 2009", Ernst & Young.  www.ey.com/global/

"The Black Swan: The Impact of the Highly Improbable" by Nassim Nicholas Taleb

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