Posts Tagged ‘risk’

Is globalization starting to bite the hands that fed it?

“The postwar geopolitical system is breaking down, and what comes next could be volatile—not least for the corporations that have built, cheered, and profited from the globalized economy.”

This teaser on a recent Atlantic article titled Globalization Bites Back only hints at the surprising perspectives it fleshed out, backed up by quotes from a wide array of mainstream economic analysts.  The piece reinforces one of the primary drivers behind the resilient investing approach: today’s world is rife with “systemic risks,” factors that could shuffle the economic deck in ways that traditional asset diversification cannot prepare us for.  A few key take-aways:

Ian Bremmer, the founder of the Eurasia Group, which advises companies on geopolitical issues, puts the situation in stark terms, noting that we’re in “a period of geopolitical creative destruction—the glue that is holding the world together no longer sticks. . . The last time this happened was the end of World War II. The level of geopolitical risk as a consequence of this transition—which is just starting—is absolutely going to be a big deal.”

“The last three years have definitely been a wake-up call for business on geopolitics,” agrees Dominic Barton, the managing director of McKinsey. “I’ve not seen anything like it. Since the Second World War, I don’t think you’ve seen such volatility.” Most businesses haven’t pulled back meaningfully from globalized operation, Barton said. “But they are thinking, Gosh, what’s next?”

“Was ExxonMobil worried about a skirmish in Georgia? I doubt it,” says Michael A. McFaul, the former U.S. ambassador to Russia. “But now companies like that one care a lot about the details of the conflict in eastern Ukraine. The conflict in Donetsk is being closely watched day by day by multinational corporations and is influencing their decisions.”

Bremmer notes that convincing companies of the value of his firm’s services was, until recently, a challenge. “There used to be a level of skepticism among top executives: ‘This is interesting, this is fun to talk about, but does it matter for my business?’ ” But they don’t say that anymore. “We no longer have to make a business case as to why what we do is relevant.”

Barton looks at the stagnation of the middle class in Europe and the US, alongside increasing focus on inequality and posits, “I think, in a 300-year time frame, this 20 or 30 years will be looked on as a pretty amazing period (referring to the past five years and the coming decades). “People are asking, ‘How does the capitalist system work? Is it right? Is democracy right?’ There are a lot of people asking fundamental questions.”

Indeed, even as we continue to be investing in the global economy, all this points to the need to stay on our toes, ready to respond nimbly to changing conditions, and considering how to be prepared for potentially profound shifts in the years to come.

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