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The Executive School of the University of St.Gallen

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Dr. Daniel Woker

Dr. Daniel Woker

Ambassador in Residence

As a former Ambassador to Kuwait, Singapore and Austrialia, Dr. Woker contributes to the Executive School both in creating new courses and participate in their teaching. […]

GEOPOLITICAL DISTRESS

The new normal or the gathering of the perfect storm? Get a grip on the state of the world in 3X3 short and easily digestible points covering the main areas of the present global scenario: economic and social development, strategic trends and politics, technology and ideology, including topics of the day such as migration, cyber threat and Islamic terrorism.

 

Economic and political development: The most important economic development of the last 25 years, and probably for more years into the future, is the firm establishment of emerging markets on the global stage. The continuing importance and influence of the American market on the global economy stands out as the second megatrend under the heading economic and social policy. The present upturn, once again triggered by the US economy will be accompanied this time by unprecedented public sector involvement in private sector activity and here is the third point to retain under this heading.

Strategic trends in politics: If the 20th will go down in history as the North-Atlantic, the 21st Century will likely be characterized by the shifting of the global fulcrum to the Asia-Pacific. What Washington and Beijing do, or don’t do in the Asia Pacific is the second point under this heading. And where all that leaves the old continent of Europe has to be asked as the third point under this heading.

Technology and ideology: The grouping together of these seemingly very different notions makes sense when you look at how information flows and spiritual messages are transported today, both for the good but increasingly also the bad. The digitalization of modern man and life qualifies undoubtedly a as a new industrial revolution and thus is the first of the three mega points under the heading technology and ideology. Radical Islam is only one, but the most recent and terrifying of examples of apart of Cyber World gone haywire. As the third item under this heading, inequality, both between and especially within countries must be mentioned.

Conclusion:  If compliance is the inevitable and immediate task of good corporate governance, geopolitical literacy is its longer term and equally inevitable counterpart to consolidate your company’s position within the vast and growing nexus between the private and the public sector. You might not be able to eliminate entirely the risk of geopolitical distress. But by staying informed thus acquiring foresight both for future planning and precautionary measures you can blunt its impact on your company.

 

Read the complete analysis below. The long version can also be ordered at executive.school@unisg.ch
Economic and social development

The most important economic development of the last 25 years, and probably for more years into the future, is the firm establishment of emerging markets on the global stage.  For the better as was the case till about five years ago and for the worse since then as we saw, and still see many of them go down in parallel with the commodities cycle.

Goldman Sachs who initially coined the moniker ‘BRICS’  –  to better sell investment  in the five major emerging markets Brazil, Russia, India, China, South-Africa  –  has recently moved to fold the BRIC fund into its broader emerging markets fund.  This illustrates two present and seemingly contradictory developments as major emerging markets each follow very different economic and political trajectories, yet are still thrown in the same investment risk basket. Welcome to the complexity of today’s world where even the casual portfolio investor, let alone those looking at exporting and productive investment abroad, will have to carefully explore each and every new market and country separately. Not that this is new as even a casual look at any of the BRICS country shows that they probably never had much, if anything in common.

However, all EM’s will have to remain on every investors and exporters map, regardless of the present economic downturn in most of them.  If only by their size and their absolute population figures compared to the old world, they are here to stay and will try different courses to navigate from reduced poverty levels for a majority of their citizens to growing the middle class as bedrock of all societies.  This development can, and often is slowed by economic obstacles such as the middle income trap when productivity lags too far behind salaries and total labor cost.

Furthermore, as Europe is experiencing now, political and security crisis(Middle East), coupled with bad governance and corruption (Africa) can lead to migration flows which mean both a hemorrhage of manpower from the emerging countries of origin as well as integration problems in the receiving countries to the point of serious political upheaval in the latter. 

If globalization has generally been a boon to emerging markets (’the great convergence’), the picture looks more complex in mature markets including the U.S.  It is now nearly universally accepted that, economically speaking, more level playing fields for business have benefited a relative minority disproportionally more than the majority in the old industrialized world.  Beyond any theoretical discussion of economic theories this had, and still has, negative impact on salaries, growth and thus recovery from the most severe economic crisis since the 2ndWW. Rising inequality will have to be looked at as a distinct trend under the third main heading below.

Yet the continuing importance and influence of the American market on the global economy stands out as the second megatrend under the heading economic and social policy. The US is regaining its role as the engine of the global economy. At the time of writing the reversal of the decade old downward trend of interest rates is imminent and thus also the end of basic aberrations from the market system as we know it, such as negative rates.  Wall Street will continue to reign supremely –  more so if (Southern) England persists in inflicting economic and political suicide on the UK, aka. Brexit  –  albeit with ever stronger contenders in the East (Hong Kong/Shanghai, Singapore) . Incidentally, whether Zurich/Geneva will continue to play a second tier but important role as financial center will depend whether the Swiss join (or don’t) the Brits into splendid isolation and national oblivion.

The upturn will, however, be accompanied this time by unprecedented public sector involvement in private sector activity and here is the third point to retain under this heading. What I mean is both regulation  –  in the form of new laws, international codes of conduct and the like as well as pressure from organized consumer and other groups  –  and sweeping but increasingly multilayered removal of trade barriers and other restrictions across the economic  globe through Free Trade Agreements (FTA) , Investment Protection Treaties and the like.

What is normally not fully appreciated by all private sector representatives is the complementary nature of what they perceive as the negative and positive sides to state involvement in business affairs.   New regulation in the banking, the commodities and soon the automotive (VW!) industries is as much a state answer to system failures and individual hubris as it is a politically inevitable reaction to growing inequalities in Western societies.  On the other side, the new ‘mega regionals’  (large regional FTAs which have taken the place of the old global rules of the WTO) continue to create ever new possibilities for those clever enough to follow this process attentively.

Whatever the bland abbreviation may be, TPP (Transpacific Partnership, basically both Americas, Japan, Australia/NZ and a good part of  ASEAN  –  Association of South East Asian Nations  –  , signed but not ratified by the US Congress at the time of writing), TTIP (Transatlantic Trade and Investment Partnership, basically the US and the EU, in advanced negotiation process) or RCEP(Regional Comprehensive Economic Partnership, basically the Asia-Pacific without the US and Japan), the mega regionals go far beyond past generations of tariff cutting trade agreements into services, investments, worker rights and even national currency control.

Both large companies and SMU’s do well in having corporate leadership generally aware of all these public sector related developments, as well as having respective in-house specialists. The latter is both faster and more economically sensible than frantic outreach to expensive consultants in hours of need.  Regarding FTA related know-how by those who profit from the removal of barriers to economic exchange, I certainly have come across cases of surprising ignorance in my 30 years of officially supporting Swiss business interests abroad, and this within smaller but also very large companies.

 

Strategic trends in politics

If the 20th will go down in history as the North-Atlantic, the 21st  Century  will likely be characterized by the shifting of the global fulcrum to the Asia Pacific.  The waterways from Alaska down to the Chinese sea, through the Indonesian archipelago and above Australia over into the Indian Ocean to the South Asian peninsula will see the kind of huge volume of strategic traffic, both in merchant and in military shipping, which has been the hallmark of the comparatively small expanse of water between Europe and North America.

In  historical retrospective, the beginning of the strategic shift in US projection abroad towards the Asia Pacific, the so called ‘Asia Pivot’ operated by the Obama administration will probably stand out as a seminal event, regardless of the present heavy interference from political and military crisis in the Middle East and at the Eastern border of Europe.  The frantic arms race involving China, Japan and India is an early indication of things to come. This does not necessarily mean a scenario of ‘1914 all over again’, presaging a major confrontation this time between Pacific powers. However, it does point to a real need for better communication between, and better structural premises for dialogue by Asia Pacific powers including the US.  The present rather fuzzy ‘East Asian Summit’, the only existing platform bringing them, and the other regional players together, falls woefully short on both these points.

Such structures are needed to serve as lightning rods for unresolved history  –  within and between China, Korea and Japan, all of them and especially Japan not having gone through anything close to the  catharsis in post 1945 and post 1990 Europe  –  as well as a buffer to reassure all of the Asia Pacific that Beijing wants genuine cooperation and not the submission of historical lore.

There is a certain historic parallel here to the ‘Helsinki’ process of the Cold War where a common forum for all countries, large and small existed which did not preclude, but rather complemented the equally necessary platform for the then two superpowers US and USSR.  While the former continues to dominate also as a Pacific power, the key bilateral relationship is now with China. What Washington and Beijing do, or don’t do in the Asia Pacific is the second anchor point under this heading.

The interests of those two only global superpowers are in parts convergent (environment and climate, smooth functioning of the global economic and fiscal system) and quite divergent in others.  Beyond all rhetoric of ideological confrontation such as ‘democratic capitalism vs. authoritarian capitalism’, the US on the one hand remains committed to a Pacific-wide ‘Pax Americana’ pointing to both contractual (Taiwan, Japan, Korea, Philippines, ANZUS) and political (almost all other countries in the Asia Pacific, including e.g.  Vietnam) commitments to prevent overt Chinese hegemony. On the other hand, Beijing flexes muscles both newly acquired through economic might and historically claimed as the Middle Kingdom of the past.

A respectable, and respected school of political pundits in the Asia Pacific points to the desirability of a ‘Concert of Powers’  in their region, much as existed post 1815 in Europe in order to balance conflicting claims and aspirations. However this overlooks both the totally changed nature of international relations since then regarding sovereignty as well as the lack of a common bond and basis (religion, culture, history) in today’s Asia Pacific, which did exist in the Europe of the 19th century.  The best one can hope for is, other than the aforementioned need for region wide structures, a lucky concurrence of real statesmen at the helm of the two superpowers. The possibility of a ‘Donaldization’ of American foreign policy, as well as some Maoesque attitudes lately displayed by Xi Jinping do at present not incite great optimism.

And where all that leaves the old continent Europe has to be asked as the third point under this heading. While obviously the old days of imperial and colonial might are gone for good, the opposite  scenario of Europe as a picturesque but shrinking addition to the huge Eurasian landmass does not necessarily follow the proclamation of a 21st Asian Pacific Century.  As long that is, as long as Europe is truly uniting its total, as such still globally unrivalled economic might as well as bringing its political and security acumen, including its military, at least under a coordinated and common heading.  Present separatist tendencies, be they of the Catalan, Grexit or Brexit kind, will leave all involved  poorer than they were before the process of European unification. I cannot but single out at this point the particular folly of those here in Switzerland clamoring for drawbridges to go up and believing that an Alpine super-Monaco could wondrously survive with politics on the Grutli and trade with Australia.

The beauty of the European project, symbolized for the better or the worse by the EU, is that in principle it allows for the common force projection of Europe in the new global, Asia-centered reality at the same time as the nurturing and development of regional particularities which have historically characterized the old continent. What is needed is more unification where such is inevitable and indispensable in parallel with emphasizing regional, not nationalist, features and traditional strengths. To put it in blunt personal terms, more Angelas (Merkel) and fewer Victors (Orban).

The present three main challenges for Europe  –  Migration from Europe’s ‘near abroad’ in the Middle East and in Africa; Russian expansionism in parts of the old USSR; Greece and the Euro  –  need more of a common effort as each is clearly of a nature precluding national solutions. The precious achievement of ‘Schengen’ can only be upheld by an all-European effort to secure the external borders and concurrent efforts at better distribution and integration of refugees.  Putin’s playing with fire in the Ukraine and elsewhere has already been met by a certain response from NATO but Europe will have to do more also in military terms as the US won’t and can’t (Asia pivot!)  indefinitely shoulder the main responsibility for the defense of Europe’s eastern borders. Finally, the Euro as a by now self-evident tool for the commercial and personal ease within the large European market, needs again concurrent efforts both to complement the common currency by fiscal harmonization and to yank old national systems of crony-capitalism in Southern Europe into the 21st Century.

 

Technology  and  ideology 

The grouping together of these two seemingly very different notions makes sense when you look at how spiritual messages are transported today both for the good but increasingly also the bad. Again this is nothing new as technical, today technological revolutions have always surged ahead with legal, political and contractual limits to reign in  their abuse falling far behind, at least during an initial period.

The digitalization of modern man and life undoubtedly qualifies as such a major revolution and thus as the first of three mega points under the heading technology and ideology.  What our common cyber future will bring along can at present only be seen in very rough outlines. Will online shopping and maintenance, let alone 3-D printing, cut out all traditional middle ground, with its important players such as retail and servicing, between producer and consumer? It seems difficult to fathom that physical markets which have been with mankind since the dawn of time, will completely disappear.  Can it be that whatever is thought, said, written and created can be accessed by anybody and instantly regardless of content, value and the right of the author? Hardly, and again a first period of seemingly borderless freedom, potentially turning into chaos will be followed by new rules, regulation and pay walls created by men conscious that one man’s freedom stops where his neighbor’s begins.

The belief that the invisible hand of market forces will take care of the job falls short.  A good part of the world’s population lives under authoritarian regimes where it is the state’s hand, anything but hidden, which moves and shakes. But also under democratic rule, ‘the market’ as a politically defensible idea has taken some heavy hits. The Western world is still recovering from the 2008 financial and the ensuing economic crisis with a heavy load of regulatory legislation since.

However fancy the ideas, and occasional exotic election campaign riding on them, of pure liberalism may be, it is a safe bet that our increasingly complex life will also bring along more, and more complex rules.  And this through policies and politicians regardless whether they initially promised a rule-free rose garden or were honest enough not to.

If nothing else, the growing abuse of the cyber world will force more policing both of the net  –  cyber theft of commercial and intellectual property  values, hacking with malicious intent as well as immoral, racist and criminal content  –  and on the ground when those so influenced endanger lives and property and undermine free societies.

Of the latter we have seen quite a bit lately with radical Islam, only one but the most evidently threatening presence morphing from digital violence into all too real terror in streets that we have taken for safe since decades if not centuries. Religious coexistence all over the world is threatened not only in areas like the Middle East where such has become a sad standard but also in countries with strong Hindu (India) and Buddhist (Burma) majorities.

Terror and murder perpetuated in the name of Islam, both within our countries and from terrorist territorial entities is the most immediate threat to our societies. The latter cannot be tolerated; in fact it must be eliminated. This held true for the Afghanistan of the Taliban and at present goes equally for the so-called Islamic State IS/ISIS/Daesh.  As the long term political and, very much so, economical damage of ‘9/11’ proves beyond doubt, the Paris terror night of November 13  cannot be allowed to be repeated indefinitely without lasting damage to the very fabric of our societies. These two major terrorist outrages were possible mainly thanks to logistical support, organization and financing from larger territorial safe havens for the perpetrators such as at present the IS occupied parts of Iraq and Syria, and possibly Libya.  They have to be destroyed through strict enforcement of economic boycotts and military action.

Now, it is equally evident that this will only address one, albeit crucial part of a complex problem. Homegrown Islamic terrorism is best fought with triple measures, including cutting the flow of Salafist influence, money and teaching into the West, also targeted social policies for young people often with migratory background at the margin of our societies and, most difficult of all, integration of the conservative, traditional Islam adhered to by many refugees into our modern societies where the principle of separate realms for state and religion constitutes a fundamental bedrock.

A word of personal advice to those doing business in the Gulf States, looking back to my four professionally intense years there, close to the heart of conservative, if not Wahhabist Islam. Notwithstanding the evident necessity of civilized behavior towards local business partners and clients, there is something like religious sycophancy meaning too evident averting of eyes from egregious malpractice such as the application of Sharia in penal law. In the Gulf, and in other countries seemingly tempted by the slippery slope of religious zealotry in business and daily life (Malaysia, Pakistan,Bangladesh, partly Turkey and Indonesia), there is nothing and no one to prevent you from having a private but serious talk with your local contacts regarding their impossible straddling act of official policy fighting terrorism on the one hand and misguided personal piety supporting false ‘worthy causes’ abroad, including in our countries on the other hand.

Probably because it is the most exposed European country by the size of the respective problem, France has at least in theory gone ahead with a state process of replacing Islam in France with French Islam. Islam as a creed is in Europe to stay but will have to become just another minority religion in our modern secular societies built on centuries of history and respective customs.

France is being helped in this seminal task by the national imperative of secular rule, including the interdiction of personally displaying overt and ostentatious religious signs in the public realm. While refraining from fighting against isolated if visible targets(Minarets, veil in the private realm), all countries should and can bring  back places of  worshipping, let alone religious schools and religious teaching outside schools, under the overall control of the state  –  which also implies protection and where necessary subsidies.

As the third item under this main heading, the aforementioned inequality must be mentioned. Not a new phenomenon anywhere in any society. However, the flat digital world has greatly enhanced both global recognition of inequality and the practical means for enterprising individuals to look for a better, more equal deal for them and their family elsewhere. That goes for the proverbial Polish plumber in London, the Korean green-grocer in New York and the Maghrebian shopkeeper in Paris.

Within countries with a democratic tradition and, albeit sometimes creaking practice, inequality in the form of a feeling of abandonment of the middle class to forces beyond their control, can lead to radicalization in political choices. Deeply disaffected voters become thus easy prey for political snake-oil peddlers of the nationalist and xenophobic type.

 

Tools for staying abreast: A particularly efficient, and time saving, tool to stay abreast of fast moving daily news is to read, other than the strict necessary in your local offer, one  the few quality media remaining  –  from the Financial Times to the International N.Y. Times to the Huffington Post  –  in an intelligent way.  Once you keep in mind the big lines, as outlined above you will find that singling out, by skimming over all titles, just three articles/comments a day for your in-depth lecture will keep you abreast not only of daily news but more importantly prepare you for public sector developments and activities which have, or will have a direct impact on your daily business life.

 

 

Conclusion:  If compliance is the inevitable and immediate task of good corporate governance, geopolitical literacy is its longer term and equally inevitable counterpart to consolidate your company’s position within the vast and growing nexus between the private and the public sector. You might not be able to eliminate entirely the risk of geopolitical distress. But by staying informed thus acquiring foresight both for future planning and precautionary measures you can blunt its impact on your company.