The Laughing Buddha

A.K.A. The Collector of Good Questions

Should Business ‘Master Geo-Economics’ Like Government?

How persuasive is this advice?

At the methodology level, the WEF report is based on a ‘Risk Perceptions Survey’ of 900 individual members of the forum, and while the report flags the possibility of the Availability Heuristic affecting the responses, the mitigation of such cognitive biases does not appear robust enough. Did they, for example, consider using relatively simple mitigation approaches such as Dialectical Bootstrapping? More than this, the bizarre similarity, in terms of graphical prolixity, of the two visualisations on pages 5 and 6 of the report to the much-maligned Medusa’s head Afghanistan strategy map presented at the Pentagon in 2010 rings some alarm bells about the traps of strategic distraction and ‘analysis paralysis’.

As for the supposed ‘mastery’ that governments have of geo-economics, how robust is their skill? To use a metaphor employed in the article, do they waltz well around the globe? Even a cursory glance at any week’s headlines would seem to suggest that, in many matters of global import, our governments appear congenitally hobbled by two left feet. But, rather than appearing to suggest that governments are by their nature malformed, let me summarise some key observations made by many analysts in recent years.

The First World, as the developed West and Japan were known in the pre-Soviet-collapse era, now accounts for less than 15% of the population of a new world of demographic heft seemingly bursting with both rapid economic growth and cryptic, unpredictable risk. (To quote Andrew Haldane of the Bank of England, ‘If the history of [economic] growth were a 24-hour clock, 99% would have come in the last 20 seconds.’) The number of variables that forecasters of all stripes – including governments – need to keep track of in their attempts to look into the future is exploding bewilderingly all the time. Governments, even the most powerful ones, with their ‘sensors’ deployed in unlikely places (as suggested by the Assanges and Snowdens of the world), failed to detect so many of the big seismic events in global society in recent years. Remember the confusion of most Western governments when the Arab-Spring-that-wasn’t broke out? And the largely unforeseen Global Financial Crisis is still managing an ominous Cheshire-cat smile, even as the worst of it seems to disappear. What hope do corporations, even giant corporations, have of looking into crystal balls that have been opaque to powerful governments? Probably vanishingly little, unless one of the tech giants has a near-AI forecasting machine buzzing away somewhere out of sight, being fed all the data in the world to process for prediction. (Although even they would face challenges of oversight, not to speak of technological limitations.)

Snarly Siblings: Comparison of  Visually Prolix Maps
Snarly Siblings: Comparing the WEF risk interconnections map, at left, with the derided 2010 Afghanistan strategy map, at right (presented at the Pentagon in 2010) triggers alarm bells on account of thick visual prolixity.

As Daniel Kahneman, among others, has found, ‘experts’ are able to most reliably predict outcomes of actions only when their expertise is built upon actions that have relatively quick outcomes. Anaesthetists/anaesthesiologists are more likely to be ‘expert’ in this regard than radiologists, for example. So it should not be too surprising that some of the world’s most feted intellectuals have suffered ignominy when they tried their hand at long-term, or even medium-term, forecasting. Remember Francis Fukuyama’s now-risible ‘The End of History and the Last Man’following the collapse of the USSR, where he made the bold prediction that liberal democracy and benign capitalism would sweep the world from then on, and remain in place forever (when will we grasp the magnitude of this freely-used word)? The book was actually a bestseller, happily devoured by academics and leaders, among others.

Despite the vast output of such professional forecasters, who among them foresaw the arrival of the China Express with such ferocious momentum? Or the financial crisis; the bogging down of climate change discussions in labyrinths of accusation and doubt and biases; the turmoil in the Arab world; the perplexing rise of ISIS; the oil price fall; the resurgence of religio-cultural ‘pride’ across large swathes of the globe; the transformation of multiculturalism into problematic ‘plural monoculturalism’ in the West (as the Nobel laureate Amartya Sen describes it); the recoil from globalisation? The few who might have predicted correctly were drowned out by the better-heard words of those who were wrong but safely managed to be forgotten. I recall a sardonic comment by an East Asian classmate at business school: “China is now manufacturing most of the world’s ‘things’, while the West is mostly left manufacturing words.” Not entirely inaccurate, I thought sadly.

Unpredictability seems to be on steroids. In addition to the most-discussed risks, what are the likely implications of, say, the arrival of full-fledged Artificial Intelligence (fears about which, aired by Stephen Hawking and Elon Musk, among others, are often portrayed as somewhat droll in the media)? Or of the progressive shortening of attention-spans in the ‘connected’ world in the last few years, as we struggle through our modern days of constant electronic distraction, seeping out through the now-porous shells of our ‘individuality’? (Haldane, in his recent speech, has dwelt on the implications of these distractions as well). Does this accelerating trend cut so deeply into the available ‘mental bandwidth’ of billions of individual ‘economic players’ that they are exposed to risks similar to that afflicting the poor, as Sendhil Mullainathan at Harvard has described?

And these trends don’t travel on lonely trajectories; they have mysterious conversations with each other. Who really knows what they are up to together?

To quote from WEF report: “At the heart of the problem is a risk-management approach based on responsive measures that assume things go back to normal after a crisis – an approach that falls short with complex or slowly evolving environmental risks such as climate change. Stakeholders have been slow to address the underlying causes of environmental risks or to address their economic, social, political and humanitarian consequences.”


Because the relatively short duration for which leaderships – both government and corporate – are normally at the helm of their respective ships restricts their focus on nearer horizons, and voters as well as shareholders tend to be more concerned about short-term results for personal economic reasons. (I don’t really want to drag out the worn quote, but it’s inevitable at this point. ‘The long run is a misleading guide to current affairs. In the long run we are all dead’ – John Maynard Keynes). Consequently, there remain numerous prominent players looking to dubiously benefit by exacerbating, through their actions or conspicuous lack thereof, at least one of the global risks discussed in the WEF paper. The problem, therefore, lies in the nature of the decision-making structures that we have inherited from history, which now appears far less complex both in the nature and the magnitude of the problems it grappled with.

Given these complex realities, would adopting the WEF suggestion of ‘mastery’ of geo-economics – rather than simply everyday-news awareness and a judicious level of cooperation with governments and institutions – be either a prohibitively costly exercise of uncertain benefit or an unnecessary distraction for most companies?

And what exactly is meant by this ‘mastery’? The ability to influence geopolitics/geo-economics? Access to ‘inside’ knowledge from governments? Cyber-espionage? All of these? Mastery of this sort at anywhere near government-level is a game that only a few may hope to play, at least in Western democracies.

Only those positioned at the most favourable spots along the rivers of information sloshing around the world may have some advantage. Large corporations located relatively advantageously, geopolitically speaking, are able and likely to use a variety of means to influence the trajectory of national and international politics as they seek to mitigate the adverse impact of unforeseen events or trends. This approach, setting aside ethical debates or its potential impact on democratic institutions within nation-states, has its limits, of course, especially at a time when there is sometimes little clarity even to nationalistic governments about whether a particular company is ‘national’. Medium-sized companies, or those operating in relatively smaller economies, would have even less hope of success at such influence, especially if they have global growth ambitions. The best strategy for them may turn out to be analogous to that of sailors, who, as the popular (and somewhat misogynistic) old legend goes, hedged against the loss of their progeny in volatile times – where wars, plagues and murderous robbers were never too far away – by having a family in every port. Building resilience against an uncertain future by intelligently spreading risks is a sound and robust strategy over the medium-to-long term, despite its costs.

Awareness of visible risks, fuelling a judicious level of co-operative engagement, may then be the reasonable course of action for business in seeking to ameliorate risks at a national/regional/global level. Spreading business risks should be a sound strategy. Perhaps it is time to veer purposefully towards the conglomerate/keiretsu/chaebol model. Google appears to be moving in that direction. And Asian conglomerates, Bain & Company have noted, ‘consistently outperform their peers in developed markets and pure plays in their markets’.

Originally Published on LinkedIn.


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