By Dragan Vitorovic
Living and working in the Global Risk Society, as proposed by Ulrich Beck, assumes the existence within the hyper-competitive world order. Simply put, risk nowadays is both the strategic enabler and the manager of resilience levels of a specific organization, either government or enterprise-based.
This can explain the increasing number of companies offering risk analysis and risk prediction services on the market. Businesses today act as diplomats and political actors, often carrying more importance than the national governments, whereas every announcement and investment might also be a political statement.
Every activity, no matter how much unrelated to politics might seem, could easily become political. This could easily be witnessed today, amid pandemic.
The world of relatively understandable political risk has disappeared. If before the pandemic certain level of predictability was still present, now it has become clear that the New Normal removes any anticipated stability in the geopolitical design, for at least one decade.
The previous understanding of political risk involved autocrats and dictatorships seizing foreign assets and private property while pursuing their own political agendas. In response to this, national governments have become far more cautious in taking steps that may disturb investors and markets.
However, in a case of a globally spread virus, which is depicted as highly unpredictable, this could change very soon, and governments would have to balance between the health of the population and the economic activity. This will be a daunting task.
Who may lead: governments or businesses?
As pandemic has shown, governments are still very important players in the business world. Since political risk is composed of many loosely related events, including the microscopic changes and activities of individuals, governments and businesses would have to mitigate this type of risk together.
In return, the level of political risk faced by business has been aggravated, due to the paradoxical junctures of fierce national competition accompanied by globalization and the interconnectedness, which is the remnant of the pre-pandemic period.
Newly formed global dynamics, while making things even more complex and challenging, had been accompanied by the rise of secondary world powers, such as Brazil, India, or Vietnam, followed by increased expectations of their citizens. Certainly, a pandemic would remodel the processes of globalization, intensifying the technological decoupling of China and the USA, and further challenging the old alliances.
Additionally, countries may encounter with the inner dissent, given that even the highly industrialized countries have fallen victims of the rising populism, even before the pandemic started.
The understanding of geostrategic and political risks has been going through the rapid changes in the business world, so many executives started reframing their thinking and upgrading the tools of analysis, attempting to cope with uncertainty.
While hoping to reap the reward and to exploit the opportunities, decision-makers have also attempted to establish a competitive advantage through the process of controlling the political risk. This is a tremendous change when compared to 2013, when many executives, strongly conditioned by the globalized and relatively frictionless world order, openly stated that they did not put significant weight on those types of risks.
However, despite the remodeled approach, political actions are often well-beyond business processes, so many managers found themselves unprepared or undertrained for such ambiguity and complexity. Namely, many political risks appear to be low-probability events with their own dynamic and complexity levels. Since this is not 2013, and coronavirus could be a big game-changer, it is possible to anticipate that top managers have updated their skills in crisis management and forecasting of political risk.
A Food for Thought: New Normal and New Global Order starts in 2020
The international world order today is characterized by enormous levels of plasticity, movements of “red lines”, China as the main challenger of the status quo, revisionist Russia, and hybrid types of warfare.
Outdated global institutional arrangements cannot manage the global discontent which used to be subdued due to solid economic growth, which resulted in the absence of global markets destabilization – something that currently does not hold. Events have taken an unprecedented pace: the price of oil went down to zero, the European Union still searches for a modality to curb incoming recession, and Russian and Chinese corona-diplomacy has penetrated in many decision-making circles.
Drawing concepts from the literature that was fresh for the pre-pandemic period, namely from the book written by Rice and Zegart titled “Political Risk: How Businesses and Organizations Can Anticipate Global Insecurity”, there are at least three megatrends that transformed the understanding of political risk: unstoppable and irreversible changes in politics after the collapse of the Soviet Union, swift pace of innovation in the supply chains, and the exponential pace of the tech revolution.
Each of them consists of more details than meets the eye and has more implications that are both unpredictable and significant in hindsight. To mentioned three megatrends, pandemic might be added as the fourth trend, that would eventually speed up the innovation in the globally disturbed supply chains and increase the magnitude of the tech revolution. The precise characteristics and behavior of the potentially fourth megatrend, if following the aforementioned classification, are still unknown to many.
The Black Swan or not?
The findings of the global geopolitical risk authorities, published on Bloomberg in the past year, did not exclude the possibility of the Black Swan event. This type of event could be explained as a deviation from a standardized pattern of occurrences, which is extremely difficult to predict, and impossible to control.
What is a common thinking trap, this type of event could be easily explained retrospectively. For more details on this phenomenon, the book by Nassim Nicholas Taleb “The Black Swan: The Impact of the Highly Improbable” could offer a great introduction.
The Black Swan event has been often mentioned in politics and finance, possibly suggesting a certain tacit relationship between the two. Additionally, the Black Swan event has become one of the most mentioned concepts from the theories that try to explain the New Normal.
In the middle of the heated debate if the pandemic is the Black Swan, Taleb recently answered that the pandemic could be foreseen and that it could be predicted, possibly resulting in a more effective response. However, many analysts and policymakers firmly hold their ground that the pandemic is the Black Swan event, which spread in every domain of political and economic activity.
Under both considerations, the pandemic is the first-level influencer on Great Powers, and by partially dictating their moves and policies, reshapes the geopolitical playground set in the future. Certainly, the small and medium-sized countries are also pursuing their own agendas, hoping for a certain loophole in the international system that could offer them a bit more influence in years to come.
A Brave New Worldview
Analysts have forecasted that the decisions on many pressing global issues may be brought by the strategically important second-order powers. This tendency may bring imbalance or balance, especially in Africa and Asia, mainly due to the megatrend of change in politics, accompanied by the rising need of the USA, China and Russia to form the alliances with various state-entities in the international arena. The geopolitical order established after World War Two has ended and has been detached from the needs and aspirations of less important states.
Now, when pandemic, despite representing the unknown unknown type of risk, poses the real and tangible threat, Great Powers would have to offer more leadership and more benefits to their less powerful counterparts.
Since the United States has refrained from global leadership, it is highly questionable which Great Power may step in and follow the US example after World War Two. Pandemic, being the Black Swan or not, will influence the change in the worldview, adjusting the understanding of political risk in this process.
Image Credit: Cindy Ord/Getty Images
(The opinions expressed in this article are solely those of the author and do not necessarily reflect the views of World Geostrategic Insights).