It’s impossible to disentangle global geopolitical risk from other macro risks, argues Thierry Malleret, economist, author and chairman of the Global Risk Network at the World Economic Forum. And that’s why we don’t always see major upheaval or disruptive events coming until it is too late.
Surveying the global risk landscape to predict where the next crisis might take place is fraught with problems, according to Thierry Malleret. As founder and chairman of the Global Risk Network at the World Economic Forum, he should know.
Very few people, including the hundreds of experts that attend the World Economic Forum every year, saw the subprime crisis coming in 2008. Nor, more recently, were the problems in the Eurozone widely forecast and, before that, the 2014 Russian annexation of Crimea. Speaking at the Chubb Multinational Risk Forum, Malleret identified two obstacles to accurate forecasting.
One is the failure to distinguish between risk and uncertainty.
“As we know, risks can be measured. We can assign probability to them, therefore they can be priced. Uncertainties by contrast are not measurable currencies. And when we deal with systems which are driven by human beings and human emotions, we are dealing with complex non-linear systems which are, by nature, unforecastable,” he explained.
The second obstacle is to do with silo thinking among forecasters, where specialists tend to ignore the fact that geopolitical trends cannot be considered in isolation from other macro trends, including non-geopolitical trends. All of the big risks – economic, geopolitical, societal, environmental and technological – are interconnected to a greater or lesser degree, Malleret said.
“And when we try to understand how geopolitical risks are going to evolve in the coming five years, we have to put this into the context of a global governance vacuum: today, we live in a world in which nobody’s in charge,” Malleret said. “And the greatest deficit that we face in the world is a disconnect between the demand for global co-operation, which has never been higher than it is today, and the supply – which is declining.”
AI as a source for instability
It is impossible to disentangle geopolitical risk from macro risks, Malleret said, identifying some “obvious” interconnections: “For example, it’s critically important to think about one aspect which is likely to drive structural unemployment over the next few years: automation and artificial intelligence.”
Citing the example of driverless vehicle technology, Malleret pointed out that three million people are directly employed in the US trucking industry and five million employed indirectly: “Two months ago, for the first time ever, a big load of Budweiser beer was delivered to Nevada by three trucks driven throughout the United States without any drivers. These trucks were loaded and unloaded by robots,” he said.
“Artificial intelligence and automation are going to be a tremendous source of social and, by ricochet, geopolitical instability over the years to come because they are moving very fast,” Malleret said.
Populism and interstate conflict
The most significant geopolitical risk facing the world today is populism, Malleret believes. Characterised by a dislike of elites and hostility towards established institutions and mainstream politics, populism rejects immigration and has a strong nationalistic tone. “Populism can now be seen as a global phenomenon . It’s Trump in the US, it’s Duterte in the Philippines, it’s Erdogan in Turkey, it’s Putin in Russia, it’s Modi in India and I could go on and on,” he said.
Linked to populism, interstate conflict is an emerging threat: “Countries in which you find the greatest concentration of risks, be that economic, geopolitical, societal, or environmental, are in Asia,” Malleret said. “Asia is the only continent in the world where every single country has at least one border conflict with a neighbour. And that’s also true for Singapore by the way.”
Overstated risks?
Malleret concluded by offering his views on which risks are over-estimated and which are under-estimated. He doesn’t think protectionism per se presents a significant risk because de-globalising the world is virtually impossible: “It’s too late. We can’t deconstruct, even though we might try very hard; we cannot deconstruct the way in which countries and global supply chains are completely intertwined with each other today,” he said.
But Malleret believes that trying to trade in a way that’s detrimental to your neighbours is bound to have an effect, particularly on export-oriented countries in Asia, and heighten existing tensions. “The South China Sea is a region in the world where you have the highest proclivity for ‘black events’ because of history and because of the tension that exists between countries that surround it,” he said.
