Uncertainty and globalization
For every trend, there is an uncertainty waiting to derail it. Some outside force prowling at the edges of visibility waiting to pounce on what so many consider an inevitability.
I found it interesting this week that McKinsey put out a piece titled: The four global forces breaking all the trends, which included global force number 4 called: Trade, people, finance, and data: Greater global connections — this was published roughly at the same time that The Washington Post ran an article titled: The great unraveling of globalization.
What is interesting is that you have two takes on the same phenomenon drawing very different conclusions. Globalization is getting stronger and it is unraveling. If you look at data, McKinsey is correct. If you look at social issues and actual economic benefit or performance, the promise seems greater than the reality. We see this duality (or more) on climate change as well. We also see it in the Ukraine.
There are two concepts at the heart of the problem. A poor understanding of trends and a failure to define the bias associated with analysis. In the Ukraine, from the Russian position, we have a trend toward more security and integration for people seeking the elimination of an externally imposed boundary. From outside of Russia, most of the world sees a resurgent Russia trying to assert its regional influence in a land grab.
The reality is likely somewhere in the middle — and that middle, if or until it is settled, is defined as uncertainty.
No one knows if Russia will stop where it is or if it plans on retaking other areas of former Soviet domination. No one knows, which makes the future of Russia and Eastern Europe uncertain. Although many Russian businesses continue to do business with few impediments, the sanctions themselves are creating a gap in globalization. The McKinsey force represents the reason that sanctions work. Without transparency of a sort, foreign governments wouldn’t know what to impose sanctions on. When sanctions are imposed, momentum continues, but like a river, it is likely diverted, in the case of Russian financing, to a place that is less transparent.
Regardless of metaphor, a stopper has been placed on a global momentary valve in Russia. It remains uncertain when or if it will open again.
There is a bigger issue with McKinsey’s analysis, though, and that starts with the title: Global forces breaking trends. Forces divert or redirect trends, they don’t break them. The trends don’t end, they merge into something else. And if the trends are breaking, then were they really trends at all?
Trends have a very specific statistical meaning. When we are talking about global economics, trends as most people think of trends, even trends over years, are not necessarily trends, and their interpretation of directionality does not necessarily point to any inevitable outcome. At its height of power, Rome would have seen globalization as a trend. The Dark Ages were not forecast by Roman pundits, though Christian and Jewish profits may well have forecasted it wishfully.
If we think of a trend as a long-term movement in an ordered series, we must define what long-term and what order we refer to. In complicated globally interdependent systems, doing either is difficult. And we must remember that in economics, we are dealing with differing systems and definitions that bias the identification of supporting material that reinforces the various systems.
In order words, a trend in North America is very different than a trend China. Both have unique contexts as well as overlapping ones. Understanding one system does not mean mastery of the other. In a recent conversation with a recruiter about Chinese companies trying to establish a foothold in America, their first realization is: This is not China. The forecasted trend of Chinese economic supremacy is not inevitable because it does not exist in a vacuum. Forces act on it, and each action taken creates new forces and tensions, some of which may evolve into a trend that ends up derailing a current assumption.
Of course, there are colloquial definitions of trends. Seeing people standing in line for an Apple Watch is interpreted as a trend toward wearable technology. It is not. It indicates that those people in line want an Apple watch.
In evolution, which has a much broader vista than does economics, trends tend toward niche migration rather than progress. The movement toward more intelligence when looking at humans is evened out by the vast majority of species no more intelligent than their ancestors. Radiation and diversity is much more a trend than perfection. Man evolved because biology had many years to experiment, and humans are the result of billions of random acts of forces on genes directly and through the environment. Wind the clock back and the chance of humans evolving again might never happen.
Anyone who just cringed at that paragraph is biased about humans’ place in the life continuum, and that influences their interpretation of data. That is neither good nor bad, but it must be recognized because people interpret data, both those who receive the interpretation, but more importantly, those who are biased.
The conflicting study of Globalization by two respected organizations makes neither wrong; it simply identifies the ultimate state of globalization as an uncertainty. Globalization is no more inevitable now as it was in the Roman era, though trend watchers may well disagree. However, our technology make us more vulnerable to global catastrophe because of the interconnection of systems based on data and power. That is a current driving force that is not uncertain, though the continuity of such connections is.
Look at the Great Recession. The insurance of international goods shipments demonstrated how much trust is required to make globalization work. Attacks on technology and failures of infrastructure at key points could result in a loss of trust in technology or institutions. Long-term failures aren’t inevitable either, but they are possible. As a scenario planner, my job is to get clients to think about things they might not otherwise think about in order to at least get them to consider planning for contingencies that their hopeful selves might never ponder. That is the way people and organizations navigate uncertainty rather than heading into it blindly.
Uncertainties are much more powerful than trends because they are the context through which trends flow.
Read the post: Stephen Jay Gould on Trends and Progress: a Caution for Trend Watchers for more on trends.