Rolf Alter questions whether 150 years of progress could be eroded in the aftermath of the financial crisis. The interview is part of the Risk Response Network’s “What if?” series.
What is your main field of expertise?
My main field of expertise is public governance and within that, a large part of my time is devoted to work on risk management.
Given your research, what would you say is the most under-appreciated risk?
We have been living through 30 years of very rapid and very profound globalisation, which has always been carried out and supported in the name of the efficiency of markets. The assumption has been that growth will be merely a question of our creativity and will. This is probably still true, but we have underestimated the conditions for that growth to happen in a sustainable sense. One of them is certainly that countries around the world maintain a rule-based society, a set of standards that everybody is willing to adhere to. Another is the validity of our confidence in globalisation. What if we turned away from a system of international cooperation and multilateral responses to transnational problems, towards an “every man for himself” approach? The global implications of such a shift would be tremendous.
How would you frame this risk as a hypothetical scenario: “what if” this was to actually happen?
What if the achievements and developments of the last 150 years of globalisation are eroded and reversed in the chaos of the current crisis? The fundamentals of human rights, human development and democracy could be at risk.
In your analysis, how might this scenario unfold?
I see this scenario unfolding as a chain of events. At every point in this chain there are different scenarios to come, prompting different reactions from policy-makers, citizens, entrepreneurs. Some of these reactions could be of a protectionist nature, thereby accelerating economic decline, but they may also be very uncontrolled. Take the recent democratic movements that we see in North Africa. If they were to spread to China, one might see a great disruption in its capacities to produce. This would have dire consequences for their imports of commodities, and it would have dire consequences for their exports.
Who would feel the impact the most, and how?
Sooner or later everybody, but countries like Australia and Canada, and also Brazil, would be the first to be affected as they depend on the demand for their commodities. If this were to last for a few years, it would mean that many countries would simply have enormous challenges in adjusting.
How well do you think we are prepared for such a contingency?
Not well. The events of 2008 illustrated this. Interconnectedness was already such that the financial crisis meant that world trade just sort of collapsed. It hit the Chinese economy with real vigour. The G20 offered some kind of co-ordinated response through restorative measures, but is that going to last in extreme situations? I doubt it. In my opinion this raises the issue of the trusted regulator at the national level. Governments are already now showing limitations in their capacities to govern, because we haven’t tested our own institutions in the past to the same extent. I’d say there is a great risk that societies and economies will be very much affected in case of a further weakening of regulatory capacities. But that in turn would mean that exactly the same regulatory capacities are undermined again by the incapacity to deal with emergency situations. That could be a very vicious circle, and this is something we are not prepared for.
What is your top mitigation approach for this risk?
My recommendation is that we really engage in both analysing our democratic institutions to see where the weaknesses lie, and then addressing them in order to strengthen those institutions. There’s a lot of work to do at both the national and also the international level. Over quite some time, we witness an erosion of trust in governments. I’m not talking specifically about Europe or the United States but, in a broader sense, the relationship between governments and their citizens. This relationship is very different these days and it’s changing rapidly. The ability of institutions to establish rules or policies has diminished tremendously as citizens have become more self aware. Governments have lost their monopoly in decision making.
Yes, the protest movements we are seeing today are small in terms of numbers of people participating, but the fact that you can go to practically any place in the world today and say, have you heard about something which is called Occupy Wall Street, and people will nod, shows the extent of this. I believe that we are too conservative in many ways in trying to explain this phenomenon.
On the flip side of risk, do you see any opportunities associated with this scenario?
Very much so, very much so indeed. I don’t want to paint a picture of only downside risks and deterioration because, on the other hand, this movement represents a great opportunity. It means that you put people into what you could call a creative access mode. They have access to each other, but most of all they have access to knowledge, which is empowering. Never before have knowledge and values been able to spread so quickly. So while I see the traditional trusted regulators declining, I see on the other hand these enormous opportunities for people to really rise up at an amazing speed. I don’t know where those two forces will come out at the end, but mobilising people’s intelligence, energy and creativity is extremely powerful.
The World Economic Forum’s Global Enabling Trade Report, which ranks 132 countries on their ability to enable trade, will be published here tomorrow at 1500 CEST.
Pictured: Workers at an outsourcing centre in Bangalore, India (Reuters)
Rolf Alter is Director of the Public Governance and Territorial Development at the Organisation for Economic Co-operation and Development, and a member of the World Economic Forum’s Global Agenda Council on Catastrophic Risk