Volatile & Vulnerable Global Context | Trust Trends 2014 Series

The three-speed global economy is volatile, and a deficiency of trusted leadership makes the entire world vulnerable.

The global context is marked by volatility and vulnerability. The global population is rising quickly, resources are growing scarce, new technology is causing constant disruption, employment rates are on the downswing, and tensions remain. The three-speed global economy is volatile, and it’s not a good time for a crisis of leadership. A deficiency of trusted leadership makes the entire world vulnerable.

 

United States Crawls

In the three-speed global economy, America is growing slowly. The US economy was expected to grow at 1.6% in 2013 and average out at 2.3% growth through 2018.[i]  GDP and the national deficit continue to rival each other as they both approach 17 trillion dollars. Global GDP ownership is expected to shrink from 26% to 24% in the next decade.[ii] America’s challenges are plenty, and phrases like quantitative easing, discretionary fiscal policy, and sequestration have become household terms. American’s can speak of economic volatility, and they can feel it too, as gas and food prices rise, the dollar declines, and government programs like Medicare, Welfare, and Social Security get pinched. Vulnerability from the Crisis of Leadership is well known as well. The news is tattered by stories like Anthony Weiner’s troubles, government spying, Wall St. scandals, athletic doping, and widening polarity in congress. Despite a depressing cornucopia of negatives, Americans are also experiencing many positives. The housing market is rebounding, automakers are hitting five-year highs, universities continue to educate the world, and tech firms surge onward.[iii] The US remains a global superpower, and many see a near future of energy independence, with further developments in shale gas, oil sands, and the keystone pipeline.[iv]  America will continue as a global superpower, but only with increased intelligence and global economic engagement.[v]

 

Europe Struggles

The Euro Zone economy sat at a miniscule 0.3% in 2013 and the future looks grim. [vi] 17 countries remain in recession; Cypriots remain flummoxed over up to 60% siphoning from Cyprus banks, and Spain and Greece face 27% unemployment rates. Economic struggle is felt all across the region, but Germany may feel the most pain as it carries the region on its back. German Chancellor Angela Merkel balances this pain and a plan forward as she seeks re-election this fall. The election will be an interesting one as Germans agonize over their realization that long-term debt mutualization may be the only solution.[vii] In the increasingly interwoven global economy, drastic measures are essential for the sake of all.[viii][ix]

 

Developing World Accelerates

India’s Tata Motors sells their new Nano automobile for $2,900—less than half the cost of any other automobile on the market.[x] The developing world is continuing to create cheaper and more innovative solutions, and most of those economies are growing well. Overall, developing world economies were forecasted for 5.0% growth in 2013, down slightly from 5.5% in 2012. China will most likely see a minor drop from 7.8% to 7.5% and India from 5.5% to 4.7%.[xi] In the next few years, 70% of world growth is expected from emerging markets, 40% from China and India alone. China is set to become the world’s largest economy by 2016, and by 2020, the BRIC nations (Brazil, Russia, India, & China) are expected to account for around 50% of all global GDP growth. Right behind the BRIC’s, the “Next 11” are emerging quickly as well – Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey, and Vietnam. Currently, emerging markets attract nearly half of foreign direct investment inflows and a quarter of outflows. Continued growth isn’t going to change, as the middle class grows and 82% of the global population will be contained in developing countries by 2022.  Emerging market companies are driving this growth, and they continue to list global expansion near the top of their agendas, according to a recent Ernst and Young report.[xii]

 

Geopolitical Tension

In 2014, tensions over land, ideals, power, and resources are as commonplace as ever, and the fight to control the future is on. Cyber, nuclear, and drone warfare pose major threats, and military experts are predicting a volatile 21st century.[xiii] Spring-time threats from North Korea cast worries throughout the world, but conflict settled and Kim Jung Un is actively seeking to restore relationships. Most of the world’s conflict wages on in the Middle East.  The Middle East middle class is growing, and so are the youth unemployment rates. [xiv] With a growing demand for representation and/or change in power structure, Arab Spring is especially present in Libya, Egypt, Syria, Mali, and Tunisia.[xv] Beyond Arab Spring, the world also looks on as Israel-Palestine negotiations restart, American troops depart from Afghanistan, Iran nuclear programs develop, and US drones strike northern Pakistan. Like in the Middle East, Latin America’s growing middle class is expanding and clashing with neighbors and power structures. Hugo Chavez death and Fidel Castro’s brittleness magnify post-Cold War questions south of the US and around the world. Communist influenced leaders in Russia also continue to be a question-mark to America, especially after Edward Snowden’s granted asylum.[xvi]   All around the world, power is balancing and shifting much faster than what was expected.[xvii]

 

Employment Rates Decrease

197 million people were unemployed in 2012 and 29 million people dropped out of the market, making a 67 million global jobs gap.[xviii] The less educated continue to be the most unemployed in the US, according to the Bureau of Labor Statistics – approximately 12% of people without a high school diploma, 8% with high school diploma, 6% with some college, and 4% of college graduates.[xix] Due to displaced jobs from smart technology and fewer infrastructure projects in the developed world, the uneducated are becoming more difficult to employ and talent gap is growing. Globally, youth are being hit the hardest. 73.8 million young people are unemployed and 35% of them remain unemployed for six months or longer. In addition to these unemployment statistics, informal employment is also increasing, especially in Eastern Europe and Central Asia.  Beyond the unemployed, many of the developing world’s employed are in such dire poverty that they are worse off than many of the unemployed. 397 million workers are in extreme poverty, and at least 472 million workers cannot address basic needs on a regular basis, deeming them in “vulnerable employment”. [xx]

 

Technology Disruption

Today’s businesses experience drastic change and disruption continually, and it poses a major threat to their livelihood. 66% of the 1960’s top 100 companies survived unscathed through disruptive technology into the 21st century, according to IESE Business Professor Adrian Done.[xxi] Today’s potential disruption comes from technology like natural gas, micro-fiber, quantum computing, self-driving cars, smart factories, and big data. Shifts in Big Data, for example, alter the course of entire departments as new methods are introduced. Leaders, companies and nations that can’t keep pace get left behind, and those who can, gain a powerful competitive advantage.[xxii] The same is true with digital security. Falling behind on digital security makes an organization even more vulnerable to attacks, as the recent CNN & Washington Post hack shows. Just like the spring-time South Korean bank hacking showed, cyber-warfare is a serious danger.

 

Resource Scarcity

By 2050, the global population is set to expand to 9 billion, all while the world moves from abundance to shortage. By 2030, the Economist predicts the world’s resource demand will be twice as much as the planet can supply.[xxiii] Fossil fuels are being depleted, and the world is begrudgingly shifting to natural gas and other alternatives. The world may also need to find alternative methods for using water. 1% of the earth’s water is readily available for consumption, and 70% of it goes to agriculture. That number is increasing as the population grows and the growing middle class wants more meat. Phosphorus, a pivotal element for growing crops, is also being depleted. Beyond food, biodiversity is decreasing as well. There’s been a 40% biodiversity decrease since 1970.[xxiv] Global scarcities of all types put pressure on markets, increase price volatility, and slow growth.[xxv] Our current systems are hopeless for sustaining a growing world, and the world must heed the words of Coca-Cola’s CEO, Muhtar Kent, who reminded that, “Hopelessness precedes innovation.”[xxvi]

 

Energy Race

The search for the energy panacea is in full throttle. Energy demand has grown by 50% since 1980, and it’s expected to increase another 36% by 2020. Globally, ½ of the world’s electricity production is in emerging regions like China and India, and 93% of new energy use is expected to come from emerging markets between 2019 and 2035, according to the International Energy Agency. The IEA is reporting that by 2035, China alone will need 70% more energy.[xxvii] Fossil fuels still consist of 90% of all consumption. With increased demand, shipping, food, and gasoline prices tick upwards. Automotive fuels will need to shift, and they are. Already, over 40 million electric 2 and 4 wheelers are being sold annually. E-mobility production and consumption is on the rise, and other alternatives to oil are needed. The keystone pipeline, shale gas, fracking, and oil sands across North America have increased America’s supply dramatically. Within 2 years, America is expected to surpass Saudi Arabia as the top oil producer. Other efforts are being put toward wind, solar, geothermal, and hydro energy solutions, and if public-private partnerships can hack it, nuclear fusion or fission with uranium or thorium could have the greatest potential, unlike the proven inefficiencies of corn-based ethanol.[xxviii]

 

Why this matters

Men make history and not the other way around. In periods where there is no leadership, society stands still. Progress occurs when courageous, skillful leaders seize the opportunity to change things for the better.” – Harry S. Truman[xxix]

  • The global economy, nations, companies, and families are vulnerable in the absence of trustworthy leadership.
  • Stay up to date on technology movements. 66% of the 1960’s top 100 companies survived unscathed through disruptive technology into the 21st century.
  • Resource depletion is real and systems built around depleting resources aren’t sustainable.
  • Small & medium enterprises (SME’s) are key engines of job creation.[xxx]
  • Unemployment has long-term adverse effects on all.
  • Every sphere of influence in the world needs stability from trusted leaders and organizations.
  • Falling behind in digital security can be extremely expensive.

 

How to seize the embedded opportunities

  • Emphasize development of the commitment, consistency, and character pillars of The Trust Edge.
  • Develop as a trusted leader and organization and provide stability to your sphere of influence.
  • Be consistent, predictable, and transparent in decisions and actions.
  • Learn from the innovative techniques of emerging market companies like Tata Motors.
  • Partner with other influential leaders to design solutions for areas of volatility in your communities.
  • Recognize the truth in IMF Managing Director Christine Lagarde’s famous statement to the Greeks on having more sympathy for children in Africa than economically suffering Greeks.[xxxi]
  • Encourage policy makers to take additional steps to avoid further unemployment.
  • Build systems that can be sustained.
  • Key opportunity for competitive advantage: trusted leadership.

[i] Global economic outlook 2013. http://www.conference-board.org/data/globaloutlook.cfm

[ii] USDA Agricultural Projections to 2022. USDA. February 2012. Retrieved from http://www.usda.gov/oce/commodity/projections/USDAAgriculturalProjections2022.pdf

[iii]  Brett, Shane. “The Global Economy in 2013”. January 2013. Retrieved from http://allaboutalpha.com/blog/2013/01/22/the-global-economy-in-2013-5-key-economic-trends/

[iv] Wile, Rob. Megatrends: The 6 ‘Gamechangers that will impact the plant for decades. December 2012. Retrieved from http://www.businessinsider.com/megatrends-the-6-gamechangers-that-will-change-the-world-in-the-next-decades-2012-12?op=1

[v] Slaughter, Matthew. American Companies and Global Supply Networks. January 2013. Retrieved from http://businessroundtable.org/uploads/studies-reports/downloads/BRT-SlaughterPaper-singles-Dec21.pdf

[vi] Global economic outlook 2013. http://www.internationalbusinesslawadvisor.com/2013/01/articles/international-investments/top-5-international-business-trends-to-watch-in-2013-trend-1-global-manufacturing/

[vii] Brett, Shane. “The Global Economy in 2013”. January 2013. Retrieved from http://allaboutalpha.com/blog/2013/01/22/the-global-economy-in-2013-5-key-economic-trends/

[viii] Wile, Rob. Megatrends: The 6 ‘Gamechangers that will impact the plant for decades. December 2012. Retrieved from http://www.businessinsider.com/megatrends-the-6-gamechangers-that-will-change-the-world-in-the-next-decades-2012-12?op=1

[ix] International Labor Organization. Global Employment Trends 2013: Recovering from a second jobs dip. 2013. Retrieved from http://www.ilo.org/global/research/global-reports/global-employment-trends/2013/lang–en/index.htm

[x] Tracking Global Trends: How Six Key Developments are Shaping the Business World. Ernst & Young. 2013. http://www.ey.com/GL/en/Issues/Business-environment/Six-global-trends-shaping-the-business-world

[xi] Global economic outlook 2013. http://www.internationalbusinesslawadvisor.com/2013/01/articles/international-investments/top-5-international-business-trends-to-watch-in-2013-trend-1-global-manufacturing/

[xii] Tracking Global Trends: How Six Key Developments are Shaping the Business World. Ernst & Young. 2013. http://www.ey.com/GL/en/Issues/Business-environment/Six-global-trends-shaping-the-business-world

[xiii] IESE Business Professor Adrian Done. Global Trends: Big Numbers- Big Picture. January 2013. http://www.forbes.com/sites/iese/2013/01/23/global-trends-big-numbers-big-picture/

[xiv] Tracking Global Trends: How Six Key Developments are Shaping the Business World. Ernst & Young. 2013. http://www.ey.com/GL/en/Issues/Business-environment/Six-global-trends-shaping-the-business-world

[xv] Global Economic Outlook to 2017. Dunn and Bradstreet. http://www.dnbcountryrisk.com/FreeSamples/ICI/Global_Outlook_to_2017.pdf

[xvi] Wishard, Van. Major Trends Reshaping the Global Context. http://www.worldtrendsresearch.com/major-trends.php

[xvii] Tracking Global Trends: How Six Key Developments are Shaping the Business World. Ernst & Young. 2013. http://www.ey.com/GL/en/Issues/Business-environment/Six-global-trends-shaping-the-business-world

[xviii] International Labor Organization. Global Employment Trends 2013: Recovering from a second jobs dip. 2013. Retrieved from http://www.ilo.org/global/research/global-reports/global-employment-trends/2013/lang–en/index.htm

[xix] United States Bureau of Labor Statistics. http://www.bls.gov/

[xx] International Labor Organization. Global Employment Trends 2013: Recovering from a second jobs dip. 2013. Retrieved from http://www.ilo.org/global/research/global-reports/global-employment-trends/2013/lang–en/index.htm

[xxi] IESE Business Professor Adrian Done. Global Trends: Big Numbers- Big Picture. January 2013. http://www.forbes.com/sites/iese/2013/01/23/global-trends-big-numbers-big-picture/

[xxii] A Top Ten for Business Leaders. The Economist. The World in 2013. http://www.economist.com/blogs/theworldin2013/2012/11/global-trends-2013http://www.economist.com/theworldin/2013

[xxiii] A Top Ten for Business Leaders. The Economist. The World in 2013. http://www.economist.com/blogs/theworldin2013/2012/11/global-trends-2013http://www.economist.com/theworldin/2013

[xxiv] IESE Business Professor Adrian Done. Global Trends: Big Numbers- Big Picture. January 2013. http://www.forbes.com/sites/iese/2013/01/23/global-trends-big-numbers-big-picture/

[xxv] A Top Ten for Business Leaders. The Economist. The World in 2013. http://www.economist.com/blogs/theworldin2013/2012/11/global-trends-2013http://www.economist.com/theworldin/2013

[xxvi] 5 Global Trends Unfolding Over the Next Decade. Leadership Now. http://www.leadershipnow.com/leadingblog/2010/02/5_global_trends_unfolding_over.html

[xxvii] Tracking Global Trends: How Six Key Developments are Shaping the Business World. Ernst & Young. 2013. http://www.ey.com/GL/en/Issues/Business-environment/Six-global-trends-shaping-the-business-world

[xxviii] Dr. James Canton. Global Futures Forecast 2013. Retrieved from http://www.slideshare.net/jcanton

[xxix] http://www.forbes.com/sites/kevinkruse/2012/10/16/quotes-on-leadership/

[xxx] International Labor Organization. Global Employment Trends 2013: Recovering from a second jobs dip. 2013. Retrieved from http://www.ilo.org/global/research/global-reports/global-employment-trends/2013/lang–en/index.htm

[xxxi] http://www.huffingtonpost.com/2012/05/26/christine-lagarde-greece-imf-chief_n_1547693.html. May 2012.

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