Opinion

The Great Debate

Five overlooked global risks

Rafael Ramirez is James Martin Senior Research Fellow in Futures at Oxford University's Institute for Science, Innovation and Society. His latest book is "Business Planning for Turbulent Times: New Methods for Applying Scenarios" edited with John W. Selsky and Kees van der Heijden. — Rafael Ramírez is the James Martin Senior Research Fellow in Futures at Oxford University and author of “Business Planning for Turbulent Times: New Methods for Applying Scenarios” edited with John W. Selsky and Kees van der Heijden. Ramírez attended a session at the World Economic Forum’s gathering in Dalian, China, on managing global risks.

Reuters asked Ramírez to elaborate on five overlooked risks the world is confronting as it works its way through the current recession. His response is below. The views expressed are his own.

Risk one: Confusing risk with uncertainty

The first — and perhaps most important risk — is confusing categories of ignorance. This most centrally is about confusing risk with uncertainty. It entails pretending that probability (with data sets of past events with distributions of occurrence which are relevant for the future) is relevant for both “known unknowns” one cannot model with probability as well as unknown unknowns in one’s plausible futures where no data set is available, such as those of unique events.

Unfortunately, while the uncertainty that we became aware of as the financial crisis unfolded did not obey to the characteristics of “risk”, a lot of the policy interventions and “solutions” that were put in place pretended that the risks were known — and thus are well positioned to create new trouble. What we need to do instead is accepting that uncertain ignorance – for which forecasting, probability and risk are irrelevant – is now a common characteristic of our environment, and that we need technologies based on plausibility, like scenario planning. Plausibility is not going to be easy to implant in large organizations with established teams whose livelihood depends upon calculation of probability – but is necessary.

Risk two: Failure to link different types of knowledge

A second under-explored risk is keeping different forms of knowledge disconnected. This is typically manifested as keeping knowledge in the organizations that develop and use knowledge (like universities, corporations, or patent offices) in silos, while also ignoring that different scales create difficulty to translate applicability from small to large contexts and vice-versa. Failure to link different types of knowledge together, and to organize the architectures that enable this, prevents effective action. So the risk is that insufficient conversations linking different forms of knowledge will be made available, and that “solutions” in one context create (bigger) problems in others that have not been consulted.

Sit back and enjoy the Kabuki trade show

jamessaft1.jpg–James Saft is a Reuters columnist. The opinions expressed are his own.–

Financial markets have plenty to be worried about but their latest concern — a trade war between the United States and China — should not be on the list.

Aligned self interest and a knowledge on both sides of the causes of the Great Depression should limit matters to a kind of trade war Kabuki, a highly stylized piece of theatre in which the United States shakes its fist and China responds in kind but no blows land.

Collaboration is the key to economic growth

aron-cramer– Aron Cramer is president and CEO of BSR, a global business network and consultancy focused on sustainability. The views expressed are his own. —

As the World Economic Forum’s “Summer Davos” meeting in Dalian, China, gets underway, it is a bit chilling to think back to how the financial crisis was unfolding in real time during last year’s event.

As the 1,000 leaders gathering for this year’s event spend three days debating how to restore economic growth and social stability, the need to focus on a long-term transition to a more sustainable economy is clearer than ever.

Forget Microsoft, Yahoo’s value is overseas

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

eric_auchard_columnist_shot_2009_june_300_px2The fate of Yahoo Inc has become intertwined in the public’s imagination with the success or failure of its dealings with Microsoft Corp in recent years.

That’s despite the fact that as much as 70 percent of the value investors put on Yahoo’s depressed shares are tied up in its international assets or cash holdings — factors that have nothing to do with Microsoft.

China’s banks, running hard to stand still

wei-gu.jpg– Wei Gu is a Reuters columnist. The opinions expressed are her own —

Chinese banks are like enthusiastic runners on an accelerating treadmill. The weakening economy means poor lending decisions are threatening to catch up with them, but the banks are sprinting ahead by expanding their loan books ever faster. They cannot keep this up for ever.

For now things still look fine. China Banking Regulatory Commission (CBRC) this week claimed that Chinese banks were managing credit risk sagely, pointing to record low non-performing loan ratios. Given the massive increase in the number of loans outstanding — up 24 percent since the start of the year — it’s not surprising that the proportion of them that are non-performing at large commercial banks, which accounts for 60 percent of the lending, has declined from 2.4 percent to 1.8 percent in the past six months.

BYD investors, fasten your seatbelts

Wei Gu– Wei Gu is a Reuters columnist. The opinions expressed are her own –

China’s bubbly stock market is making heroes out of some unlikely companies. And none more so than BYD Co. , in which Warren Buffett plans to take a 10 percent stake.

BYD has a much-hyped project to manufacture electric vehicles. Its shares have surged 140 percent in the past three months and 440 percent in the past year. They now trade at 74 times of current year profit and 54 time of next year earnings. That is double the level of capital goods companies and four times the multiple on which Chinese automakers trade.

China and the world economy

gerard-lyons Dr. Gerard Lyons is chief economist and group head of global research, Standard Chartered Bank. The views expressed are his own.

The world is witnessing a shift in the balance of power, from the West to the East. This shift will take place over decades, and the winners will be:
- Those economies that have financial clout, such as China
- Those economies that have natural resources, whether it be energy, commodities or water, and will include countries, some in the Middle East, some across Africa, Brazil, Australia, Canada and others in temperate climates across, for instance, northern Europe
- And the third set of winners will be countries that have the ability to adapt and change. Even though we are cautious about growth prospects in the U.S. and UK in the coming years, both of these have the ability to adapt and change.

China is at the center of this shift.

The scale and pace of change in China is breathtaking. Against this backdrop of dramatic change, let me look at China’s impact on the global economy, especially in the aftermath of the financial crisis.

from The Great Debate UK:

G8 signals end to dollar supremacy

john_kemp- John Kemp is a Reuters columnist. The views expressed are his own. -

Reports that China has asked for a discussion about reserve currencies at next week's expanded Group of Eight summit in Italy has added to confusion about whether the country wants to dethrone the dollar from its status as the world's sole reserve currency. But the very fact the issue has been pushed onto the agenda suggests that a fundamental shift is underway.

Given the U.S. government's enormous borrowing requirements over the next decade to cover the bank bailout, fiscal stimulus and deficits in Social Security and Medicare, the dollar's reserve status depends on emerging markets' continued willingness to accumulate U.S. liabilities rather than switching to other stores of value, such as the euro or the IMF's Special Drawing Right (SDR).

As the largest buyer of U.S. Treasury securities, China can break the dollar's reserve currency status any time it wants. But it would risk large losses on the stock of U.S. debt that it has bought already. The resulting unstable stability is the foreign exchange version of the Cold War stalemate based on "mutually assured destruction".

China risks overcooking the economy

Wei Gu– Wei Gu is a Reuters columnist. The opinions expressed are her own –

While China has been outspoken in expressing concern about the United States printing too much money, those worries might be better focused at home. No country beats China when it comes to effective monetary easing.

Beijing has scrapped lending quotas, adopted a loose monetary policy and kept interest rates at a four-year low to boost liquidity and promote growth. The policy has worked. China has lent out more money in the first four months of this year than the whole of 2008. Money growth in China is up more than 25 percent this year, versus about 10 percent in the United States.  Click here for a related graph.

China’s Web filtering starts in the West

Eric Auchard– Eric Auchard is a Reuters columnist. The views expressed are his own –

The Chinese government has backed away from mandating filtering software on all personal computers in China, in a move that averts a dangerous escalation in its censorship powers.

But however controversial and unworkable China’s plan to require Internet filters on PCs proved to be, Western firms have largely themselves to blame for creating and selling such filters in the first place.

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