Five overlooked global risks
— 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.
Collaboration is the key to economic growth
– 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.
Doing this will require unprecedented cooperation among businesses and consumers. The companies that build new business models and innovative products and services will win in the reset world, and shape an economy that avoids disruptions like the one that erupted last fall.
At this year’s meeting, I am chairing two workshops, where we will explore how to build new models of production and consumption that hold the potential to create not only a return to growth, but to a more sustainable model of growth.
Arising from an interlocking set of crises, three immense challenges stand before us. We must:
1. Return to economic growth while deleveraging massive debt. 2. Transition to a low-carbon economy that uses natural resources more efficiently. 3. Create new social contracts both inside and between nations.
Dear Editor,Your article on World Economic Forum and related economic growth are very knowledge oriented.When compared to previous decades,now a days,many countries have started doing the new ,real economic thoughts to their action oriented schedules.Due to new,real and progressive thinking,major under developed countries are turning to developing nations.Why,because collaboration and co-ordination on trade,education,tourism,exchanges of goods and services,and knowledge sharing for better economic and social growth.We knew very well that,historically said about China.India,South Africa and Brazil branded as old,traditional set up.Now, everything is changing at jet speed.As per your reporters,and coverages of latest extra ordinary better co-operation and co-ordination by China and India with Australia,Iran,Japan and with famous western countries are created,produced and showing fantastic results on many sectors.Your one sentences can be agreed by all economic thinkers-A year after the Great Recession,we know not only what the challenge is but also what the answers look like.I think that all recent developing,big nations will participate and will raise new queries for long pending issues in forth coming World Economic Forum.Your subject can be very useful to Economics school of thoughts.Lastly , I want to finish my comments —–Together We Can and Together We Will.This slogan will be practicable at this economic juncture.
Energy realism and a green recovery
– Jay R. Pryor is vice president of business development for Chevron. The views expressed are his own. —
The concept of a “green recovery” is a compelling topic of discussion at the World Economic Forum this week in Dailan, China. It stems from the United Nations Environment Program calling for investment of 1% of global GDP (nearly $750 billion) to promote a sustainable economic recovery.
A “green recovery” speaks to two of the most important issues of our time –- the efficient use of energy and the realistic understanding of energy’s role in the global economy. It’s a role that can help lift millions of people out of poverty, while addressing a healthier environment.
We all aspire to a more environmentally sound approach to energy, but to address these aspirations we need to be realistic about energy. Call it “energy realism.”
“Energy realism” is a commitment to a long-term view of the role of all forms of energy in our lives, and the need to be realistic about the true scale and complexity of the energy challenges that confront the global community.
Every day, the world uses, from all energy sources, the equivalent of 245 million barrels of oil. Eighty-five percent of the global economy is powered by oil, natural gas and coal, despite the enormous progress we’ve made toward alternative energy sources.
Worldwide, we use 50 percent more energy than we did only 20 years ago. And 20 years from now, demand will have risen by another 30 percent or so.
Pragmatism is an essential part of the future of energy in the western world and conservation needs to be at the forefront of energy government policy in regard to energy. We also need to deflate the inherent biases of eco-guiltists and their far-reaching influence over people that make decisions in the energy sectors of our nations. By using all of our sources of energy in s balanced manner we can limit our carbon footprint and find some form of energy independence.
I have lost the plot – we jump between “context; ignorance; risk; returns; assumptions; predicting the future with past data sets, but preferably not the near future; probabilities; uncertainty principles; forecasting, scenarios, distributions, bell curves, variance, standard deviations; straight lines; logs; presumably all contained in Monte Carlo simulations; bees and plutonium; trader algorithms, millisecond high frequency trading, churning”, that gets parked for, say 14 hours, while Wall Street sleeps until the beast is unleashed the following morning.
Sounds like Philosophy 101 to me.
It is simple – Market efficiency, A (-) symmetry of information, Diversification, (Un-)expected returns, the security market line and the capital asset pricing model. As back-up we have market to book ratios, PE ratios, free cash flow ratios, dividend growth models, and the ultimate net asset value test. That is for shares. For bonds you enter ‘i, n, pmt, pv and press the button to get fv’. Apparently the options markets are hopelessly inflated and out of control, so I won’t comment on that. And we have terra-flop computers and a range of highly paid actuaries and accountants.
What risk is there to overlooked and by whom ? Maybe we over-relied on celebrities like Buffet and Greenspan and other chameleons. Maybe I am out of context.