Economic Uncertainty: A Global Perspective

Explore the sources of economic, social, and political uncertainty at regional and global levels. Discuss the rising tide of uncontrollable uncertainty and its implications for public policy and communities. Delve into economic globalization, social fragmentation, and the challenges posed by a world of rising economic uncertainty.

• Economic uncertainty
• Global perspective
• Regional level
• Public policy
• Social fragmentation

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1. Tony Sorensen Tony Sorensen Adjunct Professor Adjunct Professor BCSS, UNE BCSS, UNE

2. AIMS 1. 1. To explore the sources of economic, social and political To explore the sources of economic, social and political uncertainty, especially at the regional level uncertainty, especially at the regional level 2. 2. To express the view that we are on a rising tide of uncertainty To express the view that we are on a rising tide of uncertainty for reasons that appear largely uncontrollable for reasons that appear largely uncontrollable 3. 3. To discuss the implications of my broad scenarios for regional To discuss the implications of my broad scenarios for regional public policy and affected communities public policy and affected communities 2

3. A WORLD OF RISING ECONOMIC UNCERTAINTY Sources of Economic Uncertainty: Sources of Economic Uncertainty: 1. 1. Economic Globalisation Economic Globalisation 2. 2. Social Fragmentation (& the rise of global communities of interest) Social Fragmentation (& the rise of global communities of interest) 3. 3. Loss Loss of Local Control of Local Control 4. 4. Complexity Complexity 5. 5. Information Deficiency Information Deficiency 6. 6. Unsuspected Tipping Points Unsuspected Tipping Points 7. 7. Socionomics Socionomics and the Psychology of Business and the Psychology of Business 8. 8. Technological Technological Wild Wild- -Cards Cards 9. 9. Planetisation of Environmental Threats Planetisation of Environmental Threats 10. 10. Chaos? Chaos? 3

4. ECONOMIC GLOBALISATION Integration of national economies stems from: Integration of national economies stems from: 1. 1. International trade (bilateral, multilateral, trading blocks) International trade (bilateral, multilateral, trading blocks) 2. 2. Regional / national comparative advantage in production, coming sharply into Regional / national comparative advantage in production, coming sharply into focus with the rise of BRIC / other nations focus with the rise of BRIC / other nations 3. 3. Borderless flows of investment capital and domestic savings Borderless flows of investment capital and domestic savings 4. 4. Internationalisation of commodity & stock markets Internationalisation of commodity & stock markets 5. 5. The rise and rise of global corporations, not just those familiar to us living in The rise and rise of global corporations, not just those familiar to us living in OECD countries OECD countries 6. 6. Rising international protection of IP Rising international protection of IP even China now has IP to defend 7. 7. Even, internationalisation of labour markets, especially in the minerals and Even, internationalisation of labour markets, especially in the minerals and energy sector, but also via a rising tide of economic migrants energy sector, but also via a rising tide of economic migrants even China now has IP to defend 4

5. SOCIAL FRAGMENTATION C. 1850 C. 1850, , Karl Marx identified two classes, labour and capital, and their Karl Marx identified two classes, labour and capital, and their contest dominated the political landscape for perhaps 140 years contest dominated the political landscape for perhaps 140 years Contemporary society looks much more complicated as society Contemporary society looks much more complicated as society fragments along additional fault lines: fragments along additional fault lines: Multiple age bands Multiple age bands Gender Gender Marital status Marital status Lifestyle preferences Lifestyle preferences including traditionalists and alternatives including traditionalists and alternatives Educational attainment Educational attainment Religion & ethics Religion & ethics Ethnic status Ethnic status SMEs vs corporations SMEs vs corporations Self Self- -actualisation actualisation Location (city vs country; region vs region) Location (city vs country; region vs region) Democratic Politics is becoming increasingly impossible because parties Democratic Politics is becoming increasingly impossible because parties have to build inherently unstable coalitions to get elected have to build inherently unstable coalitions to get elected 5

6. Loss of Local Control As economies become more global and society fragments: As economies become more global and society fragments: Power ebbs from periphery to state and nation; and from nation to usually Power ebbs from periphery to state and nation; and from nation to usually unelected international organisations unelected international organisations It becomes more difficult to speak with one local voice It becomes more difficult to speak with one local voice cleavages in local public opinion as conflicting interests try to seize centre stage Modern social networking aids social and economic cleavages Modern social networking aids social and economic cleavages kindred spirits in cyberspace help cement and promote a cacophony of views Local resources are often too thin and spread too widely to achieve aims of Local resources are often too thin and spread too widely to achieve aims of regional leaderships regional leaderships 6

7. COMPLEXITY & INFORMATION DEFICITS The fragmentation and competition just described drives complexity: The fragmentation and competition just described drives complexity: More interest groups and associated tastes and preferences More interest groups and associated tastes and preferences More means of placing one s views before the general public More means of placing one s views before the general public Contests of ideas requires considerable effort (and resulting delays) placed on Contests of ideas requires considerable effort (and resulting delays) placed on coalition forming, and the compromising of those ideas coalition forming, and the compromising of those ideas but this may also be the fount of creativity (Jane Jacobs) the fount of creativity (Jane Jacobs) The cacophony of partisan information creates uncertainty of itself that would The cacophony of partisan information creates uncertainty of itself that would have Heisenberg turning in his grave have Heisenberg turning in his grave [A leading proponent of the Copenhagen School of Quantum Mechanics, he introduced us to the curiosities of wave-particle duality, superposition and entanglement which are much more comprehensible than today s society !] but this may also be Each of the contestants in the processes is armed with deficient data and Each of the contestants in the processes is armed with deficient data and theoretical understanding of what they are campaigning for, and imperfectly theoretical understanding of what they are campaigning for, and imperfectly select from among the incoming tidal wave of information at their disposal select from among the incoming tidal wave of information at their disposal 7

8. TIPPING POINTS Tipping point theory also underlines how fragile our economies and Tipping point theory also underlines how fragile our economies and societies may be societies may be History is littered with seemingly permanent and stable societies, History is littered with seemingly permanent and stable societies, businesses and governments that appear to collapse with little warning: businesses and governments that appear to collapse with little warning: [the Soviet Union, the Burmese Junta, Easter Island s civilisation, the French monarchy in 1789, the cod fisheries of Newfoundland and Nova Scotia, any number of financial institutions slain by the GFC] And for those going under, there are many times more near misses And for those going under, there are many times more near misses 8

9. Socionomics and the Psychology of Business The GFC has put a nail in the coffin of many economic theories The GFC has put a nail in the coffin of many economic theories promulgating market efficiency. promulgating market efficiency. Kahneman and Smith won the 2002 Nobel Prize for economics, and the Kahneman and Smith won the 2002 Nobel Prize for economics, and the former s citation reads: former s citation reads: ["for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty ] Bob Prechter, a former wall street trader, backs Kahneman up with his Bob Prechter, a former wall street trader, backs Kahneman up with his hybrid discipline of socionomics which argues that economic actors are hybrid discipline of socionomics which argues that economic actors are heavily motivated by behavioural characteristics additional to hard data heavily motivated by behavioural characteristics additional to hard data (which is in limited supply) (which is in limited supply) markets are moved greatly by the likes of markets are moved greatly by the likes of fear and greed, depression and exuberance fear and greed, depression and exuberance For the record, I ve published an article identifying >40 different For the record, I ve published an article identifying >40 different behaviours and attitudes affecting regional development! behaviours and attitudes affecting regional development! 9

10. Technological Wild-Cards And if all this wasn t enough, technological progress (scientific, goods and And if all this wasn t enough, technological progress (scientific, goods and services, production methods, & management) is constantly tossing hand services, production methods, & management) is constantly tossing hand- - grenades into the established order grenades into the established order Simultaneously we are destroying established orders but unlocking a cornucopia Simultaneously we are destroying established orders but unlocking a cornucopia of opportunity of opportunity applies to business, communities, and governments alike applies to business, communities, and governments alike I spend time imagining what a world would be like where: I spend time imagining what a world would be like where: Many of our major diseases are tamed or eliminated Many of our major diseases are tamed or eliminated Artificial intelligence and expert systems assist our lives quickly and efficiently Artificial intelligence and expert systems assist our lives quickly and efficiently All manner of robots service our every needs All manner of robots service our every needs We can readily be transported into a variety of virtual worlds (or into space) We can readily be transported into a variety of virtual worlds (or into space) Use of IT systems much better suited to comb the internet for information we need Use of IT systems much better suited to comb the internet for information we need Renewable energy is abundant and cheap and transport bottlenecks abolished Renewable energy is abundant and cheap and transport bottlenecks abolished Advanced agriculture largely eliminates hunger and delivers an even wider variety of food Advanced agriculture largely eliminates hunger and delivers an even wider variety of food Smart buildings and materials ease the daily chores of living Smart buildings and materials ease the daily chores of living These and others are all in the process of arriving right now. Are we prepared? NO These and others are all in the process of arriving right now. Are we prepared? NO 10

11. ON THE EDGE OF CHAOS? Perhaps, then, we re teetering on the edge of chaos Perhaps, then, we re teetering on the edge of chaos Chaos theory seeks to demonstrate how seemingly small event (a Chaos theory seeks to demonstrate how seemingly small event (a butterfly flapping its wings in Amazonia) can rapidly trigger events that butterfly flapping its wings in Amazonia) can rapidly trigger events that spiral out of control (like a hurricane in the Atlantic Ocean) spiral out of control (like a hurricane in the Atlantic Ocean) Economies seem very much the same! Economies seem very much the same! The current GFC has a long way to run, will spring many nasty surprises The current GFC has a long way to run, will spring many nasty surprises for businesses and communities, seems to be spiralling out of control for businesses and communities, seems to be spiralling out of control for both governments and markets, and slaying governments of all for both governments and markets, and slaying governments of all political persuasions (but substituting those that are equally political persuasions (but substituting those that are equally incompetent! Plus a change, plus c est la m me chose) incompetent! Plus a change, plus c est la m me chose) 11

12. COULD MATTERS GET WORSE? Harbingers of uncertainty: Harbingers of uncertainty: The rising tide of technology The rising tide of technology and its acceleration Ever Ever- -shorter elapsed times between invention, innovation, and adoption in the shorter elapsed times between invention, innovation, and adoption in the market place market place Economic bankruptcy of some nations, sharp rises and falls in economic Economic bankruptcy of some nations, sharp rises and falls in economic growth among others, and badly handled economic transitions (Japan made a growth among others, and badly handled economic transitions (Japan made a mess of its post 1990 transition and China could repeat that effort quite mess of its post 1990 transition and China could repeat that effort quite easily). All will reshape the level of global market demand, market easily). All will reshape the level of global market demand, market destinations, currency alignments, debt, etc. destinations, currency alignments, debt, etc. Political, social and business consequences Political, social and business consequences o of demographic restructuring The wild cards of environmental change The wild cards of environmental change Continued social fragmentation Continued social fragmentation For rural regions, the accelerating corporatisation of agriculture? For rural regions, the accelerating corporatisation of agriculture? and its acceleration f demographic restructuring 12

13. SURVIVING A PANDEMIC OF RURAL UNCERTAINTY How best can we position rura How best can we position rural l regions not just to survive, but possibly regions not just to survive, but possibly to prosper from, an accelerating pace of change and a pandemic of to prosper from, an accelerating pace of change and a pandemic of uncertainty? uncertainty? The short answer is by being adaptable . The short answer is by being adaptable . Adaptable to what? Adaptable to what? 1. 1. Technology Technology devising new (R & D), early perception and adoption of other devising new (R & D), early perception and adoption of other people s, adaptation of existing ideas to new uses,: gaining first mover people s, adaptation of existing ideas to new uses,: gaining first mover advantage advantage 2. 2. Shifting patterns of local resources Shifting patterns of local resources early perception of emergence of new resource opportunities; acknowledging decay or devaluation by the market of resource opportunities; acknowledging decay or devaluation by the market of traditional resources, and their active reworking, re traditional resources, and their active reworking, re- -evaluation or re positioning positioning 3. 3. Changing market conditions: where are the emerging market opportunities? Changing market conditions: where are the emerging market opportunities? How solid are they in size, growth, duration? What supply and demand How solid are they in size, growth, duration? What supply and demand conditions exist now and in the medium term? Where is competition from conditions exist now and in the medium term? Where is competition from alternative suppliers going to come from, and how credible are those alternative suppliers going to come from, and how credible are those competitors? How will opportunities be affected by changes in the value of competitors? How will opportunities be affected by changes in the value of the $A or other macro the $A or other macro- -economic changes (e.g. fiscal structures)? economic changes (e.g. fiscal structures)? early perception of emergence of new evaluation or re- - 13

14. ADAPTABLE TO WHAT AND HOW 4. 4. Changing cost and availability of capital; configuration of financial institutions Changing cost and availability of capital; configuration of financial institutions best able to deliver our capital requirements at a competitive price best able to deliver our capital requirements at a competitive price 5. 5. Changing demand for consumer and producer services (including Changing demand for consumer and producer services (including infrastructure supply): quality, quantity, type, ruling prices, etc. This obviously infrastructure supply): quality, quantity, type, ruling prices, etc. This obviously involves demography, lifestyles, associated spending patterns, and industry involves demography, lifestyles, associated spending patterns, and industry structure / organisation / purchasing strategy for inputs and so on structure / organisation / purchasing strategy for inputs and so on In turn, adaptiveness depends on: In turn, adaptiveness depends on: Future orientation / imagination Future orientation / imagination Ability to let go of the past Ability to let go of the past albeit selectively albeit selectively General business / market intelligence + industry General business / market intelligence + industry- -specific intelligence (i.e. lots of good quality information) of good quality information) High quality leadership: civic, community and business; local, regional and High quality leadership: civic, community and business; local, regional and scales above; individual & collective scales above; individual & collective Education (which cannot be stressed enough) Education (which cannot be stressed enough) skills, business culture. etc Creativity, energy, enthusiasm, networking (psychology of actors) Creativity, energy, enthusiasm, networking (psychology of actors) specific intelligence (i.e. lots skills, business culture. etc. . 14

15. RE-CREATING SILICON VALLEY IN NEW ENGLAND California s Silicon Valley (which is inventing tomorrow) has a finely California s Silicon Valley (which is inventing tomorrow) has a finely honed adaptive culture involving all the above ingredients and perhaps honed adaptive culture involving all the above ingredients and perhaps our task is to adapt its culture to New England our task is to adapt its culture to New England Two questions: is this a feasible agenda? And how best might the Two questions: is this a feasible agenda? And how best might the appropriate culture and institutions be devised and operated? appropriate culture and institutions be devised and operated? On the one hand, New England is hardly a replica of Silicon Valley; on On the one hand, New England is hardly a replica of Silicon Valley; on the other, rural Australia has a long history of successfully developing or the other, rural Australia has a long history of successfully developing or adapting technology to its extensive and thinly settled environment adapting technology to its extensive and thinly settled environment Take agriculture: Australia s highly developed system of agricultural R & Take agriculture: Australia s highly developed system of agricultural R & D and subsequent dissemination through the farming community D and subsequent dissemination through the farming community delivered stellar TFPG over many years according to Productivity delivered stellar TFPG over many years according to Productivity Commission Commission But are there comparable R & D / innovation systems that could be But are there comparable R & D / innovation systems that could be instituted beneficially in other industry sectors? instituted beneficially in other industry sectors? [Perhaps resembling Germany s auto industry [Perhaps resembling Germany s auto industry a and others] nd others] 15

16. RE-CREATING SILICON VALLEY IN NEW ENGLAND 2 And could we develop regional cultures constantly combing global And could we develop regional cultures constantly combing global technological developments for new industries and productive systems technological developments for new industries and productive systems with local relevance with local relevance yielding first mover advantage? yielding first mover advantage? What techniques / approaches might promote forward thinking What techniques / approaches might promote forward thinking cultures? Social Media: Facebook cultures? Social Media: Facebook, , Linked Linked- -In, Blogs? Research Institutions? Business forums? All of these? Institutions? Business forums? All of these? [One idea might be to borrow from the Japanese and import replicas [One idea might be to borrow from the Japanese and import replicas of Tokyo s dating salons ! These are actually forums to bring of Tokyo s dating salons ! These are actually forums to bring together young people with bright ideas, marry like minds, and together young people with bright ideas, marry like minds, and shower them with venture capital. This happens all the time in shower them with venture capital. This happens all the time in Silicon Valley s bars and cafes!] Silicon Valley s bars and cafes!] In, Blogs? Research 16

17. CULTURE MANAGEMENT We need a future oriented, inventive, can We need a future oriented, inventive, can- -do culture at the regional level, preferably at the forefront of technological advance level, preferably at the forefront of technological advance to maximise wealth, income, jobs, and quality of life. There seems to me little wealth, income, jobs, and quality of life. There seems to me little mileage in constantly and reluctantly playing catch mileage in constantly and reluctantly playing catch- -up to a world passing us by. us by. This is largely a psychological exercise This is largely a psychological exercise but one influenced heavily by governments and local communities in all manner of ways not always governments and local communities in all manner of ways not always associated with regional policies associated with regional policies - - for example general macro for example general macro- -economic management management do culture at the regional to maximise up to a world passing but one influenced heavily by economic 17

18. ALL TIERS OF GOVERNMENT Encourage future orientation through: Encourage future orientation through: Creation of a stable investment climate with adequate venture capital supply Creation of a stable investment climate with adequate venture capital supply at reasonable cost at reasonable cost Fiscal and IP systems designed to improve reward / risk ratios for embracing Fiscal and IP systems designed to improve reward / risk ratios for embracing the frontiers of technology the frontiers of technology Incentives for business investment in the latest technologies (as per Incentives for business investment in the latest technologies (as per accelerated depreciation of assets accelerated depreciation of assets Absence of subsidies to prop up indigent business Absence of subsidies to prop up indigent business forcing them to confront market reality, the survival of the fitter ( market reality, the survival of the fitter (- -est Strategic infrastructure investment Strategic infrastructure investment Delivery of top Delivery of top- -flight education services (directly or via regulation) flight education services (directly or via regulation) Selective investment in R&D likely to deliver maximum returns in sectors Selective investment in R&D likely to deliver maximum returns in sectors where Australia has enduring international comparative / competitive where Australia has enduring international comparative / competitive advantage advantage Designing a social security system facilitating adaptability of skills to changing Designing a social security system facilitating adaptability of skills to changing business needs / location & maximal workforce participation business needs / location & maximal workforce participation Effective environmental planning / management Effective environmental planning / management forcing them to confront est) ) 18

19. LOCAL INSTITUTIONS The shaping of regional development cultures also substantially rests on The shaping of regional development cultures also substantially rests on local institutions and their leaderships: local institutions and their leaderships: Universities and TAFEs Universities and TAFEs Silicon Valley is heavily liked with Stanford University Silicon Valley is heavily liked with Stanford University at Palo Alto and Boston with MIT and Harvard at Palo Alto and Boston with MIT and Harvard Private &/or public research institutions and think Private &/or public research institutions and think- -tanks Cultural richness Cultural richness theatre, music, literature theatre, music, literature Groups promoting environmental quality Groups promoting environmental quality SMEs providing quality services (including cafes and restaurants) SMEs providing quality services (including cafes and restaurants) Business networks / networking opportunities (the larger the pool of Business networks / networking opportunities (the larger the pool of innovators the more infectious it is likely to be, especially if networks are open innovators the more infectious it is likely to be, especially if networks are open and welcoming rather closed) and welcoming rather closed) Infrastructure Infrastructure o opportunities such as business incubators pportunities such as business incubators for mutually supportive SMEs supportive SMEs tanks for mutually 19

20. IN CONCLUSION REGAINING LOCAL CONTROL? Local economic development is a complex, multi Local economic development is a complex, multi- -faceted, and inherently difficult task difficult task We ve been looking for the elixir formula for decades, but it is unlikely We ve been looking for the elixir formula for decades, but it is unlikely that a single formula exists that a single formula exists Effective development strategies blend best practice economic, social, Effective development strategies blend best practice economic, social, cultural, environmental, infrastructure, and institutional structures cultural, environmental, infrastructure, and institutional structures But these qualities vary across regions according to their geographical / But these qualities vary across regions according to their geographical / resource composition and histories resource composition and histories While federal and state governments (mostly the former) can influence While federal and state governments (mostly the former) can influence the seed bed of development, local action probably rests heavily on the seed bed of development, local action probably rests heavily on those psychological / behavioural attributes mentioned previously those psychological / behavioural attributes mentioned previously The principal task at the regional level, as I see it, is to engender The principal task at the regional level, as I see it, is to engender innovative, creative, adaptive, and future oriented cultures capable of innovative, creative, adaptive, and future oriented cultures capable of propelling economies forward to greater opportunity and wealth propelling economies forward to greater opportunity and wealth Perhaps we should start by laying NE down on the psychologist s couch Perhaps we should start by laying NE down on the psychologist s couch faceted, and inherently 20