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How the world became dangerous again

Ng Qi Siang
Ng Qi Siang9/2/2021 01:49 PM GMT+08  • 12 min read
How the world became dangerous again
The complexion of this brave new world will ultimately depend on the choices that humanity makes in the face of global challenges.
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Financial markets are breaking new records, but the past two decades have also seen unprecedented conflict and a new age of chaos

Looking back on the first two decades of the 21st century, future historians will no doubt draw strong parallels with the stormy beginnings of the previous century. Similarly to the roaring 1920s, global financial markets had a turbulent time but have also hit new highs.

Yet, in the absence of murdered archdukes and shifting alliances, it was the burning ruin of the World Trade Centre in New York in 2001 that heralded a new age of chaos in the wake of the post-Cold War “era of good feeling”. Exit Soviet Russia, enter global terror.

Given the chain reaction that exploded from that fateful September day, it might seem bewildering that about just a decade before, political theorist Francis Fukuyama proclaimed it to be the “end of history”. Humanity, he argued, had realised its peak state of political economic development in the form of free market democracy and the whole world would soon be populated by nascent liberal democracies.

However, the events of Sept 11, 2001 showed that there were many who disagreed enough with this “Western triumphalism” to pursue the path of violence. While terrorism is not a new phenomenon — with the massacre of Israeli athletes at the 1972 Munich Olympics capturing global attention — the World Trade Centre attacks on Sept 11, 2001 appeared to have awakened the world from complacent post-Cold War slumber.

What followed was a global campaign fought by countries around the world from the mountain passes of Afghanistan to the streets of Marawi in the Philippines. Brown University estimates that the US alone spent US$6.4 trillion ($8.6 trillion) fighting terrorism worldwide, with as many as 801,000 people dying in its wars in the Middle East.

Though this war has largely been fought in the shadows at low intensity, the economic and human impact is real. The global economic impact of terrorism reached as high as US$105.6 billion in 2014, with loss of human life reaching 26,000 per year in 2017. For businesses, even one attack can have major consequences. The 2017 London Bridge Attacks involving terrorist vehicle-ramming and stabbing, cost businesses GBP1.4 million ($2.5 million).

Where terrorists enter into pitched battle, the costs can be far more significant. The Rand Corporation estimates that towns controlled by the Islamic State (IS) experienced a roughly 23% reduction in GDP with urban electricity consumption in Iraq falling by 80% and agricultural output by 20% as a whole.

Meanwhile, the five-month long IS siege of Marawi in 2017 saw damages and losses add up to US$348 million, which constitutes 16.7% of GDP in the Autonomous Region of Muslim Mindanao of the Philippines with nearly 1.1 million civilians displaced.

While radical Islamic insurgency has traditionally been seen as the main form of terrorism, there are other prominent sources of extremism that have long been overlooked. For example, senior analyst at political risk firm Control Risks Joseph Smith cites right-wing extremism as the fastest growing terrorist threat in Europe and North America. In the US, 67% of all terrorist attacks and plots from January to August last year were perpetrated by right-wing extremists.

The prevailing threat of Covid-19 could potentially accelerate the pace of radicalisation too. “Covid-19 has exacerbated many of the existing political, religious and socioeconomic drivers of terrorist violence across regions. Radicalisation is likely to have increased and people are spending more time online in relative isolation. The pandemic and the economic downturn have also created fertile terrain for extremist narratives to thrive,” says Smith.

It is some consolation that the number of terrorist incidents have declined sharply from global highs in 2014 to 2015. Yet, numbers are still relatively high, with incidents of terror only just recovering to levels last seen in 2013. The Taliban’s return to power in Afghanistan also calls into question if the militant group will extend safe harbour to terrorists, creating new security risks for the international community.

Cedomir Nestorovic, professor of geopolitics at ESSEC Business School, says that businesses should cooperate with host countries to assess their capacity to protect investments and employees from terrorism. They should also look to have sufficient insurance coverage to cover losses from terrorist activity though coverage is never perfect. He also suggests that firms consider building up their own protection with private security companies, though this option has “disadvantages in terms of cost and acceptance by the host country”.

Cold War 2.0?

Yet despite the danger that terrorists pose to the global economy, the terrorist threat now also coexists with the resurgence of more “old school” geopolitical tensions. For most of the 2000s, the exponential rise in Chinese economic influence did little on the surface to destabilise the relative bonhomie between the great powers as US firms sought to capitalise on the Chinese growth story. But as Beijing began to translate its newfound wealth into geopolitical influence, growing suspicion began to emerge between a more ambitious China and the incumbent US.

Tensions were palpable as early as the early 2010s despite public protestations of cooperation between both powers. Former US President Barack Obama administration’s “Pivot to Asia” and the subsequent Trans-Pacific Partnership — seen as an attempt to exclude Beijing — did little to assuage China’s belief that Washington was trying to contain its rise.

Conversely, the US was perhaps never wholly comfortable with Beijing’s more authoritarian political style and resented the prospect of losing its hegemonic position in the international order to a “revisionist power”.

Perhaps it was inevitable that these fears would cause tensions, with Harvard professor Graham Allison positing a Thucydides Trap theory suggesting that rising powers and incumbent powers are more likely to fight wars. But it was the Donald Trump presidency that sparked open hostility towards Beijing, as the former reality TV star got “tough on China” through a trade war and immigration restrictions. US politicians from both parties then quickly echoed this tough line. China is now said to have “no more friends in Washington”.

With worrying echoes to the Cold War, the rivalry between China and the US has now spread far beyond trade and economics across a wide range of different areas. In the technology space, Washington and its allies have banded together to curtail the usage of Chinese tech in the name of “national security”. The Taiwan Straits has increasingly become the powder keg of East Asia, as China faces Washington and ally Japan in a dangerous standoff over its ambition to reunify the de facto self-governing island with mainland China

“The US-China struggle is increasingly global, and goes beyond tariffs, supply chains and 5G politics. In some cases, companies from third countries have felt the fallout even more than US and Chinese ones,” write Andrew Gilholm, director of analysis, and Jonathan Wood, director respectively at Control Risks. They note that Beijing is convinced that a long-term strategic struggle with the US is inevitable and is prepared to compete with it if necessary. Control Risks sees geopolitical conflict as its number two risk for 2021 behind a long Covid-19 pandemic.

The global economy is already feeling the heat. The UN Development Programme found that the trade war has cost global value chains between three to five years of growth. Oxford Economics predicts that further escalation of the US-China trade war could see the US lose US$1.6 trillion in economic output and over a million jobs over the next five years while Erik Norland, senior economist at CME Group, sees the US’s 25% tariff rate costing China 0.3% to 0.4% of its GDP.

Besides the axial US-China conflict, other significant geopolitical conflicts could prove salient too. The Middle East continues to be a hotbed of instability, with the ongoing Syrian Civil War, Arab-Israeli conflict and proxy war between Sunni Saudi Arabia and Shia Iran creating a complex web of intrigue that could affect oil prices.

Russia, seen by the US and EU as a “revisionist power” due to its antagonism towards the West, could hold the balance of power in geopolitical conflict as it ranks near the top in most assessments of world power.

“The challenges that geopolitical risks create will get worse. In the next two decades, competition for global influence is likely to reach its highest level since the Cold War,” notes a McKinsey thought piece, citing a finding from the US National Intelligence Council’s report Global Trends 2040: A More Contested World. To navigate increasingly fraught regulatory and reputational fault lines, the consulting firm advises that firms begin engaging more actively and broadly with these issues starting in the boardroom.

“Businesses usually consider geopolitics as out of their reach,” says Nestorovic. Conventional wisdom is that businesses can only respond reactively to geopolitical developments outside of their control. But given the importance of businesses to economic life (some multinationals have revenues exceeding the GDP of some states), the ESSEC don argues that countries should cooperate with firms to protect their investments from emerging geopolitical risks.

Doomsday clock

Unfortunately, geopolitical tensions could not have come at a worse time, when the world faces the looming spectre of climate change. Having often been too complacent in the face of this existential threat, humanity now has under a decade to prevent irreversible damage to the environment. Without major steps to cut emissions, US space agency Nasa estimates that global temperatures are set to rise by 2.5 to 4.5 degrees celsius by 2100.

Rising global temperatures could present real security risks. Food security could be affected as the change in weather patterns disrupt the cycles of sowing and harvesting of crops, leading to fluctuations in the price of agricultural commodities. Danielle Torrent Tucker, who is the assistant director of communications at Stanford University’s School of Earth, Energy and Environmental Sciences, sees rice yields falling about 40% by 2100, impacting around 2 billion people.

“Ultimately, climate change will most severely impact those places least able to cope. Climate change will threaten years of development progress and thrust many vulnerable populations into poverty — adding as many as 122 million more people by 2030,” says a report from the Center for Strategic and International Studies (CSIS). The US Department of Defense has noted as early as 2014 that climate change could prove to be a “threat multiplier”, with a growing body of research showing that resource scarcity increases the likelihood of violent conflict and instability due to competition for resources.

Climate change could also lead to increased extreme weather events. Besides the human costs of “natural catastrophes”, such disasters also carry significant business risks. In the WEF’s 2019 Regional Risks for Doing Business Report, business leaders in East Asia and the Pacific named “natural catastrophes” and “extreme weather events” as first and fifth most concerning business risks, respectively. Asia Pacific saw half of the world’s natural disasters in 2018, which claimed 8 in 10 of global deaths through natural disasters and cost the region US$56.8 billion.

“Asia Pacific not only suffers the most in terms of loss of life, but its large and highly vulnerable population make the region especially susceptible to economic losses when an extreme weather event hits. Industrialisation and unplanned urbanisation have led to environmental degradation, which weakens the region’s natural defences against disasters,” says John Scott, head of sustainability risk at Zurich Insurance Group. He warns that growing frequency of climate events could reduce the region’s economic competitiveness if left unchecked.

While businesses are fortunately starting to pivot towards greater sustainability, the very act of “green transition” could engender business risks for the losers of such a change. “As countries transition to a low-carbon economy in pursuit of the Paris Agreement goals, fossil-fuel producing nations are vulnerable to price drops driven by a reduction in demand,” continues Scott in a 2019 op-ed for the WEF. An energy price shock could hinder efforts to transition to green energy without potential destabilisation to the global economy.

"Encouragingly in recent years more and more governments and businesses are accelerating their Net Zero plans and commitments. For all businesses, reporting of carbon and ESG emissions targets is becoming the norm via recommendations set by TCFD, and ESG ratings are becoming as increasingly important as traditional credit ratings," says Mohit Kanthra, Energy & Power Practice Leader, Asia at Marsh Specialty

History starts now

As terrifying as the 21st century security environment looks at the moment, there remains much to be grateful for.

Despite the considerable level of conflict the world sees today, Harvard psychologist Steven Pinker argues that this century has so far been the least violent in human history. Infant mortality has fallen from 63 deaths per 1000 live births in 2000 to just 32 in 2015, while extreme poverty more than halved within the same period.

Yet it remains to be seen if this progress towards a more secure world can continue given the onslaught of long-term challenges and existential threats the world faces at present. The sheer scale of Covid-19 promises to have epoch-defining effects on the structure of the global economy, wealth inequality and even the future geopolitical environment.

Pandemics have often proven to be turning points in history. For instance, the Black Death of the 14th century was said to have both catalysed the industrial revolution while at the same time markedly increasing wealth inequality in Europe.

The complexion of this brave new world will ultimately depend on the collective choices that humanity makes in the face of global challenges old and new. As drivers of the global economy, businesses will continue to play an outsized role in determining that future.

Far from standing still in this time of upheaval, for the international business community — history starts now.

See also: What next for Singapore-Malaysia ties?

Cover photo: Bloomberg

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