RMI Module 11-14
Part 1: Global Risks Out of Control
"5 areas of concern" shaping global risks - economic vulnerablitlites - geopolitical tensions - societal and political strains - environmental fragilities - technological instabilities
Part 3: Heads & Hearts
*The "human cost" of risk: psychological and emotion strain - anxiety, no happy, loneliness, lack of empathy - cant regulate feelings(cant make someone feel more empathy -depression and anxiety disorders - bigger impact on women - differs by income - effect of technology - increase loneliness and social isolation - blurring lines between work and personal time
Likelihood and impact
- 30 risks are mapped based likelihood and impact - includes breakdown by the 5 categories - focus on the upper right quadrant - note all the environmental risks what appears on "Top 10" - extreme weather events - failure of climate change mitigation/ adaption - natural disasters - man-made environmental disasters - biodiversity loss and ecosystems collapse - water crises - cyber attacks
Corporate Decisions and Stability
- Deciding to open a production facility, power plant, call center, etc... How do you quantify stability? - Framework for analyzing shocks and response to shocks for each country - Four categories - Stability Index (DESIX) Government Society Security Economy
30 global risks divided into 5 categories
- Economic - Environmental - Geopolitical - Societal - Technological - can think about how they are all interconnected - the stronger the relationship the thicker the line
Corporate Decisions and Political Risk
- Have the score Industry Strategy Risk tolerance Compare (energy, light manufacturing, pharmaceuticals) Same scores, much different responses to those scores
10. Social Programs
- How'd do you fund peoples retirement especially in the U.S. - social security - medicare - cost to maintain current programs - tax hikes or benefit cuts(take from education, and aid)
What are the opportunities?
- Many organizations today are searching for global opportunities/growth. - Proper international expansion is profitable - Most developed countries the most stable Least growth opportunities
Economic Overview
- More services for aging population - Fewer in workforce to provide these services (the bucket of capabilities) more older people than younger - more health care - more medical bills - What is the basis of workforce (body vs. mind) (Manual Labor - aging population does not help) (Knowledge based workforce - older workforce has experience/knowledge that is valuable) (Opportunity for current workers to tap retired workers as resource) - Many fear that aging costs are going to outweigh benefits
Strategies to manage risks of economic nationalism
- Same as previous reading (limit R&D, local partners, insurance, and hedging) but adds more strategy to the mix - Strategic planning to include: * scenario planning and stress testing * address potential stakeholders in planning process (e.g. include schools, infrastructure, hospitals in plans)
Analyzing Natural Hazard Risk Cont.
- Tornado alley - climate change changing storm patterns and return periods
What about us?
- While all this natural risk is out there: earthquakes, hurricanes, tornados, etc... - What have we been doing? - Exponential growth - The more we can manipulate our environment Increase in population growth Lower infant mortality rates Longer life (lower death rates in younger years) - we manipulate environment ex. AC in florida Population explosion varies with: economic development urbanization Our choices matter: By 2150: - If women have 1.6 children => population drops to 3.6B - If women have 2 children => population grows to 10.8B - If women have 2.6 children => population grows to 27B - Birth and death rates vary with economic development - Demographic transition
Global aging is a problem
- YES: Based on everything that we just discussed, yes it is a big problem. - NO: This answer is based on the fact that it is a bigger problem in other countries China's 4-2-1 problem Better funded that other countries - Pax Americana Geriatrica?
Risk Not evenly distributed cont.
- biggest exposure *small island developing stats(SIDS) and land locked developing countries(LLDC) *potential losses relative to wealth/ development, GDP
social security and medicare
- both pay as you go systems - every paycheck they take both of those out
Evaluate Alternatives
- can't stop earthquakes - there is no randomness, jus things we cant predict - cant stop natural hazards - can we stop natural disasters - Economic benefits to taking on natural hazards(risks and reward)
What trends are driving the global risk landscape? (the grey diamonds)
- changing climate - increasing polarization of societies
11. Social/ Political Upheaval
- current "problem" countries are aging= less likely to cause problems in the future - new problem countries can emerge - only large group countries go through full demographic transition - shorter focus of developed countries= reduce will to fight, along with financial capabilities - older people tend to become more conservative
Difference between Hazard and Disasters
- fatalities and economic losses
What is driving the move toward economic nationalism?
- global income inequality(poor poorer and rich richer) - greater dependency on individual commodities for government revenue - over- reliance on foreign economics for growth(China) - government changes(democracy, de- centralization, regime changes
Political Risk Analysts
- internal(working inside company) *royal dutch/ shell *AIG - external( outside the company) *consultants *AON
Conclusions
- lots of risks that are global in nature - they appear to be interconnected - mitigation(reducing severity) is good, but may not be enough to overcome all the risks - politics plays an important role - how far are we from termination
Overview
- many risks do not respect national borders - survey of 750 experts - orient and inform decision makers - how to manage and how to become more resilient
overview
- natural hazards - human population - natural disatsers
What is Political Risk Analysis?
- political risk analysis * more subjective(bias) than economic risk analysis * broad observable trends * nuances of society and quirks of personality
What is Political Risk
- political risk- impact of politics on markets 1. passage of laws 2. foibles of leaders(mistakes of leaders/ presidents) 3. rise of popular movements 4. all factors that may stabilize or destabilize a country
Are we making progress
- progress is mixed * strengthened capacities, instal systems, and legislation to addresss disaster preparedness and response - enhancement in early warning - however, not much mainstreaming of disaster risk reduction in planning and development - social - economic -urban -environmental -infrastructure
Evaluate Alternatives Cont.
- resilience(be able to bounce back after the fact) - mitigation * actions to eliminate or reduce future deaths and losses from natural hazards *engineering, social, physical * making stronger building structures
7. Impact will NOT be uniform
- some countries are better off than others - where will next wave of workforce be? - where willl retirees be? - Peter Peterson- "The Floridazation of the developed world"
Risk Trends Interconnections
- the thickness of the lines or which has the most lines connected
medicare costs continue
- to spiral out of control how to control health care costs? *reduce # of procedures *find a way to reduce the cost of MRI
Which risks have the most "important" (significance) interconnections?
- unemployment/ underemployment and adverse consequences of technological advances - failure of climate change mitigation/ adaption and extreme weather events - cyber attacks and critical infrastructure breakdown
4. Savings Rates and Investment
- what happens when large population % of population are consuming rather than saving?(net spenders instead of savers) - does capital for investment "dry-up"? - go elsewhere for capital lose of influence(going to other countries where they have population growth) - inflation? - growing risk aversion, shorter investment windows
1. Economic Development
- within human input declining, need improved efficiency for GDP growth - may not be enough, could see declining GDP even with more effective use of capital - worker productivity typically decline with age - less entrepreneurial
Strength against shocks
-Can political leaders implement policies in spite of shocks that occur -Can they avoid policies that actually create shocks -Countries that can avoid creating shocks and ride out those that do occur are the most stable with regard to political risk
The Role of Government in Natural Disasters
-Gregory van der Vink study -80% of deaths from disasters in 15 countries -China, Bangladesh, Indonesia -of these 15 countries, 87% below democracy index, 73% below median GDP -"Deaths from natural disasters can no longer be dismissed as random acts of nature. The are direct and inevitable consequences of high-risk land use and failures of government to adapt or respond to such known risks"
Which risks have the most interconnections?
-Large scale involuntary migration -Failure of climate-change mitigation and adaption
Why are poor nations worse off?
-Less resilient9no money to bounce back) -No insurance/social coverage -Lead to income & consumption shortfalls (which they can't afford) -Negatively affect welfare and human development (where they are already behind) they just keep struggling and declining called a poverty trap need a certain amount of capital to get out
Political Risk and Risk Management
-Local partners -Limit R&D (protect intellectual property) -Insurance -Hedging(limit risk) (multiple countries / locations)
What is the risk?
-May create an unstable international investment climate -Governments may nationalize strategic assets (especially natural resources, infrastructure) -Erosion of profitability of foreign direct investment -Large scale economy - disastrous economic effects globally
What are the opportunities?
-Needs for a variety of services Health care, housing, inflation guards, pharmaceuticals Bioengineering, travel, entertainment -Levels of disposable income of elderly -Labor shortages (wage growth)
Sendai Framework
-Opportunity for countries (see Preamble): 1. To adopt concise, forward looking and action oriented post 2015 framework( wanted to complete and asses what they have done and can do) 2. Complete the assessment and review following the Hyogo framework 3. Learn from experience gained in Hyogo framework 4. Work on modalities of cooperation 5. Periodic review moving forward
Human Responses to Disasters
-People tend to be altruistic in times of emergency -Creates incentives in non-emergency times
Political Risk- Unit of Measure
-Stability: two factors; 1.) Strength against shocks 2.) Shocks themselves
What is economic nationalism?
-Umbrella term that includes economic policies and theories designed to improve the domestic economy relative to foreign economies. -It subsumes theories such as economic patriotism or protectionism. Generally would oppose globalization and unrestricted free trade
Examples of Economic nationalism
-Venezuela (oil) -Bolivia -Papua New Guinea (LNG) -high risk industries: mining, power production, petrochemicals, telecommunications, technology -why? perceived strategic value
Difference between Economic and Political Analysis
1. Economic Analysis - "CAN a particular country pay its debt?" 2. Political Analysis - "WILL a particular country pay its debt?"
Three Categories of Major Challenges of Aging Population
1. Economic development issues(growth and maintaining GDP) 2. Health and well-being issues(individual health and keeping them healthy and meeting their demands) 3. Challenging of enabling and supportive environments(Making sure elderly are not just sitting in retirement home, need to keep people busy)
Why do we need political risk analysis?
1. International Markets more interconnected than ever before 2. The US is making the world a more volatile place (Bush Era) 3. Offshoring trend is growing( true, companies do operations and headquarters overseas) 4. Increasingly reliant on energy from political risk states - Saudi Arabia, Iran, Nigeria, Russia, Venezuela
Disaster Risk Drivers
1. Poor urban governance(how cities are developing) 2. Vulnerable rural livelihoods(not trained for much, kids do not have enough education) 3. Declining ecosystems(can we produce resources or are we using too much resources up) 4. Global climate change/9what is going to happening the future) Risk is changing - we may make progress(become less vulnerable) - however, exposure(population, economic development) is growing
Results of Aging Population
1. Population and GDP of developed nations decrease as a percentage of global totals - loss of influence 2. US however is best positioned of all developed nations to manage trends (less aging of population) 3. US actually will become more influential 4. Some developing countries see youth bulges - leads to instability 5. Will developed nations have the man-power to respond? If not - less war/conflict
Major Challenges of Aging Population within those Three Categories
1. Slower economic growth 2. Poverty among elderly 3. Generational equity(a lot of systems in place are pay and go, ones that are currently working) 4. Inadequate investment in physical and human capital 5. Inefficiency in labor markets(more opportunity to move up in work) 6. Suboptimal consumption profiles(can save enough for retirement)
The Sendai Framework Goals
1. Substantially reduce global disaster mortality by 2030 2. Substantially reduce the number of affected people by 2030 3. Reduce direct disaster economic loss (relative to GDP) by 2030 4. Reduce damage to critical infrastructure/basic services 5. Increase the # of countries with disaster reduction strategies 6. Increase international cooperation 7. Increase/improve multi-hazard early warning systems!!!!! big concern
Economic losses
35 of top 40 losses (insured losses) US, Japan, Europe Infrastructure Role of insurance in economic development Insured losses only a portion of economic losses Anywhere from 25-50% in developed nations Much smaller in developing nations In 2011, $110 of $370B in losses were insured - when a loss occurs, insurance is capital
Major Challenges of Aging Population within those Three Categories Cont.
7. Not uniform across countries some are seeing an agin population coupled with population decline 8. Noncommunicable diseases become an increasing burden(#1 killer of elderly) 9. Family structure as changing, care options for elderly 10. Shrinking ratio of workers to pensioners * social insurance systems are less sustainable *effects on social entitlement programs 11. Social/ Political impacts
Part 2: Power & Values
A multi conceptual world - more room for divergent values to shape geopoltics - assumption: US is sole superpower= Western liberal democratic norms will prevail globally, may be wrong Problem - difficult to sustain global consensus on issues(human rights) - intensify pressure on multilateralism and dispute settlement mechanisms - increased use of geo- economic policy interventions(trade wars) *shapeing views to make them similar to ours
Big Population Problems
A natural hazard that killed 10K 100 years ago will kill how many today? A Pandemic will kill how many today? -H1N1 killed 50M in 1918-1919, killed 44K in 2009 - 73% were younger than 29. -Better science, but that does not mean we know the unknown unknowns Carrying capacity -The ability of the environment to support a population -Population size is regulated by resources available in environment
Aging trends
Aging population - people 65 and over outnumber those 5 and under Life expectancy is increasing (lifespan?) The number of people 80+ will double in 30 years Median age of Western Europe & Japan 1980 - 34 and 33 2030 - 47 and 52 Italy, Spain, & Japan More than half of all adults will be older than official retirement age More people in their 70's than 20's
Risk is NOT evenly distributed
Compare Japan and Philippines Japan: 22.5M exposed to Typhoons Philippines: 16M exposes Avg. Annual Death Toll: 17X higher in the Philippines
Rate of Change is a problem
Demographic Transition - High birth/death rates - High birth/low death rates Historically, major growth in wealth to manage the next stage of transition Low birth/low death rates - China can become the first country to go through transition without becoming "wealthy" first It took France 114 years, the US 69 years, China 27 years - Problem: rising standards of living, urbanization, growing income inequality, environmental degradation, etc... all cost money to manage
Stability and response to Shocks
Example: Election results that are challenged and ultimately decided by court ruling - 2000: US - 2003 Taiwan - 2004 Ukraine - Which two of these led to streets being closed off by protestors and threats of violence
Module 11
Global Risks Report
Deutsche Bank Eurasia Group Stability Index
Government - Current government strength - Rule of law - Level of corruption Society - Social tension - Youth dissatisfaction - Health, education, etc... Security - Level of globalization - Geostrategic condition - Disaster response / emergency Economy - Growth - Investment - Debt - External sector
GDP
Gross Domestic Product- the total market value of all final goods and services produced annually in an economy
Shocks
Internal - Demonstrations in Egypt = Arab Spring - Transfer of power = Cuba, Elections, Obamacare External(natural disaster, things that you can't control from the outside) - Refugee influx - Tsunami - Terror campaign
Module 13
Is Global Aging a Major Problem
risks analyzed along 3 parameters:
Likelihood and impact (quantitative) Interdependencies (systemic) Risk Trends Interconnections
Economic Vulnerabilities
Major points of concern= - economic confrontations between major powers - erosion of trading rules and agreements - total global debt burden= 225% of global GDP - income inequality(within country) rich getting richer and poorer getting poorer
Module 12
Natural Disasters
5 areas of concern discussed in Global Risks Out of control
Part 1: Global Risks: Out of Control(5 areas of concern) Part 2: Power & Values (Multiconceptual world) Part 3: Heads & hearts (human costs) Part 4: Going Viral(biological risks) Part 6: Future Shocks(3 selected topics)
module 14
Political Risk
The Sendai Framework Priorities for Action
Priority 1: Understanding disaster risk Priority 2: Strengthening disaster risk governance to manage disaster risk Priority 3: investing in disaster risk reduction for resilience Priority 4: Enhancing disaster preparedness for effective response and to "Build Back Better" in recovery, rehabilitation, and reconstruction(Be better prepared) - risk is not uniform - work together, learn from our mistakes, heres our goals, and heres what we are going to do don't think about mitigating losses
Analyzing Natural Hazard Risk
Probability/frequency -Earthquakes (floods, tornadoes, etc...) will happen -Return period (how many years between similar magnitude events) Magnitude - how bad is it when it occurs -Typically an inverse relationship between frequency and magnitude (really bad hurricanes don't make landfall every year)
Part 6: Future Shocks
What if scenarios * Weather Wars - manipulate the weather to achieve geopolitical gains, causes flooding * Open Secrets - quantum computing renders current cryptography obsolete * No rights left - human rights are openly breached without consequence
Recent Natural Disasters
What is recent? Human vs. geological timeframes Typhoon Haiyan (this weekend) Philippines 10K dead? Earthquake/Tsunami Japan 2011 19K+ killed, 330K buildings destroyed, nuclear meltdown Ocean water 6 miles inland Insured losses $35B, Economic losses $200B Earthquake Haiti 230K killed of 10M, 2.3% of population killed 1918 Flu 8M dead in WWI 3% of world's population died (50M)
natural disaster
What makes hazard a disaster? - fatalities, damage, economic effect What is the difference between a natural disaster and a great natural disaster? - death toll, damage, effect on economy - not a clear definition hard to bring precision to natural events
Part 4: Going Viral
changing the nature of biological risks: - globally underprepared for most biological risks - biological risks in nature: frequency of disease outbreaks rising - interconnected societies, high- density living - deforestation, climate change causing diseases - human displacement - Synthetic biology: - published work- horse pox virus - deliberate attacks
natural hazards
if an hurricane makes landfall, but there are no humans there to experience it, what is it? natural hazard? natural disaster?
Global trend
long term pattern that is currently taking place and that could contribute to amplifying global risks and/or altering the relationship between the various global risks
Social and Political Strains
major points of concern - increasing polarization of societies - weak governance - politicization of gender/ sexism - violence against women - level of poverty among women - climate change effect of women in developing countries
Technological Instabilities
major points of concern: - data security(records hacked) - AI- malware in video conferencing application that only attacked certain companies through facial recognition - fake news tweets consistently outperform true info reaching people on average 6X faster
Environmental Fragilities
major points of concern: - look at the "Top 10 Lists"
Geopolitical tensions
major points of concern: - political confrontations between major powers - resolution of protracted conflicts(US in middle east) - not as concerned about North Korea?
Global risks
occurrence that causes significant negative impact for several countries(over a time frame of up to 10 years)
Demographic transition
three phases - pre- transition: high brith and death rates= how population maintianed - Transition: low death rates and high birth rates= population explosion(1700-2000) - Post- transition (developed nations): low death rates and birth rates= population maintenance - developed countries are still transitioning
