Horizon Scanning in the New Year. The ‘Enemy Within’ and the ‘Enemy Outside’

​There is an important group of people in both the private and public sectors whose job it is to scan the horizon for possible risks that will disrupt established ways of doing things. Disruption can be positive and provide new opportunities. For example, the adaptation to climate change will give a major impetus to research and development and new technologies in areas such as batteries, hydrogen use and carbon capture. Horizon scanners will however be particularly concerned about imminent risks with a large downside. This blog looks only at imminent geopolitical risks with a huge downside potential.

The classification of risks
 
Horizon scanning is not a precise science. At the start of 2020 those assessing risks were aware, in the light of SARS and other warnings, that viruses were part of the horizon. They did not foresee the imminent disruption to be brought about by COVID 19. Nor did contingency plans show up well. From here on out, horizon scanners will no doubt build-in the possible arrival of novel viruses with higher infection and mortality rates. 
 
Risks come in a variety of forms. Some can be classified as mainly financial (for example, that a stock or bond market ‘correction’ brings down an investment fund, that in turn leads to contagion among other financial intermediaries etc, etc). Some can be classified as mainly ‘political’, for example that China clamps down further on Hong Kong or that Russia makes further incursions in the Ukraine). But most risks are mixed - neither purely one type nor another. COVID 19 started as a health risk, but affected general economic activity, that in turn had consequences for financial sectors, that together challenged political systems. The danger often lies in the mix and the sequencing.
 
This blog accepts the mixed nature of most risks. It puts aside what some people would regard as the main risk facing societies today – any failure to adapt to climate change. Instead, it looks at short term geopolitical risk. It divides geopolitical risks into those that are external and arise outside a jurisdiction and those that are internal to that jurisdiction but that will still have a wider impact.
 
External geopolitical risks
 
The main source of external geopolitical risk arises from changing great power politics. Shifts in great power relationships are themselves destabilizing. The rise of China, coupled with a re-assertive Russia, combined with a ‘recalibration’ of the US role, together form an unstable backdrop. There could be a miscalculation about where the new limits are - for example about the strength of the US commitment to Taiwan, or about NATO’s reaction to further Russian incursion in the Ukraine. There is also the risk that what are currently largely localised disputes could spin out of control. For example, the dispute over the legitimacy of contending regimes in Libya, could provoke more acute tensions between great powers. Iran’s nuclear program is both a risk in the neighbourhood and could precipitate more active involvement of the great powers. 
 
None of these external risks are trivial. On a probability scale of 1-10 they lie in the upper half. But they also have the capacity to divert attention from a different class of risk – the risk within – that could be equally destabilising.
 
The risks within
 
Risks within a system of government are well understood in authoritarian regimes such as China and Russia. Any opposition to the ruling party, or the development of any rival power centre in society, is met with suppression. By contrast, within broadly democratic regimes the risks are not always appreciated. Opposition and the development of new organisations seeking power is part of what accompanies, and is intended to accompany, freedom of association and voice. In current circumstances by far the most important of the risks within a democratic system with wider consequences for the world at large would be a collapse in confidence in the US system of government. 
 
Collapse of trust/confidence in US
 
Until recently, the risk of a collapse of confidence in the US has taken the form of the risk of a collapse of confidence in the US dollar. It has been a concern of some economists since the 1950s and the end of the immediate post war dollar shortage. So far it has not happened. The Bretton Woods system of fixed exchange rates came to an end in the 1970’s, but the dollar has remained largely unchallenged as the world’s preeminent global currency for transactions purposes and for reserve holdings. 
 
In the collapsing dollar scenario, a weakened dollar leads to a weakened US. In today’s world the narrative runs in reverse. A loss of confidence in the US leads to a collapse in the dollar role. In either case a weakened US triggers instability in the wider world.
 
The risk of a collapse in confidence in the US comes from two sources. The first is from the diminution of civility and moderation in political discourse. In this scenario the anti-democratic rhetoric and actions of the Right meets the intolerance of the progressive left and the middle does not hold. The prospect of a Trump re-election, or a Trump look-alike election, in 2024 would herald this scenario.
 
The second source of risk is from the accumulated weaknesses of the American body politic taken as a whole. There are too many individual parts that can be questioned – from the gerrymandering in drawing congressional districts, to an elderly and unrepresentative Senate, to a flawed electoral college in presidential elections, to a politicised Supreme Court, and to the undue weight of money in elections. Constitutional review is long overdue but constitutional reform has been deliberately made extraordinarily difficult. 
 
This slowly accumulating list of parts not working in American institutional arrangements could lead to a loss of confidence because it signals a US unable to address its own domestic and foreign policy priorities. In this scenario the loss of confidence would be triggered by some spectacular policy failure, symptomatic of a much wider institutional and systemic dysfunctionality, such as a default on federal debt.
 
EU as a safety net
 
According to some scenarios the impact on the rest of the world of a collapse in confidence in the US could be contained. There are other democratic centres in the world, India, the EU, the Anglosphere (ex. the US), that could together provide a continuing stability in the democratic world. In addition, in the case of the EU, the Euro offers an alternative global currency. For different reasons, none of these alternatives looks fully convincing.
 
Green shoots?
 
Horizon scanners looking for downsides in the world can legitimately be accused of negativity bias and of overlooking what may be positive developments in the world. One such development is the revival of contemporary art and writing in Africa – a continent regarded by many as comprising a catalogue of post-colonial failed states. Possibly a cultural revival heralds a more general political and economic revival.
 
Conclusion: a false sense of security?
 
When soviet communism collapsed in the 1990s the contending world views associated with the Cold War seemed to vanish. The world seemed a safer place. This has probably bred a complacency about geopolitical risks in today’s world. External risks are high, so are the risks from the internal sources of instability and dissolution.