Friday, 28 March 2008

Putting the 'B' back into 'BRIC'

A conversation with a colleague from Brazil this week led us to wonder where the ‘B’ has gone in ‘BRIC’. Most of us are aware of the Goldman Sachs designation of the newly emerging economies – the ‘BRIC’ economies (Brazil, Russia, India, and China). The main thesis of our discussion was that, whilst China, India, and Russia receive a lot of attention in the western press, Brazil is almost ignored in a comparative sense.

I was left wondering if this is the case, so I conducted my own crude and extremely rough and ready survey of the press. In The Economist, since 1997, there have been 2,282 pieces on Brazil. This compares with 3,762 on India, 4,640 on Russia, and 6,845 on China. In order to adjust for a possible continental bias, we conducted the same survey for the same period on the US magazine Foreign Affairs. The results were similar to The Economist. Brazil featured in 355 articles in Foreign Affairs. This compares with 603 on India, 868 on Russia, and 1,076 on China. On the face of it, there is a case to say that Brazil is being ignored in the western press.

Is this justified? At one level it is. We did not include Brazil as a potential global player in our America 2025 project because, within this time frame, there is little to suggest that Brazil is likely to become a major geopolitical force. Brazil does have vast potential in terms of resources, but it lacks the population mass of, say, China and India; and it lacks the military tradition of, say, Russia. However, Brazil is part of MERCOSUR, which some see as a precursor of a South American version of the EU, and which would allow Brazil to develop some mass geopolitically.

Geopolitics is not the whole picture. If we were to discount Brazil, we would do so at our peril. Goldman Sachs put the ‘B’ into BRIC for a reason – the enormous potential of the Brazilian economy. An article in The Economist last week extolled the virtues of the prudent economic policies of the Brazilian government (see article). The evidence in favour of the Brazilian economy is starting to mount. It has started to develop global corporations (see article), it is becoming an energy superpower through ethanol based biofuels derived from sugar cane (see article), and there are also offshore oil deposits too! (see article) It is these factors that have led some to speculate that Brazil is in a good position to withstand a major downturn in the world economy. (see article).

An optimistic view of Brazil in the future would point to the further development of the Brazilian economy, principally based upon the wealth of resources that it contains, but also husbanded through prudent policies at the governmental level. Brazil is unlikely to develop as a global superpower, but is likely to assert its interests through collective bodies such as MERCOSUR and by developing special relationships with Europe and the US.

Perhaps we ought to start putting the ‘B’ back into ‘BRIC’?

Tuesday, 25 March 2008

From Place To Place

Change can be a funny thing. There are times when our world can change quite dramatically over a very short period of time. We think of events such as Pearl Harbor or 9-11 as the dramatic changes that define an epoch. However, when we look further into the matter, such dramatic events tend to be the culmination of processes that had been occurring for some time before. Many of the changes within our world do occur gradually, over a period of time, as the result of deeper processes that take a while to work their way through.

This is very much the case with tourism. The recent death of Arthur C Clarke served to connect a number of possibilities in my mind. In Stanley Kubrick’s film of 2001, an executive catches a Pan-Am shuttle from the Earth to the Moon. The shuttle reminded me greatly of the proposed Virgin Galactic space tourism ship (see article from The Economist). This is the type of thing that I dreamt of as a boy. Within 30 years, the cost of transportation has fallen such that commercial space flights can be seen as possible.

This reduction in the cost of travel has boosted tourism right across the world and has contributed to the shrinking of the planet as a consequence of globalisation. The impact of globalisation has been to make accessible markets that would otherwise not have been so. One of the features of the modern world has been the rise of medical tourism. The cost of travel is now so cheap, and the standard of care in the ‘developing’ world so high, that patients in the richer parts of North America and Western Europe can, quite literally, shop for their treatment on a global scale. A recent briefing from the Harvard Business School looks at the development of medical tourism between the US and India (see update).

So far, the story has considered the benefits of this process. There is also a more sinister side to the story that we need to be aware of. A growing proportion of medical tourism is dedicated to transplantation surgery. There is the question of the provenance of the body parts that are transplanted. In ‘Illicit’ by Moises Naim, three possible sources are described. Mr Naim alleges that body parts taken from executed Chinese criminals end up with western patients, as do organs purchased from ‘Untouchables’ in India. There are also allegations that children in Africa are raised with the explicit purpose of having their organs harvested. This is one aspect of globalisation that has an unfortunate consequence.

As medical science continues to develop, so will the sharp ethical practices associated with the conduct of medical trials. For example, it is more cost-effective to conduct live trials in, say, Africa, than it is to hold those trials in, say, Europe. The cost of mistakes is far lower in Africa than Europe. Interestingly enough, the BBC has just concluded a drama (The Last Enemy – see link) where a key theme has been the trials of a bio-weapon - that only attacks those who have ‘Arabic DNA’ – in Afghanistan. It would seem that, in a globalised world of cheap mass travel, even our bodies are to be treated as weapons.

And yet, do we have more to fear from pandemic contagion resulting from mass tourism than that we do from terrorists branding bio-weapons?

Friday, 7 March 2008

Strange Events In Distant Places

Time is central to the concept of risk. Risk relates to the uncertainty associated with possible future outcomes. Risk-taking is at the heart of business and investing. Successful entrepreneurs are good at assessing and managing risk. They see opportunity where others see threat. The fundamental job of executives is to anticipate change and manage it on the basis of an opinion about the future.

In recent years, one of the consequences of globalisation has been that global risks (i.e. risks that are global in their nature) are becoming more important. Globalisation has placed us in a situation where a small perturbation in one area can have a disproportionate effect in another area. In the flattening and shrinking world, we are more susceptible to exogenous shocks than previously.

As the global system becomes more interconnected and interdependent, it has resulted in greater asymmetry (small events can have disproportionately large impacts), greater volatility, and greater time compression (product and industry life-cycles are shortening). It is now quite important to be aware of the points at which the trends have turned, or at which discontinuities arise. The study of weak signals of newly emergent futures is becoming more important in the work of the futurist.

In an interesting review in McKinsey Quarterly, Richard Haass (head of the Council on Foreign Relations in the US) recently said:

“Risk control requires a richer analysis. In a way, this is another consequence of globalization. Companies operate in a global environment, but so does each particular place or actor they evaluate. Trying to put individual countries or situations in an isolated petri dish not only has become much more difficult but, in many instances, distorting.” (Article in full).

Futurists are in a position to supply that richer analysis.

An interesting tool provided by PriceWaterhouse Coopers is a case in point (see tool). They publish a political hotspots map that is based upon Country Stability Rankings (this seems to be an attempt to provide an objective calculation for a subjective evaluation). They also say that “performing political risk scenario analysis can better prepare a company for the unexpected and unpredictable”. We quite agree. Sadly, the analysis is a bit thin because the time horizon is twelve to eighteen months and does not seem to consider emergent political hotspots. For example, we are surprised not to see the Arctic as an emergent hotspot.

If the process of globalisation continues as fast as it has to date, then the question of geopolitical risk is likely to become even more important than it has been so far. Because of the nature of globalisation, these are risks that organisations of all sizes, in all locations, in all industry sectors, will have to be aware of. Scenarios are a useful device in exploring some of these risks.

And yet, how often do we monitor weak signals of an emergent future that come from an obscure source on the other side of the world?

Wednesday, 5 March 2008

The Return Of Franken-Food

This interesting map was in a recent issue of The Economist. The article was examining European resistance to genetically modified food. It would appear that, despite a contrary ruling by the WTO and assurances of the safety of GM food, the EU continues to obstruct the sale of GM foods in Europe. Although some countries in Europe have adopted GM technology, the amount under production is not significant.

The basis for European resistance to GM food is the ‘precautionary principle’. This is a view that the developers of new technologies must demonstrate that they are safe before they can be widely adopted. Whilst this is a prudent view, it is, at times, not very practicable. A core part of the scientific method is the falsification of hypotheses, which rubs against the precautionary principle. In the case of GM foods, from a scientific standpoint, we cannot say that they are safe. We can only say that there is no evidence that they are unsafe.

Within this lies a certain amount of muddled thinking. GM foods can be found in Europe in two areas. First, processed livestock feeds from outside of the EU, which are imported into the EU, enter the European food chain via the livestock that they feed. Second, processed foods imported into the EU, which are processed outside of the EU and sold directly to the consumer in Europe cannot be verified as ‘GM Free’ unless GM foods are isolated in the market, which they are generally not. Additionally, when Europeans travel abroad, they eat locally produced food which may well have GM content.

This issue is coming to a head as the prices of all foods are rising. Interestingly enough, the local BBC station carried an item (play item) on how pig farmers are losing £25 per pig at present, as consumer prices are rising a lot slower than the cost of livestock feeds are rising. Of course, this is not sustainable into the longer term. A number of pig farmers will go out of business, and eventually, the price of pig related products will increase to restore stability in the market.

This, however, is an interesting point for those of us with a future focus. Globalisation and the development of the BRIC economies are forcing up food prices across the globe. This applies not only to base foods, such as grains, but derived foods, such as meat, as well. A rise in base food prices, according to traditional economics, will encourage the development of technologies that increase the resource efficiency in producing those foods. From any given unit of land, from any given unit of water, we will expect a higher yield in terms of crops produced. This is what GM technology is delivering and is what the EU is trying to hold back.

In the longer term, Europe faces a choice. It can retain the precautionary principle, with the resultant higher price levels of foods. Or it can accept the GM technology, to the benefit of the consumer in Europe who will pay lower prices for their food. The article in The Economist suggests that the precautionary principle may be compromised simply because it is so difficult to police. If so, this provides a good example of the inability of regulators to hold back technological advances when there are significant consumer benefits from adopting them.

Perhaps it is significant that King Canute – the man who tried to hold back the tide – was a European.