New World Order

10. June 2020

The whole of humanity is (collectively) at war – against an invisible enemy called SARS-CoV-2 – Corona. And the best thing to do is to stay at home and hope that our technological progress will provide us with weapons in the form of tests, medicine and vaccines as quickly as possible.

In fact, it feels a little like that famous song from R.E.M:

The biggest crisis since World War II

Is everything different after Corona? It is already clear that massive damage will remain. Many people will lose their lives. The consequences for the economy are not yet foreseeable. But there will be clear repercussions here as well. For the German banking sector alone, there are forecasts that around 150,000 jobs will be lost by 2022, about 30% of all jobs.

THE GLOBAL ECONOMY IS THREATENED BY THE BIGGEST CRISIS SINCE THE SECOND WORLD WAR.
Source: António Guterres

As unprepared as the coronavirus hits us as humans worldwide and the global economy, this catastrophe came with an announcement. An IMF working paper from 2019 quotes expert statements with the following words:

“There is growing agreement between economists and scientists that the tail risks are material and the risk of catastrophic and irreversible disaster is rising, implying potentially infinite costs of unmitigated climate change, including, in the extreme, human extinction”[1].

While the risk of extinction of mankind is still considered here in a very abstract way, the pandemic plan of the countries in Germany is already becoming very concrete with regard to the scenario that has currently occurred:

“It is feared that an A-type influenza virus will appear in the next few years, which has not yet been spread among humans. An influenza A virus from the animal kingdom could acquire the ability to infect humans and spread among humans.
Human nature would have no defence against such a virus. Such a virus, which can be transmitted from person to person, would – presumably after a certain adaptation phase – be able to spread very quickly in a region and from there over the world. Today’s daily transport connections to all parts of the world would help to accelerate the spread. Many more people would fall ill than in the annual waves of influenza. A worldwide epidemic, known as a pandemic, is emerging, which will have a significant impact on the medical care system, public order and social – as well as economic life”[2].

What sounds like the documentation of current events is (exemplarily) from the pandemic plan of the state of Hesse – mind you, from 2007.

The question remains: If everyone knew what we were facing (including Bill Gates), why are we being hit so hard and unprepared? Or to put it another way: can we prepare for such a risk scenario at all?

On dealing with risks

In order to assess risks – including financial risks – companies or public institutions generally use a risk matrix in the following form:

The risk is calculated by the “amount of damage” x “probability of occurrence”. It is important to understand that each of us – whether CEO or nurse, old or young – implicitly makes exactly this assessment for ourselves: In dealing with such crisis scenarios, each of us classifies the risk according to the probability of being affected by it and the possible effects on ourselves and our environment.

It becomes clear why dealing with the coronavirus ranges from denial to panic and why it is difficult to prepare for such a scenario: Risks are highly subjective as they are subject to the assessment and knowledge of the individual.

Or according to Ulrich Beck [3] :

The new type of global risks is characterized by (more or less unacknowledged) unknowingness .

In other words, there is no such thing as “the scenario”. The behaviour of the individual ultimately reflects the individual assessment of the situation: Some celebrate corona parties in the assumption that there is no health risk for them. Others fight over toilet paper in supermarkets in fear of supply shortages. While some companies keep an eye on the risk to society as a whole and change their production, others are primarily concerned about their own well-being (although in the case of Adidas this backfired).

This also explains why the authoritarian state system in China initially denied the existence of SARS-CoV-2 and thus became the incendiary device of a global pandemic, while in many democratic countries this behaviour is considered disturbing or even reprehensible. In dealing with risks Beck speaks of the “clash of risk cultures”, i.e. dealing with the unknowingness depends strongly on the culture of the country or the cultural background of the individual.

Beck is going further:

“In advanced modernity, the SOCIETAL production of wealth systematically goes hand in hand with the SOCIETAL production of risk.”

Source: Ulrich Beck – Risk Society

This means that – without knowing how to deal with it – we systematically create risks that provide the potential for more and more global conflicts. At the same time, the risks are becoming increasingly existential.

The Club of Rome writes about this:

“It is important to acknowledge that the planet is facing a deeper and longer-term crisis, rooted in a number of interconnected global challenges. Emerging infectious diseases (EIDs) such as Ebola, bird flu, SARS and now coronavirus (COVID-19) cause large-scale deaths, disease and economic damage, disrupting trade and travel networks. About 70% of these diseases originate in animals (mainly wildlife). Their emergence results from human activities such as deforestation, expansion of agricultural land and increased hunting and trading of wildlife, activities that can also contribute to biodiversity loss. Many pathogens remain to be discovered so the diseases we know about are only the tip of the iceberg“[4].

Powder keg global world order

In the past, although these man-made risks – particularly as a result of technological progress – increased the potential for catastrophes, they generally reduced the probability of such an event occurring. For example, it is safer to fly by plane than by car, but the number of victims in a plane crash is usually much higher.

The number of risks with catastrophic potential continues to rise. Think, for example, of CRISPR technology or artificial intelligence. At the same time, we are also seeing an increase in the probability of risks occurring, which is due to our global world order:

1. System of global dependencies

SARS-CoV-2 impressively shows us how network effects fuel exponential growth. The global networking and exchange of the world community is a grateful breeding ground for the unhindered, pandemic spread of such a virus.

We can see how vulnerable the global economy has become as a result. For example, in Germany local harvests are endangered because the closure of the external borders has resulted in a shortage of around 300,000 foreign harvest workers. Or suddenly the supply shortage of medical protective clothing breaks out because production has come to a standstill in China. To put it bluntly, China is thus deciding life and death in our country.

2. Permanent growth

Our economic systems are based on the assumption that permanent growth is the central criterion for success: “For seven decades, the growth of gross domestic product has been the overriding economic goal of the European states”. This then manifests itself in companies in such a way that, for example, profit warnings – usually a slightly smaller profit than expected – lead to price slumps in the case of stock corporations.

The consequence is that we live in a “cradle to grave” consumption society trimmed to throughput, i.e. consumption and waste instead of use and renewal. The natural resources available (supposedly free of charge) are thereby completely exhausted, with the consequences as described above by the Club of Rome. And the factor “human capital” is also efficiently exploited, resulting in a widening gap between rich and poor.

3. Rival competition

While in Germany or at the national level the principles of the welfare state provide a counterweight to the creative destruction of the free market, this balancing mechanism does not exist at the global level. The result is a rival predatory competition of Darwinian character. Against this background, there is an increasing danger that, in order to secure one’s own position, the limits of what is feasible will be pushed to the extreme and beyond. The example of CRISPR genetic manipulation in China is an impressive demonstration of this. What is possible is also done in this competition. The platform economy comes into play here as a further accelerator, since it facilitates the monopolisation of markets and suddenly allows individual companies to rise to the status of a global monopoly of power.

All of these risks that we are currently facing are characterized by delimitation, uncontrollability and non-compensability [5].

The Club of Rome writes:

“Like Covid-19, climate change, biodiversity loss, and financial collapse do not observe national or even physical borders. These problems can be managed only through collective action that starts long before they become full-blown crises and must be acted upon not as singular threats but as a potential series of shocks”[4].

Three principles of action as a way out

The good news is that the solutions to these challenges have long been known. It is about “…investments in renewable energy instead of fossil fuels; investments in nature and reforestation; investments in sustainable food systems and regenerative agriculture…”.

It is about the transition “…to resilient, low-carbon economies and nature-rich societies…” based on the following principles:

1. Think global, act local…

Global risks can only be solved globally. According to Ulrich Beck, this requires uniform economic and social standards at the transnational level [6]. The “more” of transnational communication and standards must be accompanied by an “more” of local production in order to reduce global dependencies and prevent “global exploitation”.

2. Sustainable balance as the leading model of the economy

In an open letter in 2018, more than 200 economists have called for the age of postal growth economics: “…to solve the social problems in European countries, we do not need further growth today. What we need is a fairer distribution of the income and wealth we already have. Moreover, it is becoming increasingly difficult to generate growth at all – because productivity gains are declining, markets are saturated and the environment is damaged. If these trends continue, there may well be no growth at all in Europe within the next decade. …”. [7]

Instead of limitless growth, the guiding principle of the economy must be a lasting balance between people, prosperity and our planetary boundaries. A lived cradle to cradle principle.

3. Skin-in-the-game principle through cooperatives

In the foreword to his book “Antifragility”, Nassim Nicholas Taleb criticises a phenomenon that has been observed since 2008, namely that “…those who generate risks take the profits from them, but do not bear the costs of these risks. This makes such persons the biggest risk generators in society”.[8] In order to reduce the risks of a society, Taleb proposes the “skin-in-the-game” principle:

“Those responsible put their own skin on the line. No one should be allowed to harm others through their own mistakes without at the same time causing harm themselves. This is a basic principle of civilisation that has unfortunately been forgotten. The bureaucrat is not held accountable for his mistakes, the economist is not punished for his wrong prognoses. Economic models are therefore mostly complete nonsense, because the consequences of the models are not paid for by those who developed them. If I use “skin-in-the-game” as both a rule of risk management and an ethical principle, I will be careful not to make any predictions. I will show my clients what I myself have in my portfolio. If someone follows me and loses money, I will lose money myself. “

The cooperative principle in the sense of a socialization of risk and return while maintaining market principles seems predestined for this. Cooperatively managed platforms can form counterparts to classic transnational corporations.