Business Advisory Insights Into Global Power Changes
The power balance in the world is currently at odds between a unipolar system that was dominated by US hegemony (from the end of decades of bipolar stability at the end of the cold war) to a multi polarized reality. Speaking to subject matter experts it becomes apparent the next decade will be one of conflict and uncertainty, but also one of great opportunity. The aim of this article is to provide a macro view of global changes and then a micro view on how businesses can take advantage of the situation at hand.
As part of our business advisory services, we are constantly looking for new ways to help our clients grow.
The Future Moving Forward
At present and moving forward conflicts will be fought asymmetrically, using covert and overt means, some of which are below. These examples are illustrative, not exhaustive. The discussion below is high-level summary.
1. State based cyber actors – An effective strike could disable key infrastructure. “The ACSC, a subsidiary of the Australian Signals Directorate (ASD), responded to 2,266 incidents and received 59,806 cybercrime reports in the 12 months to June 30th .” (ABC article here).
2. Biological attacks – Viruses and bacteria can target a general populations or specific groups.
3. State sponsored Ideological agents and influencers – Ideological movements and belief systems, like Communism or fundamentalist Islam can became political parties, implementing dangerous ideas. See the Communist dictatorships of Asia, or the Muslim Brotherhood winning the Egyptian Presidency during the Arab Spring.
4. State sponsored agents acting as businesspeople – Can acquire critical infrastructure and assets, on behalf of a foreign powers.
5. Sate sponsored or non-state actors providing disinformation – We have seen this during the US elections and Brexit. We are also witnessing greater far left extremist groups and far right conspiracy groups. Their motives have been inadequately examined.
6. State sponsored terrorism – Fundamentalist groups, partially funded by other nations, can cause internal disruption or istate conflicts. The Mujahideen of the 1980s were funded by the US covertly to counter Soviet influence in Afghanistan.
7. State sponsored or non-state actors in drug trafficking – Clear examples of alleged drug trafficking include Hezbollah & North Korea, amongst others. There are major state and non-state players, that are backing distribution in Australia to weaken our societal fabric.
8. Economic, trade and monetary policies - Cutting of trade relations, devaluing currencies, extreme forms of quantitative easing and debt devaluations by foreign power pose future risks.
9. Proxy state conflicts – Conflicts between proxy nations supported by major powers undermine regional stability. See the Iran-Iraq War, fostered by the USSR and US.
Traditional nation state conflicts are less likely because of the realities surrounding mutually assured destruction. The problem with these types of strategies, is it becomes harder to distinguish between friends, foes and domestic civilians / leaders that have been compromised.
Causes of our divide
What keeps me up at night is not the GFCs, Trumps or Antifas of this world. They are all symptoms of the underlying issues. What concerns me is that our social cohesion is slowly being broken down in Western democracies by several pernicious forces.
1. Extreme political divisions, identity politics and political correctness. These have emphasised our divisions, not our shared values.
2. A growing wealth gap as a function of compound growth and income ratios to asset prices. .
3. The loss of manufacturing industries to foreign powers, undermining our security and stripping economic opportunity from young Australians.
4. Importing flawed foreign ideologies, even where they undermine our national interest.
As Churchill said: “When there is no enemy within, the enemy outside can do you no harm.” One has to ask if we are being divided by external forces or of our own volition?
This is why as part of our business advisory services, we are constantly looking for new ways to help our clients grow and work together. We've created several joint ventures, to help drive outcomes where they otherwise would not happen.
The Conflicts Ahead
The Australian Federal Government has clearly highlighted the threat of a more aggressive China. As China are our largest trading partner, this creates a real tension, which is not easily resolved.
Already the federal government has taken the actions below.
1. Defence spending is set to increase to $270 billion over 10 years , with $15 billion being allocated towards cyber security (ABC article here)
2. The Australian Government also announced legislation to cancel agreements that States, Territories and Universities have entered with foreign powers. This puts Victoria’s signing of China’s Belt & Road initiative clearly in sight (Article here)
3. The Australian government is currently working on the trilateral Supply Chain Resilience Initiative (SCRI Agreement) between India, Japan & Australia. The SCRI Agreement is aimed at diversifying trade in a way that places less reliance upon China. I suspect more agreements like this will follow.
Whether we are simply at a point of healthy tension between superpowers or we have all the ingredients for global conflict to escalate (covert or overt), time will tell. Countries like Turkey are exerting their influence. Russia is focused on reliving its former Soviet glory. The US also desperately needs a cause that will drive internal solidarity (what better drive than a foreign enemy?).
In our own backyard we have China trying to gain political influence in Australia, disputed territories and shipping lanes in the South China Sea, agreements with key neighbours including Papua New Guinea and China demonstrating its force projection.
Globalisation is in part why we have arrived at this point, It cannot be written off in a binary way (good or bad). Globalisation has allowed developing nations to become powerhouses, such as Brazil, Russia, India & China (BRIC nations) in turn fuelling their geopolitical aspirations. It would be naive of the West to think that their power basis would not eventually be challenged.
Business Advisory Inisghts: The Catalyst For Change & Opportunity
Countries will need to stimulate growth moving forward after the severe impacts of COVID-19 lockdowns. With some Western nations blaming China for COVID-19, whether they were or weren’t responsible isn’t the issue, the politics against them is clear.
The position of Australian Government is obvious. We will start to see a push by Western Governments to move critical manufacturing and supply chains back home, or to allied nations. As we are part of the Five Eyes intelligence arrangement, collective decisions made by the Five Eyes will influence future Australian economic and trade policies.
In the West we are partly nationalising financial markets through modern monetary theory and quantitative easing. These aren’t mere economic or monetary tools. They are also geopolitical weapons. This deserves an article on its own (coming soon).
Growth Funding and Investment Opportunities
Given the current circumstances, politicians are talking about “economic sovereignty.” The Hon Karen Andrews MP, Minister for Industry Science and Technology has recently stated (link here)
“to secure our nation’s economic sovereignty by building an even stronger local manufacturing sector”.
Moving forward we expect to see the following opportunities emerge, as the government attempts to reboot the economy:
- Lower company and income tax.
- Further investment in infrastructure and construction by government.
- Further grants and co-contribution in defence.
- Further grants and co-contributions in manufacturing.
- Boosting research and development.
- A focus on automation in manufacturing and leveraging our knowledge economy.
- Securing supplying lines domestically or through international allies.
Most importantly will be the realignment of global trade relationships. Whilst China will still be an important trading partner, a shift in who our major trading partners are will start to emerge sooner than later. India will just be one of those global partners. They will be a major powerhouse that will require our raw materials, technology and knowledge economy services.
This makes being structured in the right way, all the more important and having a business advisor that can help you navigate these times.
As we enter this new post Covid-19 world and changing world order it will be imperative businesses recalibrate how they operate. In other words, businesses will have to have asymmetric responses themselves to the changing environment.
As part our business advisory services, we are helping clients get more government grants and the capital they need to thrive. Whether it be from traditional funding or private lending.
We are having first glimpses already of what is to come, seeing the changing landscape within the defence sector that some of our clients operate in.
Already these clients and others that are proactive have started working on the below areas with our assistance.
- Cyber security
- Access to government grant experts
- Access to coaligned capital
- Domestic and international JVs
- Exporting to new markets that we do international agreements with
- Adapting to the future ways of working utilising technology
- Supply chain redundancies
In conclusion as global tensions rise, governments will be forced to support local industry to develop more self-sufficient and independent supply chains. This means that local businesses will have a chance to thrive like never before. Domestically however we expect to see inflation rise, during a transition period, from cheap overseas supply chains to local ones. Eventually as local efficiencies improve, prices will see a decline.
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