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Adapting to a Fast-Forward World
Adapting to a Fast-Forward World
The world is going through a period of accelerating change, as four secular developments illustrate. Firms and governments must make timely adjustments, not only to their business models and operational approaches, but also to both their tactical and strategic mindsets.
LONDON – Firms and governments must increasingly internalize the possibility – indeed, I would argue, the overwhelming probability – of an acceleration of four secular developments that influence what business and political leaders do and how they do it. Decision-makers should think of these trends as waves, which, especially if they occur simultaneously, could feel like a tsunami for those who fail to adapt their thinking and practices in a timely manner.
The first and most important trend is climate change, which has evolved from a relatively distant concern, on which there is ample time to take remedial action, to an imminent and increasingly urgent threat.
The mobilization of various concerned segments of society, owing partly to unusual climatic disruptions in recent years, has greatly increased the pressure on companies to act now. BP’s recent announcement that it intends to achieve “net-zero” carbon emissions by 2050 – a notable promise by an energy company that operates in several highly challenging settings – is the latest example of business responding to such calls. It is only a matter of time until this pressure also prompts governments to take further steps, not only to encourage green activities, but also to tax and regulate those that cause pollution.
Second, privacy concerns have grown alongside technical innovations involving artificial intelligence and big data.
Society is increasingly recognizing that recent technological advances allow not only for more efficient compilation of huge amounts of personal data, but also for using this information to monitor and alter behaviors.
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Are Central Banks Losing Their Big Bet?
Are Central Banks Losing Their Big Bet?
Following the 2008 global financial crisis, central banks bet that greater activism on the part of other policymakers would be their salvation, helping them to normalize their operations. But that activism never came, and central bankers are now facing a lose-lose proposition.
ZURICH – In recent years, central banks have made a large policy wager. They bet that the protracted use of unconventional and experimental measures would provide an effective bridge to more comprehensive measures that would generate high inclusive growth and minimize the risk of financial instability. But central banks have repeatedly had to double down, in the process becoming increasingly aware of the growing risks to their credibility, effectiveness, and political autonomy. Ironically, central bankers may now get a response from other policymaking entities, which, instead of helping to normalize their operations, would make their task a lot tougher.
Let’s start with the US Federal Reserve, the world’s most powerful central bank, whose actions strongly influence other central banks. Having succeeded after 2008 in stabilizing a dysfunctional financial system that had threatened to tip the world into a multiyear depression, the Fed was hoping to begin normalizing its policy stance as early as the summer of 2010. But an increasingly polarized Congress, exemplified by the rise of the Tea Party, precluded the necessary handoff to fiscal policy and structural reforms.
Instead, the Fed pivoted to using experimental measures to buy time for the US economy until the political environment became more constructive for pro-growth policies. Interest rates were floored at zero, and the Fed expanded its non-commercial involvement in financial markets, buying a record amount of bonds through its quantitative-easing (QE) programs.
This policy pivot was, in the eyes of most central bankers, born of necessity, not choice. And it was far from perfect.
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