Date post: | 22-Nov-2014 |
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Economy & Finance |
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How to make wise decisions in the global environment of surprises?
Leena Ilmola
International Institute for Applied Systems Analysis (IIASA)
The Global X Network
Structure
1. What to think about uncertainty, surprises and
resilience?
2. How to be prepared if we do not know what is going to
shake our country?
3. How to make wise decisions in this environment?
4. How to know what is needed?
5. How to make it happen?
1. WHAT TO THINK ABOUT UNCERTAINTY, SURPRISES AND RESILIENCE?
Everybody speaks about resilience
Uncertainty
The percieved probability of the financial market events in Sept 2008 was 0,00000000000000000000007
• Uncertainty with probability
– Metro train uncertainty
– Coconut uncertainty
• Fundamental uncertainty
– Black swans
– Xevents
Strategic planning
Risk management
Resilience building
What do we mean with resilience?
Awareness
Adaptation
Agility
Active learning
Capability to succeed in the environment that is dominated by uncertainty.
Performance (GDP)
Time
2. HOW TO BE PREPARED, WHEN WE DO NOT KNOW WHAT IS GOING TO SHAKE OUR COUNTRY?
Sources of resilience
Policy resilience
Basic Assumptions of the policy
Economic growth will continue after a dip
Our economy is based on our existing international companies
Political powers do not want to shake growth.
We belong to EMU Climate change is mitigated
WHAT IF …… Next low growth period will be 20 years long
A comp. bankruptcy, B chopped and C is acquired by a Chinese competitor
Sudden power play or window of opportunity opens
EMU collapses Next Ice Age hits
Strong education
Agile fast reaction
Strong Trust
Long term trade partners
We have access to cheap energy
Supports Strongly ------------------------- > No Impact ----------------------------------------> Lethal Impact
Policy as a source of resilience
Basic Assumptions of the policy
Economic growth will continue after a dip
Our economy is based on our existing international companies
Political powers do not want to shake growth.
We belong to EMU Climate change is mitigated
WHAT IF …… Next low growth period will be 20 years long
A comp. bankruptcy, B chopped and C is acquired by a Chinese competitor
Sudden power play or window of opportunity opens
EMU collapses Next Ice Age hits
Strong education
Agile fast reaction
Strong Trust
Long term trade partners
We have access tp cheap energy
Supports Strongly ------------------------- > No Impact ----------------------------------------> Lethal Impact
Basic Assumptions of the policy
Economic growth will continue after a dip
Our economy is based on our existing international companies
Political powers do not want to shake growth.
We belong to EMU Climate change is mitigated
WHAT IF …… Next low growth period will be 20 years long
A comp. bankruptcy, B chopped and C is acquired by a Chinese competitor
Sudden power play or window of opportunity opens
EMU collapses Next Ice Age hits
Strong education
Agile fast reaction
Strong Trust
Long term trade partners
We have access to cheap energy
Policy vulnerability
Basic Assumptions of the policy
Economic growth will continue after a dip
Our economy is based on our existing international companies
Political powers do not want to shake growth.
We belong to EMU Climate change is mitigated
WHAT IF …… Next low growth period will be 20 years long
A comp. bankruptcy, B chopped and C is acquired by a Chinese competitor
Sudden power play or window of opportunity opens
EMU collapses Next Ice Age hits
Strong education
Agile fast reaction
Strong Trust
Long term trade partners
We have access tp cheap energy
Supports Strongly ------------------------- > No Impact ----------------------------------------> Lethal Impact
Basic Assumptions of the policy
Economic growth will continue after a dip
Our economy is based on our existing international companies
Political powers do not want to shake growth.
We belong to EMU Climate change is mitigated
WHAT IF …… Next low growth period will be 20 years long
A comp. bankruptcy, B chopped and C is acquired by a Chinese competitor
Sudden power play or window of opportunity opens
EMU collapses Next Ice Age hits
Strong education
Agile fast reaction
Strong Trust
Long term trade partners
We have access to cheap energy
3. HOW TO KNOW WHAT IS NEEDED?
No survivors; succeed or die
How to make it to be resilient to everything?
Our solution is to find a subset of actions that increase our capability to succeed in all of these potential
situations.
internet
nuclear
EMU
0 eur ENERGY
FEDERAL EU
Example: Finland - Resilient Portfolio
12
25. Invest in trade outside the EU
24. Create Finnish Mittelstand to replace Nokia
23. Exploit our neutral and apolitical reputation
22. Specialize in fast piloting
21. Make Finland the center for Asian and Russian connections
20. Establish a Nordic monetary union
19. Switch to exchange economy with no currency
18. Train workforce as the reserve for global companies
17. Manage a single global service
16. Commercialize forest into an investment product
15. Build more nuclear power to hedge against price shocks
14. Let the forest industry disappear
13. Invest in new rapidly exploitable knowledge combinations
12. Finland a global IT-service center for public authorities
11. Invest in sustainable well-being know-how
10. Develop services that require little energy
9. Create an ICT-ecosystem
8. Tax incentives for urban local food
7. Tax incentives for energy self-sufficient housing
6. Promote innovation for a rainy-day
5. Increase respect for every type of work
4. Prepare to increase self-sufficiency in food production
3. Take care of small networked production
2. Security and resilience requirements for information networks
1. Invest in maintaining trust in the society
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Portfolio sizeIIASA/ 7 Shocks and Finland project Liesiö & Ilmola
25. Invest in trade outside the EU
24. Create Finnish Mittelstand to replace Nokia
23. Exploit our neutral and apolitical reputation
22. Specialize in fast piloting
21. Make Finland the center for Asian and Russian connections
20. Establish a Nordic monetary union
19. Switch to exchange economy with no currency
18. Train workforce as the reserve for global companies
17. Manage a single global service
16. Commercialize forest into an investment product
15. Build more nuclear power to hedge against price shocks
14. Let the forest industry disappear
13. Invest in new rapidly exploitable knowledge combinations
12. Finland a global IT-service center for public authorities
11. Invest in sustainable well-being know-how
10. Develop services that require little energy
9. Create an ICT-ecosystem
8. Tax incentives for urban local food
7. Tax incentives for energy self-sufficient housing
6. Promote innovation for a rainy-day
5. Increase respect for every type of work
4. Prepare to increase self-sufficiency in food production
3. Take care of small networked production
2. Security and resilience requirements for information networks
1. Invest in maintaining trust in the society
0 1 2 3 4 5 6 7 8 910111213141516171819202122232425
Portfolio size
25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0
4. HOW TO MAKE WISE DECISIONS IN THIS ENVIRONMENT?
Policy decisionmakers ask
Example: Discovery of sources of resilience
• Intermediate consumption
• Local owners • Small is beautiful
Example: Stress testing and policy options for South-Korea
5. HOW TO MAKE IT HAPPEN From words to action
Diagnosis, development, results
0
2
4
6
8
10O culture
O speed
O trust
O experience
S structure
S investment
S motivation
S liquidity
S layers
P focus
P key strategies
P environment
R comp. layer
R redundancy
R diversity
R mobility
Resilience profile Target Country A Country B
IF possible in making decisions
Chose the option that
• Increases portfolio’s diversity
• Increases multi-skilled people
• Builds in automatic adaptation
• Decentralizes operations and decision making
• Speeds up reactions
• Increases connections to external world
Avoid solution that
• Ties your resources for long term investments
• Is producing/using only experts
• Is only maximizing efficiency
• Relies on one perception of the future
• Increases centralization of systems
Thank You! Please contact: [email protected]