Q&A: Vernon Ellis on "the Heightened Sense of Risk"
It's the year 2012, and we look back with nostalgia on the 1990s, when the world was so excited and filled with hope about the march of democracy and free-market economics. But the terrorist attacks of September 11, 2001, marked a turning point, after which the movement toward global economic integration and closer political ties between countries went into reverse.
The chain of events went like this: Despite the U.S. victory in Afghanistan, the heavy civilian casualties and Israel's war with the Palestinians further galvanized radical Islamic movements. Extremist groups of other stripes also were emboldened, and eventually countries from Southeast Asia to Central America to Africa were destabilized.
This triggered a comeback of authoritarian regimes, which rolled back democracy. But the instability also resulted in a wave of financial crashes and then depression in much of the developing world. Western nations responded with heavier defense spending, but this led to weak growth and rising unemployment.
A new free-trade round collapsed, and more nations retreated into themselves. Nationalism returned in Europe, ASEAN was history, Fortress America became more protectionist. The New Economy dynamism spurred by intense competition faded, and productivity gains dropped. With the outside world now full of financial and security risk -- instead of boundless opportunity -- corporations withdrew from all but the safest countries.
Fed up with their inability to work constructively with anti-globalization activist groups, businesses also halted programs to engage with wider civil society and stopped investing in energy-saving technologies. Years of economic stagnation also caused the public in the West to lose interest in conservation and other causes that now seem like luxuries. Meanwhile, the decline in trade and less spending on innovation meant that goods became more expensive.
This is a worst of four different scenarios for the coming decade in a new 62-page report by the corporate consulting firm Accenture titled Business in a Fragile World, presented at the World Economic Forum beginning in New York City on Jan. 31. Why even engage in such scare mongering? Because given today's trends, such an outcome for 2012 is just as plausible as the other, much more positive scenarios envisioned by Accenture's futurists.
Governments and corporations can prevent globalization from unraveling into division and protectionism. But it will take a great deal of management. Meanwhile, Accenture argues that multinational corporations should adopt management models that enable them to stay constantly in tune with social shifts in countries where they do business and to adjust accordingly.
Accenture International Vice-Chairman Vernon Ellis, who headed the study, recently discussed his thoughts on the state of the world with BusinessWeek Senior International News Editor Pete Engardio. Edited excerpts of their conversation follow:
Q: How to do you view the shape of the world right now?
A: The big point of our study is that the world can go in different directions. There is a feeling of fragility, and it has to be managed very carefully. It was there even before September 11, but it has grown. In a way, September 11 has sharpened the debate even further. We are now into an economic trough for rest of the year. There are many conflicts around the world, and many people are being left behind.
These issues are becoming of concern to more companies. September 11 revealed that there are large, growing populations -- particularly of young people -- that have been left out of prosperity and are very frustrated. There is a heightened sense of risk in relation to property and computer safety. There is a lot of unease over globalization -- the optimism certainly has evaporated. There is a real issue of developing economies, which are a massive part of the world's gross domestic product.
On trade, we had the agreement in Doha, Qatar, [to begin a new round of trade talks under the World Trade Organization]. But personally, I think we have dropped pace of liberalization, especially when it comes to agriculture protection. There used to be certainties, the belief that with the right kind of financial model, the right kind of economic model, you can keep going forward, and things will only get better. But that certainty has been shaken.
Q: What must governments do?
A: We used to think that the only job for government was to stay out of the way. That has changed. Obviously, security now is an issue. And this will cost money. Maybe some governments do have a role in managing utilities, for example. When it comes to developing nations, we've learned that, left to its own devices, the international system is not helping countries that are flat on their backs. Also, there is a need for partnership between government and the private sector.
Q: What are the implications for business if the global environment deteriorates, and what should companies be doing?
A: Companies need to have both backbone and resilience. They need to realize that their strategy must be very fast and flexible. They must promote leadership throughout the organization. This gives you stability.
But business also can work to influence outcomes in the world. If we don't address these issues, I see a chance that the opportunities for multinationals will be curtailed. Disruption will mean more costs. Managing external relationships will be very important. I view corporate responsibility programs and engaging outside stakeholders as way to widen perspective. When it comes to suppliers, companies have moved from beating them over the head to trying to create win-win relationships throughout the supply chain.
I believe that corporations are thinking more about their involvement in the outside world, about promoting private enterprises and bridging the digital divide in the Third World. Corporations have influence, and have to use that influence to help. In Europe, this feeling is very cohesive.
Q: How about among American CEOS?
A: I don't know whether it's gaining ground. Obviously, there's a critique of this point of view. You can say it's a waste of money, that we are letting unaccountable third parties define what we should do. I don't think we should be dictated to be unaccountable third parties.
Also, people now want to cut costs. And the most vulnerable programs relate to corporate social responsibility, which right now is mainly viewed as a good thing to do. But I believe the real solution is for companies to build in the right practices in their organization, rather than treat corporate responsibility as an add-on to the budget.
Q: Is the anti-globalization movement as powerful as it was before September 11?
A: Until now, many anti-globalization groups are strident but incoherent And I think September 11 put a damper on the violent tactics that I saw at the G8 meeting in Geneva. But I don't see the real steam going out of the movement and its forms of protest.