Wednesday, June 03, 2020

Post-Covid Predictions: Mid-East unrest, digital transformation and lack of leadership

About a month ago I published a long look at the world post-COVID, a scenario I built from extending a number of trends, as well as examining some features and outcomes of past pandemics.  You can download and read the entire scenario and the top predictions.  In the following few weeks I am calling out a couple of the predictions or implications, to extract some insight and to help make sense of what is happening and what is going to happen.

Two weeks ago I wrote about three predictions:  the rise of Millennials in leadership, a coming real estate bust and a potential crime wave.  Last week I wrote about the impact of the pandemic on supply chains, the demand to repatriate manufacturing and the impact of COVID on currency.

Today, I am going to examine three other likely outcomes in the near future:
  • The opportunity for war in the Middle East and the likely apathy about the unrest outside the Middle East
  • Where digital transformation will occur, and why it may slow somewhat in the next few years
  • The leadership vacuum on the global stage, leading to a multi-polar world

What if they gave a war and no one came

There are few places on earth that are more rife with tension that the Middle East, but over the past century, since the fall of the Ottoman empire, there have been "great powers" active there.  France and the UK partitioned the Middle East into spheres of influence after the first World War, and were active in governance and oversight until the second World War.  Upon discovery of oil, the US took an active interest in the region, and has been the leader in the Middle East for years.

Of course, to call it the Middle East is simplifying matters.  From Egypt in the West to Iran in the East, Syria and Turkey in the North, the Middle East is a mixing bowl of interests, tensions, languages and even different sects of Islam.  Egypt has long seen itself as a power broker in the Middle East, but has seen its power and influence dwindle.  Syria, combined with Egypt, attacked Israel to attempt to wipe it out in the Six Day war in the 1960s, and Syria has gone to war with Israel several times.  Iraq was dominated by a dictator, Saddam Hussein, until he was deposed by the US in the second Gulf War.  Despite the hopes of the US Administrations, we've left behind a nascent Shia state rather than a democracy.  Iran simmers under economic blockade imposed by the US over Trump's rejection of a nuclear treaty.  Iran has traditionally seen itself as a major power broker as well, looking back to the Persian empire.

The Saudis, Qataris and Emirates have fairly prospered over the last 50 years.  Dubai, Qatar and Abu Dhabi are thriving economic centers that rival the largest cities in the world, yet they are built on very fragile economics.  And, of course, sitting in the middle of all this is Israel.

There are any number of sparks that could incite another major war in the Middle East.  Iran is constantly testing its neighbors and wants to break out of the economic blockade.  Iran and Saudi Arabia are contesting for leadership in the region, and both are backing and fighting proxy wars.  Syria is attempting to recover from years of civil war against its own people and against the remnants of ISIS, but Assad will want to take more of a leadership role in the region as soon as possible, egged on by his new benefactor, Vladimir Putin.  Hezbollah, backed by Iran, will continue to seek opportunities to attack Israel.  The Israelis will do themselves no favors by continuing to annex land in the West Bank, creating a reason for other Islamic neighbors to protest.

But it will all be different this time.  Europe does not have the energy or military might to intervene once a war starts.  The EU and other European organizations will make motions in the UN and plead with the participants of a war, but to little avail.  The US, exhausted after years of war in Iraq and Afghanistan, will not want to make a significant contribution to a war in the Middle East, and increasingly is less and less reliant on oil from the region.  When and if a war starts, it could escalate quickly and there are few opportunities or regional actors to slow the outbreak.

War could begin between Saudi Arabia and Iran, or between factions loyal to Iran and Israel.  These could be wars of religion, between the Shia population in Iran and potentially Iraq and the Sunni population elsewhere.  As Israel annexes the West Bank, the Palestinians could become a rallying point for other countries, in support of the Islamic brothers.  Turkey, in a fit of overreach, could attempt to arbitrate or enter into a war in the region while trying to assume a power broker status in the region.

There are far too many reasons for war, and far too many actors with far too many rationales and grievances.  It will only take a spark to start a larger war.

Why this matters

This matters politically because there is not longer a significant power broker in the Middle East.  The most likely players, the EU, the UN and the US, all have limited influence or a lack of interest.  Russia is not trusted in most of the region, and China traditionally has not been interested in engaging in the internal affairs of other countries or regions.  If a war starts, it may continue for quite some time, pulling in countries on the periphery who have no desire to fight.

While the US is no longer dependent on oil from the region, Japan, China, the EU and other countries and regions are, so any fighting will dramatically increase the price of oil and is likely to decrease the supply of oil.  In a weakened economy, such an economic shock could have long term implications.  Moreover, as we've witnessed with Syria, war will create mass migration.  The Middle East sits in close proximity to the EU, and we could imagine millions more refugees and migrants attempting to reach Italy, Greece and the Balkans.  Migration could destabilize Turkey, radically change the Emirates and Qatar.

If the war extends and draws in enough countries and combatants, it could extend further afield, to North Africa or Pakistan.  Several of the countries in the region are announced (Pakistan) or suspected but unannounced (Israel, Saudi through the US) nuclear powers.  A long war or one that threatens to escalate will draw in other global powers, if only for negotiation, but tensions and grievances are such that war in this region will escalate quickly, with devastating results for the region and for the global economy.

Digital Transformation, slow and fast

Everyone talks about digital transformation, but few define it thoroughly.  It can mean the transition from seat of the pants planning to decisions driven by data, or it can mean the transition of traditionally manual activities to automated activities, or it can mean putting machines and smart systems to work more effectively, or it can mean all of these things.

All companies will become digital companies, with fully automated business processes using data to drive better decisions.  However, the digital revolution may hit a speed bump.  In an era of massive unemployment, digital transformation that leads to fewer jobs, or worse the reduction of existing jobs, may be untenable from a political perspective for a few years.

Digital transformation will continue to accelerate where it leads to lower costs or better decisions.  We'll see this especially where data integration across silos leads to better decision making.  However, in an era of high unemployment it will be difficult for companies to implement some aspects of digital transformation that lead to the replacement of workers.  Robotics, for example, has long held promise to reduce costs, increase productivity and improve consistency over human workers, but the political price a company may pay in the short run for implementing robots over people may be more than the company can tolerate.  Even though digital transformation and the supporting tools, such as robotics, machine learning and IoT create jobs, these technologies create job displacement in many tasks and create far fewer new jobs than the jobs they create.

Digital transformation will continue through the pandemic and afterwards, but will happen at different rates.  Where it merely improves existing processes or improves data visibility and interpretation, it will accelerate.  Where it reduces human employment or shifts toward automation and causes a loss of jobs, it may be slowed due to societal and economic pressure.

Why this matters

Every business wants to transform into a truly digital business, where data drives decisions, automation and robotics drive mundane tasks and better data drives machines and actions.  However, there will be pressure in the next 2-3 years to slow the advance of digital transformation when it has a significant impact on human jobs.  With unemployment high and jobs scarce, many businesses may be concerned about the optics of improving efficiency and cutting costs by automating processes.  This matters because the companies that do proceed will gain a significant advantage in the marketplace, while drawing short term anger, and those like Amazon that are already well on their way will simply improve efficiencies and cut costs even more.

Companies that are early in their digital transformation will be caught out - the digital transformation requires a full commitment - no half measures.  Either fully commit to a digital transformation and risk the ire of your workers and customers, or risk falling behind your competitors in terms of efficiency, pricing and better insights.

The utter lack of global leadership

In my scenario, I described several future outcomes, and here I am basically lumping several predictions into one - the lack of global leadership.  For almost 80 years, the world has had leadership from a number of multi-national organizations like the UN, and had leadership or at least organizing principles from several fronts, including the US and at one time the Soviet Union.  For many years the US-Soviet standoff created a bi-polar world, and eventually a third "non-aligned" movement was created.  This lasted until the fall of the Soviet Bloc. Since then, the US has been the major player in global affairs, with support from the G-7 when the G-7 agreed with US positions.  China is a rising player from an economic point of view, but not from a political perspective.

As the US retreats from global leadership, the EU experiences a loss of membership and internal squabbles, large countries or regions are backing away from any claim to global leadership.  Further, many global institutions have been called into question.  The World Health Organization is under scrutiny after the COVID pandemic.  The UN seems ineffectual and toothless.  Even multi-national trading programs and agreements - like the joint program between Europe, the US and Iran - seem to wither and die.  Whether it's the UN, the global climate change accords, trading pacts, the JCPOA, NATO or other international organizations, all of these agreements and the benefits they bring with them are at risk.  COVID did not start the unwinding - Trump actively questioned the value of NATO and pulled the US out of potential trading partnerships long before COVID, and the UN was increasingly becoming a sideshow before COVID. COVID will only exacerbate trends that were already underway.

This lack of clear leadership leads to a dissolution and a lack of trust between countries.  At the same time there is a wave of populism in Europe due in part to mass migrations from the Middle East and Syria, and in South American, especially Brazil, and of course in India.  These countries and regions seem to be taking matters into their own hands, trusting less in global structures and standards and focusing more on their country, borders and interests.

While many countries bridled under the bi-polar world dominated by the US and the Soviet Union, and did not like the US dominance thereafter, at least there were countries or institutions that established some norms and set out a vision for what should happen.  Without strong international leadership and key organizations that countries and leaders trust and support, every country will work to its own advantage. While this approach is logical in the local setting it creates tension and barriers between countries and regions, and could lead to many unnecessary disagreements, fractures between trading partners and distrust.

Why this matters

International agreements, rules of law, and a common vision promote commerce, trade, immigration, human rights and other critical political and economic standards.  Without cooperation, without leadership backed by either political power or even military power, the natural state is entropy.  Governments and polities like the environment will move toward entropy - less organization rather than more organization.  As that happens, everything becomes more difficult, less efficient and less transparent.  Doing business between countries will become more difficult.  Working to create peaceful outcomes in conflicts between countries and regions will become more challenging.  Fewer countries will want to work on global issues like climate change, instead focusing only on what's best for their citizens.


 These factors - a lack of global leadership, a haphazard digital transformation and growing unrest in the Middle East, combined with previous predictions around real estate bubbles and potential crime waves, or repatriation of significant manufacturing, lead us to consider a future that is much different than the present we live in today.

Many people talk about the new normal, as if there will be a "normal" when COVID ends.  There are so many converging factors and trends that it is probably safer to talk about the new volatile, rather than the new normal. 

Companies and governments that carefully consider these future trends and what they indicate for life, the economy, politics and society in the near future will be able to predict outcomes and build new programs and new offerings.  Those that don't will be culled from the herd or will be in a difficult position, trying to catch up to the leaders.
AddThis Social Bookmark Button
posted by Jeffrey Phillips at 11:45 AM


Post a Comment

<< Home