Thursday, June 18, 2015
Greece is Just the Start of Europe’s Problems
As we hold our breath and wait for the eventual outcome of the Greek bail-out negotiations, it’s tempting to see Europe’s challenges as purely economic in nature. We assume that Europe will always hold a permanent and influential place on the world map, championing democracy.
But how robust is this assumption? Is Europe and indeed the West more vulnerable than we imagine? Are we just one catalytic event away from a seismic shift within Europe that the fog of the past and the fog of the present are stopping us from seeing?
Research tells us that successful leaders and organisations must be farsighted. They are good at looking out to the periphery and interpreting – in a less conventional manner – the weak signals of potential seismic shifts. But it is very easy to ignore weak signals and just extrapolate from the past. For example, as the Great Recession broke in 2008 few saw the true depth of the crisis. So just what “weak” or somewhat stronger signals do we have out there in Europe to see the future from a different viewpoint?
Economic performance: We could start from the perspective of economic performance. Europe’s struggle with the impact of the Great Recession is well known. Looking back more than ten years, the performance has been at best chequered. Growth – notably more towards the east of Europe – has been reasonable, in relative terms. For others, including Germany and France, performance has been somewhat more modest and the immediate prospects for development seem to teeter on a knife-edge.
But for some, as we know, the experience has been near catastrophic. The obvious example is Greece. But we must remember that, at the end of 2014, Italy’s economy had experienced, over ten years, five years of contraction. Spain, Portugal and Ireland too have all struggled.
Fragmentation: We then have the issue of fragmentation and the rise of secessionist parties, parties that wish to divide and fragment existing nation states. In the UK there is the Scottish National Party making a loud case for an independent Scotland and there are at least another eight areas in Europe that face these divisive pressures.
Inequality and social divisions: Inequality and social divisions are also signals of a bumpy road ahead. A report commissioned by the European Union and published in 2013 concluded that rising inequality fuelled by the effects of the Great Recession, demographic shifts, ongoing economic globalisation and the prospect of lower global growth would be one of the key challenges for Europe in coming years. In addition to inequality, we have to consider social divisions from the perspective of conflicts in views and values as evidenced at least by the rise of extremism in Europe. External influence: We also need to turn our heads and look further afield. Events in Ukraine and Russia have shown us the power of nationalism and the growing importance of territorial boundaries. But this external influence is also surfacing within the EU itself in the form of Russian loans to finance new nuclear power stations in Hungary, a potential new gas pipeline agreement between Greece and Russia and a €9m loan from Russia to France’s National Front party.
Something deeper afoot
These may seem like a series of unrelated, disparate problems. But what if they are a warning that something deeper is afoot?
The signals introduced above are forces that collectively can give rise, alarmingly, to a collapse of democracy.
Research into the fall of democracies helps us to pinpoint the toxic conditions for democratic collapse. Europe already has three in the form of poor performing economies, social divisions and foreign involvement. A fourth signal focuses upon institutional decay – where broadly the institutions that support democracy fail to keep up with the emerging needs of the electorate. The final warning sign is a history of earlier collapses.
If you thought that there are no viable alternatives to a democratic world, well “viability” is all in the eye of the beholder, and, as we know, there are other models whose voices now wish to be heard the most notable of which is China’s model of quasi-authoritarianism.
Preparing for the future
History tells us that it is difficult to spot seismic shifts before they break. How many forecast the collapse of the Soviet Union? Who saw that the Great Recession in those early days of 2009 was more than a “credit crunch” or a “normal” recession?
The point is that, almost unbelievably, we may be just one catalytic event away from another seismic shift. A shift that will challenge that one deep assumption that underpins many organisations’ business plans. This shift, if it appears, will have wide ranging consequences for business ranging from the behaviour of core customers and choice of target markets through to the emergence of new influential stakeholders and regulators.
And what form could such a catalytic event take? Well, consider secular stagnation or the next wave of technology that could wipe out the once inviolate jobs of the middle class – the historical drivers of democracy.
The time is ripe for any leader wishing to build a resilient organisation to prepare for these plausibly seismic shifts. Complacency or the belief that change will merely be a continuation of popular megatrends such as connectivity, ongoing globalisation and consumerism will leave businesses dangerously exposed.