RMI 2302 Nyce Exam 3

Global Risk

occurrence that classes significant negative impact for several countries or industries over a time frame of up to 10 years.

Global Trend

long term pattern that is currently taking place and that could contribute to amplifying global risks and/or altering the relationship between them.

Categories of Risk

economic, environmental, geopolitical, societal, technological

Risk analysis 3 parameters

likelihood and impact

interdependence

risk trends interconnections

What risks appear on "Top 10" List for both likelihood & impact

- weather events

- major natural disasters

- large- scale involuntary migration

- terrorist attacks

What risks have the most interconnections?

- Large scale involuntary migration

- Failure of climate-change mitigation and adaptation

- profound social instability

Which risks have the most "important interconnections?

- unemployment/underemployment and profound social instability

- Large-scale involuntary migration and state collapse/crises

- Failure of climate change mitigation/adaption and water crises

- Failure f national governance and profound social instability

- Interstate conflict with regional consequences and large-scale involuntary migration

What trends are driving the global risk landscape?

-Rising income and wealth disparity

- Changing climate

- Increasing polarization of societies

- Rising cyber dependency

- Aging population

"Gravity Centers" shaping global risks (5)

- Slow growth, high debt, demographics

- Corruption, short terms

- Multi-polar world order

- Fourth industrial revolution

- emotional decision making

Three specific Risk Foci

- wester Democracy in crisis

- fraying rule of Law and Declining Civic freedoms

- The Future of Social Protection Systems

Western Democracy in Crisis?

Rising support for anti-establishment parties

- Brexit

-Trump

- Far right parties in Germany/France/UK/Italy

Three trends undermining democracy

1. Rapid economic and technological change

2. Deepening social and cultural polarization

3. Post-truth political debate

Three strategies to improve democracy

1. generate more inclusive growth

2. maintaining continuity in government while accelerating change

3. Reconciling identity nationalism and multiculturalism

Fraying Rule of Law and Declining Civic Freedoms

-Restricted freedoms and increases government control

-How? -- increased surveillance, travel restrictions, limits on journalism

- Why? -- protect against increased security threats

Fraying Rule of Law and Declining Civic Freedoms

-Triggers

- security concerns/ counter terrorism measures

- Rising nationalism

- Changing scene of development aid

- "market fundamentalism"

Fraying Rule of Law and Declining civic Freedoms

- implications for Citizen/society

- diminished public trust

- national interests over citizens well being

- corruption

- polarization of views

- sociopolitical and economic instability

What are social protection systems?

- Programs designed to reduce poverty and vulnerability such as unemployment, sickness/disability, and old age.

Social protection system challenges

- Many programs linked to employment, definition changes: remote workers, worker displacement due to automation, independent contractor. self-employed.

- demographic changes pressure funding

- low interest rates

- labor migration

- income inequality

The future of Social Protection Systems

Solutions:

- A whole life approach

- untethering health & income protection from jobs

- Revamping pensions models n line with new realities of aging and working.

- policies to "increase "flexicurity"

- Alternative models of income distribution

- greater support for working into old age.

Emerging Technologies

-- The landscape

How do you regulate such fast changing technologies?

- too much regulation stifles development

- too little regulation and irreversible problems may develop before you are aware

- historically, new technologies have had both positive and negative impacts that were not foreseen by "experts" prior to their arrival.

Which technologies need better governance?

- Biotechnologies (fairly heavily)

- AI and robotics (fairly lightly)

What are the risks of AI?

- Developing its own biases (machine learning twitter account in 2016)

- not understanding how it makes decisions

- completely automated weapons systems (weaponization)

- surveillance

-Stanford's computational pathologist

- Google's deep mind

- IBM's Watson

What are Upsides to AI?

- avoided biases

- analyze large data rapidly

- risk reduction

What makes a disaster?

fatalities, damage, economic effects

note correlation (or lack thereof)

What is the difference between a natural disaster and and a great natural disaster?

- death toll, damage, effect on economy

- not a clear definition, hard to bring precision to natural events

Superstorm Sandy

- $26 billion in insured losses

- $70 billion in economic damages

Japan - Earthquake/Tsunami

- 2011

- 16K killed, 330k buildings destroyed, nuclear meltdown

- ocean water 6 miles inland

- insured losses $35B, Economic losses $200B

Haiti - Earthquake

- 230K killed of 10M, 2.3% of population killed

1918 Flu

- 8M dead in WWI

- 3% of world's population died (50M)

Gregory van der Vink study

- 80% of deaths from disasters in 15 countries

- China, Bangladesh, Indonesia

- of these 15 countries, 87% below democracy index, 73% below median GDP

- "Deaths from natural disasters can no longer be dismissed as random acts of nature. They are direct and inevitable consequences of high-risk land use and failures of government to adapt or respond to such known risks."

Human Response to disasters

- people tend to be altruism in times of emergency

- creates incentives in non-emergency times

Economic losses:

35 of top 40 losses (insured losses)

US, Japan, Europe

economic losses

- infrastructure

- Role of insurance in economic development

- insured losses only a portion of economic losses

insured losses only a portion of economic losses

- anywhere from 25-50% in developed nations

- much smaller in developing nations

- in 2011, $110 of $370 B in losses were insured

- in 2015, $27 of $90 B in losses were insured

Applying Natural Hazard Risk:

Probability frequency

- Earthquakes (and other disasters) will happen

Return period:

how may years between similar magnitude levels

Magnitude

typically an inverse relationship between frequency and magnitude (really bad hurricanes don't make landfall every year)

Evaluate Alternatives

- no randomness, just things we can't predict yet

- Can't stop natural hazards

- resilience

- mitigation

Do we want to stop natural disasters

if we all want to avoid natural disasters why don't we all live in Montana?

Economic benefits to taking on natural hazards (risk vs reward)

mitigation

actions to eliminate or reduce future deaths, losses, etc... from natural hazards

- engineering, physical, social, political

While all this natural risk is out there:

What are we doing?

- exponential growth

- the more we can manipulate our environment

What are we doing cont.

increase in population growth

- lower infant mortality rates

- longer life (lower death rates in younger years)

population explosion varies with

- economic development

- urbanization

Our Choices matter by 2150

- if women have 1.6 children => population decrease to 3.6 B

- if women have 2 children => population grows to 10.8 B

- If women have 2.6 children => population grows to 27B

Birth and death rates vary with

economic development

Demographic transition has how many phases? ``

3

Demographic transition phases:

Pre-transition

high birth and death rate => population maintenance (most of human history)

Demographic transitions phases:

Transition

low death rates and high birth rates => population explosion (1700-2000)

Demographic transition phases:

Post-transition

(developed nations) low death rates and birth rates => population maintenance

Big population problems:

- how many people will a natural hazard, that killed 10K people 100 years ago, kill today

- how many people will a pandemic kill today

H1N1

- killed 50M in 1918-1919, killed 44K on 2009 -- 73% were younger than 29

Better science but

that does not mean we know the unknown unknowns

carrying capacity

- the ability of the environment to support a population

- population size is regulated by resources available in environment

Sendai framework for disaster risk reduction 2015-2030

- Hyogo Framework for Action: 2005-2015: building the resilience of nations and communities in disasters

- significant progress, still need action

- Focus on: goals and expected outcomes. priorities for action .

Risk is not evenly distributed

compare japan and Philippines

- Japan 22.5M exposed to typhoons. Phillippines 16M exposed

- avg annual death toll: 17X higher in the Philippines

Biggest Exposure:

- small island developing states (SIDS) and land locked developing countries.

- potential losses relative to wealth/development/GDP

Disaster Risk Drivers:

- poor urban governance

- vulnerable rural livelihood

- declining ecosystems

- global climate change

- risk is changing

risk is changing

- we may make progress (become less vulnerable)

- however, exposure (population, economic development) is growing

Why are Poor nations worse off

- less resilient

- no insurance/social coverage

- lead to income and consumption shortfalls (which they can't afford)

- negatively affect welfare and human development (where they are already behind)

- poor countries especial;;y vulnerable to disaster risk drivers

- poverty trap: need certain amount of capital to escape poverty, can't get enough to end poverty cycle

Progress in natural disasters

- strengthened capacities, institutional systems, and legislation to address disaster preparedness and response

- enhancement in early waring

not much mainstreaming of disaster risk reduction in planning and development

- social

- economic

- urban

- environmental

- infrastructure

The Sendai Framework:

opportunity for countries:

- to adopt concise, forward looking and action-oriented post 2015 framework

- complete the assessment and review following the Hyogo framework

- learn from experience gained in Hyogog framework

- work on modalities of cooperation

- periodic review moving forward

The Sendai Framework:

Goals

- substantially reduce global disaster mortality by 2030

- substantially reduce the number of affected people by 2030

- reduce direct disaster economic loss (relative GDP) by 2030

- reduce damage to critical infrastructure/basic services

- increase the # of countries with disaster reduction strategies

- increase international cooperation

- increase.improve multi-hazard early waring systems

Sendai Framework:

priorities for action

- understanding disaster risk

- strengthening disaster risk governance to manage disaster risk

- investing in disaster risk reduction for resilience

- enhancing disaster preparedness for effective response and to "build back better" in recovery, rehabilitation, and reconstruction

Global Aging trends:

economic overview

- more services for aging population

- fewer in workforce to provide these services (the bucket of capabilities)

- many fear that aging costs are going to outweigh benefits

what is the basis of workforce (body vs. mind)

- manual labor: aging population does not help

- knowledge based workforce- older workforce has experience/knowledge that is valuable

- opportunity for current workers to tap retired workers as resource

aging population

people 65 and over outnumber those 5 and under

Life expectancy is

increasing

the number of people 80+ will

double in 30 years

Median age of western europe and japan

- 1980: 34 and 33

- 2030: 47 and 52

Aging in Italy, Spain, and Japan

- more than half of all adults will be older than official retirement age

- more people in their 70s than 20s

Three categories of major challenges of aging population

- economic development issues

- health and well-being issues

- challenge of enabling and supportive environments

Major Challenges of Aging population within the three major challenges

- slower economic growth

- poverty among elderly

- general equity

- inadequate investment in physical and human capital

- inefficiency in labor markets

- suboptimal consumption profiles

- not uniform across countries some are seeing an aging population coupled with population decline.

- noncommunicable diseases become an increasing burden (#1 killer of elderly)

- family structures are changing, care options for elderly

- shrinking ratio of workers to pensioners (pay-as-you-go systems)

- social political impacts

shrinking ratio of workers to pensioners (pay-as-you-go systems)

- social insurance systems are less sustainable

- effects on social entitlement programs

aging:

with human input declining

need improved efficiency for GDP growth

- may not be enough, could see dealing GDP even with more effective use of capital

worker productivity ____________ with age. and are less

declines

entrepreneurial

Savings rates and investment:

- what happens when a large % of population are consuming rather than saving?

- does capital for investment "dry up?"

- Go elsewhere for capital, loss of influence

- inflation?

- growing risk aversion, shorter investment windows

Impact of aging will not be uniform

- where will the next wave of workers be?

- where will retirees be?

impact of aging not uniform:

Peter Peterson

"the floridazation of the developed world"

Impact of aging not uniform:

Society find a way to use "gray skills" to alleviate burden on younger generations

use the experience of age

impact of aging not uniform:

U.S. relatively better off than rest of developed world

- we will drop from 34% to 24% of global GDP

- canada, france, germany, italy, japan, UK combined => from 38% to 16%

aging Social programs:

cost to maintain current programs

addition 7% of gap needs to go to governments budget

aging social programs:

tax hikes or benefit cuts

remember elderly vote, overburden of taxes destroy growth

aging social programs:

third option

take it from everywhere else such as defense, education, humanitarian

Aging social/political upheaval:

Current "problem" countries are aging

less likely to cause problems in future.

- demographics will win "war on terror"

Aging social/political upheaval:

New "problem" countries

can emerge

aging social/political upheaval:

only large group of countries to go through "full demographic transition" today's developed nations

1700-1900's how did we handle it? revelations, civil wars, WWI, WWII,

aging social/political upheaval:

shorter focus of developed countries

reduce will to fight, along with financial capabilities

Rate of change is a problem:

demographic transition

- high birth/death rate

- high birth/low death rates

- historically, major growth in wealth to manage the next stage of transition

-low birth/death rates

China can become the first country to go through

transition without becoming wealthy first.

- it took France 114 years, the U.S 69 years China 27 years

demographic transition problems

- rising standards of living

- urbanization

- growing income inequality

- environmental degradation

- all cost money to manage

Results of again population

- population and GDP of developed nations decrease as a percentage of global totals

- US however is best positioned of all developed nations to manage trends (less aging of population)

- US actually will become more influential

- some developing countries see youth bulges-- leads to instability

Will developed nations have the man-hour to respond to aging populations

- if not -- less war/conflict

Global Agin is a problem

- Yes: it is big problem

- No: this answer i based on the fact that it is bigger problem in other countries

-China's 4-2-1 problem

What are the opportunities of aging population

- needs for variety of services

- health care, housing, inflation guards pharmaceuticals

- bioengineering, travel, entertainment

- levels of disposable income of elderly

- labor shortage (wage growth)

economic analysis of potential international expansion does not

take into account political risk

political risk

impact of politics on market

examples of political risks

- passages of laws

- foibles of leaders

- rise of popular movements

- all factors that may stabilize or destabilize a country

what is political risk analysis

- more subjective than economic risk analysis

- broad observable trends

- nuances of society and quirks of personality

Internal political risk analyst

royal dutch/shell

aig