Sibos 2018 Sydney: Breakfast Keynote - 23 Oct 2018

this morning you are in for a real treat we have an incredible speaker will be talking to us half an hour and they will be doing a good Q&A at the end of that which will be largely driven by all of you so I'm just going to give you a quick background on our speaker this morning and then I'll talk to you about how this morning will work it is my absolute pleasure to be introducing Parag Khanna now Parag is a leading global strategy advisor world traveler best-selling author he's the founder and Managing Partner of future map which is a data and scenario scenario based strategic advisory firm he is the author of a trilogy of books on the future of world order which have been translated into more than 20 languages in 2008 he was named one of his Squires 75 most influential people of the 21st century and featured in Wired magazines smart lists au pair exist in explaining geopolitical shifts and increasing influence of smart cities this morning he's going to be giving us an insight into how mega trends are reshaping the established world order providing an evolved and uncertain backdrop and context to our strategic and tactical decisions he is an expert when it comes to what does the future look like as best as anybody can imagine it and how might we navigate it both from an anthropological perspective and from a commercial perspective without further ado ladies and gentlemen please let's welcome Parag Khanna to the stage okay thank you thank you very much good morning everyone thank you jack so this is the part where usually someone would begin by saying we meet in a time of great uncertainty that is so cliche because I actually think that there's real deep certainties that we can talk about and in fact when people say that uncertainty is the nature of the system I would turn it on its head I would say that the system is characterized the global system by certain megatrends that are so robust that they have withstood every obstacle every conflict every financial crisis every plague in history and first and foremost of those mega trends is connectivity connectivity itself I think that's an important way to start today it's important way to begin the conversations that you're having over the course of this week because as an organization Swift psy boasts the network all of you are the enablers so that connectivity you are the ones that actually make it happen you're part of the reason why I am so confident that we should begin this conversation with the notion of connectivity and understanding and explaining what it is so let me take a step back in time here with you let's say roughly 75,000 years - around the time that mankind began wandering around the world populating the different continents and over those seventy five thousand years here is a map of every single road and railway that we have built right stretching connecting just about all the world's population now let's layer in all of our energy systems right we've done transportation now energy here's all of the world's oil and gas pipelines and lectricity grids and now here that are the fiber optic internet cables right the communications networks and of course this is a infrastructural matrix wrapping itself around the world accelerating in the in the in its volume across the planet across all continents connecting all of human civilization together and by some estimates according to for example the engineering company Autodesk in San Francisco we will build more such infrastructure in the next 40 years than we have in the past 4,000 years and I think that makes perfect sense because the world population has tripled since the end of World War two and most countries up until very recently had not built sufficient infrastructure to cope with their growing populations to connect their citizens to supply chains to markets to the world economy to their neighbor and that is the process that is now underway now connectivity does not mean a world that is peaceful that is stable that is harmonious that is equal it is just as much a world of competition and conflict as it always has been but the battlefield changes the ground over which we compete changes the technologies the resources changed I want to show you three aspects of this competition over connectivity geopolitical economic technological which themselves also overlap but again it changes the nature of the game the rules of the game so here what I've done is to list since the end of the Cold War the last nearly 30 years now experts have predicted nine major conflicts about not right between China and Taiwan China and Japan with Iran Russia US and China South China Sea North and South Korea China and India India and Pakistan most of these are actually in Asia right in our general longitude from where we are right now now why is it that for 25-30 years experts have been predicting this World War three any one of these conflicts could escalate and there are some that aren't even listed here and yet we haven't had World War three yet and part of the reason and I think a very important part of the reason is that increasingly antagonists are connected to each other now if you think about the Cold War which I think we can all remember the United States and the Soviet Union didn't exactly have intense trade relations with each other but today of course the US and China count each other as among their largest trading partners and that dynamic is similar in many of these situations here so instead of just thinking strictly about territorial conquest right I get a mile you lose a mile right there's other factors at play in decision makers calculations that involve cost-benefit analysis to cutting off connectivity to engaging in conflict over territory over national pride over whatever historical gripes they have between them versus saying hmm we could have that war but we could also have that pipeline we could also have a trade relationship of that country we could also move into their markets right and if we don't others will so there's a cost to that and that is a very important part of the reason why if you look at every single one of these instances if you look at military escalation between India and Pakistan if you look at physical military tensions between China and Japan in fact that is exactly what has happened leaders have said wait a minute I'm getting a call from CEO here that says we've got a lot of supply chain operations over in that country I think you need to dial this down a little bit right and that's what's happening so yes we still have geopolitical conflict we still have international tensions we have border disputes but right now as we sit here there is not one major international military conflict underway where you would say that's going to escalate into a world war three despite all of those predictions and you cannot explain why that has not happened it's not because we're brilliant it's not because we're lucky right it's actually because connectivity plays a greater greater role in the day-to-day decision-making of leaders the government and in the corporate sector now we also compete though over this connectivity over those infrastructures for example you know the Russia Ukraine dispute is very much about the pipelines that connect the two countries not just about territory and the tensions in the world today are obviously also economic in nature right the way I see it since we're not fighting that many wars over territory anymore and part of the reason for that is also because we have created a lot of new countries right there are almost 200 countries in the world there were only 51 when the United Nations was created 70 73 years ago right so the more borders you settle the less borders there are necessarily to fight over but we do fight over is that connectivity right and well and the more the world becomes an integrated marketplace we compete over supply chains over value chains there's a famous expression in geopolitics who rules the Heartland rules the world and the Heartland is the term for the for the for the territorial region of eastern Russia birria Central Asia a very strategic domain the way I see it when you become a global marketplace globally connected through infrastructures and supply chains we are battling every single day not over territory but every single day there's a trade war going on people talk about the trade war now as if it's something new in many ways it's not because the elements of it attempting to draw value chains supply chains production through industrial policy to one's own Shores that has been going on for a long time for decades actually so this is why I rephrase it who rules the supply chain rules the world and what we're engaged in is not a war but a tug of war a constant tug of war over that the the binds that connect us that was the image on the previous slide by the way it was an image from the first Olympic Games where tug of war was actually a sport for about three or four successive Olympic Games tug of war was actually international competition it's actually the world's oldest it's mankind's oldest organized activity sporting activities tug of war they're cave drawings going back ten fifteen thousand years showing Army's using tug of war to build their strength so to me is very apt metaphor for today because we're fighting but we're connected we're fighting over that very thing that connects us now I bring up now the economic dimension after the geopolitical and that is this this Venn diagram shows you the countries that have been involved in the TPP negotiations which the United States was the architect of designing but then pulled out off with the Trump administration and the RCEP negotiations which has been a much slower to progress constellation of mostly Asian countries trying to create a regional comprehensive economic partnership now what surprised people in the White House when the Trump administration pulled out of TPP was it thought that the that the deal would collapse but instead all of the other countries you can see here where Canada Chile Mexico Peru are raced forward to join TPP anyway right they saw the opportunity to expand trade connectivity across the Pacific Ocean every single West hemispheric country almost except for Mexico and in Canada now have more trade with Asia particularly with China than they do with the United States and that's across the Pacific Ocean the largest geographical physical barrier we have to connectivity among human populations is the Pacific Ocean and already such as the extent of trade relationships and supply chain connectivity and seamless logistics that Western Hemisphere countries South South America Brazil have more trade with China and Asia than they do with the United States so immediately they said no we're going to join TPP and Asian countries said well if the u.s. is not going to be part of TPP we'll still do it and we'll also accelerate our negotiations towards the regional comprehensive economic partnership so in other words countries are realizing and it's the countries in the middle colored green including Australia here that say to themselves wait a minute it's always better to be trading in multiple directions not to pick one trade alliance or system over another the winners are those who are connected everywhere connected in all directions benefitting from whatever opportunities present themselves and hedging against the risk that some countries are going to pull out of one agreement but that's okay we're part of another so there's a fungibility to trade relationships that individual players may not appreciate they're not appreciating the system as a whole in which everyone is getting connected to everyone else and can make their sovereign decisions about who they're going to trade with so that was a bad miscalculation for sure on the part of the White House and it's playing itself out in in many ways so for example by not appreciating factors such as this they said that you know they'll launch this trade war against China but in fact the United States is the third most important trading partner of China if you think about the world in the in terms of these regional systems economics which I think you all understand is not actually about countries and borders per se right it's about land labor capital factors of production supply chains these things transcend borders the nation the country is not the most fundamental economic unit and it never has been and so what they fail to understand is that China's largest trading partner is Asia it's other Asians buy multiples and it's second largest trading partner which I'll show you in a minute is Europe and then comes the u.s. so it's actually number three launching a war against number one to some degree from the perspective of China bad miscalculation let's continue on the intersection of how connectivity shapes competition in economics and migrate into the technology sphere like I said it's a tug of war over global value chains it's been going on for a long time the Kunda strategy that almost every country has today we most associated with China but it's not just China he's an industrial policy premise on increasing the complexity and the value-added of their domestic economies right and that's captured here in this map this is called the complexity outlook index produced by the Harvard Kennedy School it ranks countries by the by the the gap if you will or the the extent to which by having more intense trade with some of their largest trading partners in high-tech areas they can move up the value chain so China has seen itself as being colored red here meaning you could gain a lot more from intensified trade in technology with its with its existing largest partners to move up the value chain and ultimately displace them and that's very much what it has been doing of course since for exactly 40 years really Shenzhen was established as China's first special economic zone almost 40 years ago 40 years ago next year and since that time China has required that countries invest in joint ventures transfer technology train its workers and help in a way the national champions develop and what we're seeing today in terms of being able to compete with and displace the incumbents and the foreign investors that is 40 years of work like I say we've been involved in trade wars and tensions in this tug of war for decades not just since the Trump administration right this is all of human history empires and superpowers become what they are as a result of import substitution industrial policy this is how America became a superpower in the early 19th century and through the 19th century through practicing import substitution Industrial Policy this is what every empire in history has done and China is no different like I said certainties it's absolute certainty that this is what countries will do and it's not just China India is doing it now India is saying wait a minute China has done it we can do it too if you want to sell in India you better make it in India remember when Tim Cook of Apple went to India a couple of years ago and his main goal was to get an apple retail store opened in the Indian market right want to sell iPhones directly in India and Prime Minister Modi said nope not unless you procure 30% of the components from Indian suppliers right so Tim Cook walked away empty-handed right and that's what we consider to be more open political economy after all right and a Democratic Society the fact is that the top priority for governments today is to acquire technology to employ their workers to move up the value chain to be more innovative and that's something that every country is going to do they may do it because they've visited Silicon Valley or because they visited Chen Zhen but either way they're gonna arrive at that conclusion and that's why they're practicing what what we often call a net benefit calculus right what is the benefit to entering into a trade agreement an investment agreement with certain countries what is going to what's it going to do for us it's very different from the 1970s model right we assume that well globalization is all about chasing the lowest wages we keep all the IP they do all the low wage stuff very very simple tug of war doesn't doesn't look like that and then there's more explicit the cyber dimension of technology right there's two kinds in my view two kinds of geopolitics related to to to to the Internet there's the geopolitics of the Internet which is the unphysical the very first maps I showed you were really meant to emphasize that connectivity is not just an ethereal thing you ask a kid you know what does connectivity mean and they hold up their mobile phone right and it's not connected to anything so they don't appreciate the physical dimension of connectivity and very often when it comes to the internet we don't appreciate it's a physical thing right but now you front and center in our news every day right there's a physical geopolitics of the internet where are the servers right where are the cables where is the data stored right all of that has become a legal issue some talk about a Great Firewall of China people talk about splintering of the internet and so forth and and then there's the geopolitics in the internet equally profound equally intense playing out every minute of every day I can't remember who it was maybe James Comey former FBI director said there's only two kinds of companies those that those that have been hacked and those who just don't know that they've been hacked right so we all know that this is playing out all the time and of course one of the strengths of Swift and of the network that you're part of is about focusing on that issue right how to enhance cybersecurity how to enhance resilience of financial systems and transactions so that you can help to overcome this the tension if you will in the geopolitics within the internet it plays out also as tug-of-war there is a tug of war over this asset class right of of data if you will and not only of data but the flows of data right harnessing those transactions profiting from being the agent of liquidity of those transactions so you can see breaking it down between between sort of you know Western entities and and China you've got the tension between Union pay and visa by dues saddled the satellite network and GPS sips the Chinese system Swift Alibaba Amazon Huawei Cisco right in each category or vertical of technology or technology or service provision there is a tension going on now a lot of people view this as a new Cold War a division an Iron Curtain whatever the case may be Eric Schmidt and others have said there'll be two internets right in the future that I disagree with and the reason is because the logic of the tug of war right the logic of gaining the maximum share the logic of insinuating yourself into global markets means that what actually happens is that over time Chinese players in players wherever they may originate from as they seek to to get a greater share of global markets and customers they realize that they have to open their standards right they have to harmonize their technology with that of others there has to be some convergence in order to be global otherwise your market share will only be those in your domestic market right so I actually see over time what we see today as some kind of great bifurcation and whether it's whether it's the internet or whether it's 5g telephony ultimately in order to be a global player standards have to converge and I think they will let me talk about another set of mega trends that fuels connectivity and that very much involves the the size of your customer base in the future as institutions as banks providing financial services to individuals and businesses and that is urbanization this is a heat map a global demographic heat map it shows the entire world's population so every single one of us in this room is a pixel on this map so as you can see the locus of the world population is is Asia and what I've superimposed you're about 45 ovals and these are the mega cities in the world today projected out to the year 2030 by the World Bank by the United Nations these are going to be that the the places where the population size rapid urbanization infrastructure investment are all coming together into these archipelagos now the reason I make maps like this is because when you go go back to your office today and I hope you'll appreciate the difference between those standard political maps you have hanging on your wall and these because in your standard rand mcnally atlas or map every city is just a little black dot they're all the same size right Sydney is the same size as Beijing right but in the real world that's not actually true is it cities are growing so large they're actually fusing together into these mega clusters if you will and that's what I'm trying to depict here now this here I've also removed national boundaries you don't see the borders between countries you really just see the urban clusters so and the reason for that is because again some of them stretch across international boundaries 21 years ago Hong Kong technically belonged to Britain not to China but in the last 20 years what you've seen is that Beijing since Hong Kong reverted to Chinese authority or sovereignty has increasingly been fused together into this Pearl River Delta greater Bay Area which was being zoned into one mega urban cluster they've just opened up the world's longest bridge from Hong Kong over to Macau there's rail networks and so forth easier mobility for people across this region it is according to the Economist now the largest population cluster largest mega city cluster in the world it's displaced Tokyo is about 60 million people living there the GDP of that greater Bay Area is nearing two trillion dollars which to put it in perspective is about the same as India's GDP so imagine you're an astronaut flying around the earth you can't even see Hong Kong you can't even say oh that's Hong Kong that's the greater Bay Area but you can obviously see India GDP is roughly equivalent so what matters more right cities or countries and hence when you're making your kind of corporate strategy map right you're looking at the future saying where where's my business gonna be where do I need to have teams where do I need to expand offices where do I need to have a bigger presence where the customers are the future where do I need to invest there's a map of countries help you so much or a map like this where you can clearly see these are the 48 hubs of global demographic commercial activity I'm missing some so you can tell raise your hand if you're Australian and you're very concerned that Australia is not lit up here I'm I knew that was coming right so look here I'm showing you megacity clusters by by them by demographics so as you know the entire population of Australia would fit in greater Jakarta which is why there's no one single Australian city that that's circled here that said as you know one of the motivations in since many of you are Australian around developing this coastal connectivity through infrastructure you know from Sydney through Melbourne or Melbourne through Sydney all the way up the coast is really around aggregating the resources and creating a greater fluidity you know across Australia's major cities so that it can function as a whole greater than the sum of its parts and that's what many of these cities are doing as well but cities think differently again from countries and this is again part of this new geopolitics of connectivity it's very easy to look at a map of countries and say of course one country wants to conquer the other wants to be bigger that's not that's not exactly a brilliant insight but today said countries national policies are shaped evermore by what they're leading cities want and what they're leading cities want is actually to be connected to other cities there is literally a different psychology that a mayor and the business community and business leaders and cities have banks and financial institutions Airlines then what national leaders defense ministries Prime Minister's may have right they're very concerned about sovereignty national security and they should be but cities are thinking well how can i connect to other cities right when you know Emirates Airlines to take one that's sitting you know the geographic part of this map and in Dubai they're always looking for new cities to expand to to connect to cities and their stock exchanges are always looking to merge with other exchanges and allow dual listing seamless listings across jurisdictions right so cities think very very differently and cities want to create this network among cities and I think that's a very positive trend so let's bring the geopolitical later the territorial layer the urbanization layer the connectivity together and you get the Belton Road because really what it is is a project to link the cities like the population centers the markets of this Greater Asian region all the way really Eurasian all the way to Europe together and that process has been actually going on since the collapse of the Soviet Union it's been going on for for literally 27 years to the day on that day when the Soviet Union collapsed in 1991 China realized that it bordered more former Soviet republics of Central Asia than even Russia did and of course the energy rich resources of the Caspian Sea of the Persian golfy realized it could now build infrastructure to access them and so it began to do that now you've all heard of Belton Road right raise your hand if you haven't well some of you were thinking raiser and if you have okay raise your end if you have just to give you some exercise good better okay so all of you have now Belton Road is just you know a new name for something that's been going on literally for about thirty years right I've spent a lot of time over the last twenty years just traveling these Central Asian countries going to his Beck Astana Kazakhstan you name it including Iran Pakistan and to make this map I go to those countries and I went to them and I asked them what are the infrastructures that you want to build tell me about the pipelines the railways electricity grids the internet cables all of those you know transportation Trading Networks corridors that you need to build to connect to your neighbors to expand your economies to participate in in in global value chains and these are the ones that they drew for me in a way and I put them all together I have absolutely zero doubt that every single one of these lines that you see here in this map are is gonna be built right today you hear a lot in the media about backlash against belton road contracts being cancelled by Malaysia Myanmar Pakistan and so forth that's probably a good thing it really helps a country's fiscal situation if it can get for 1.5 billion dollars something it originally agreed to pay eight billion dollars for its gonna take that money and it's gonna invest it in yet more infrastructure right all of these debt renegotiations are an excellent thing from the perspective of those countries right China doesn't really need the money fundamentally though every one of these countries like I said if you're thinking about the India's and the Pakistan the post-colonial countries their populations as they said if tripled tripled since the end of colonialism right in just the last couple of generations with a very little new infrastructure being built they desperately need it it's going to be built it's going to be funded by China by multilaterals the World Bank is getting on board China is now lobbying very hard for Japan to join the AIA be the AIB is probably the Asian infrastructure investment bank which was created a couple of years ago it's probably the fastest growing multilateral institution in world history right and this belton road is without a doubt the largest coordinated infrastructure investment program in world history and it makes total sense it's about supply and demand the massive demand for infrastructure and the supply that is being provided now at a more or less affordable cost you cannot put a price really because very hard to calculate the the net benefit of infrastructure investment in all of its categories transport energy communications through urbanization soft infrastructures like education health care right all of those categories of investment have a major catalytic impact on economies very very hard to actually put a number on it right but it is really the scenic winona of being part of the world economy and of modernization and development and every country on this map needs it needs it very very badly so there are risks there is currency risk we're seeing right now that certain currencies as in South Asia and India are are certainly being have been weakened as much as a result of international dynamics as their own domestic cycles and then there's sovereign risks as I mentioned a certain degree of backlash but the rewards that derive from infrastructure investment are are manifold and they are in the capital market arena you know for investors looking at the categories of sovereign and corporate debt that are being issued more and more in local currency which allows for a greater stability in these markets so there's been a big shift in the last 20 years from all new debt being denominated in u.s. dollars towards there being a lot more market confidence in emerging market currencies and of course the need to grow right the need to expand into these markets these consumer markets now as I said a is the locus of this demographically as well as as well as economically in Asia has for for far too long been hailed as sort of synonymous with China but if you map out if you depict through this cartogram for example the GDP of countries in Asia and worldwide by purchasing power parity as one well should because the domestic consumption share of GDP is rising in all of these economies we make a mistake by believing that Asian economies aren't hi early trade an export-dependent most for most Asian countries export dependencies declining and with their large populations the domestic share of GDP is rising rapidly so they're actually overcoming what many people think of as a trap of premature deindustrialization so PPP matters a lot you can see that Asia is in a way a multipolar area and in fact the swath of countries through South a South to Southeast Asia Pakistan through India bangladesh myanmar Indonesia Thailand Philippines and so forth that's two and a half billion people that's 1 billion more people than China has with on average demographics that are with a median age five to ten years younger and now growing at China's pace in some cases faster India is now growing faster than China so if you take those 2.5 billion people of South and Southeast Asia and give them only half the growth rate that China has had in the last 30 years which has been nearing 10 near 10% but let's call it the democracy deficit right you know sort of democratic societies are less decisive you know won't grow as quickly as China has even though again they already are but let's just give them a 5 percent growth rate they will equal China's current GDP in just 10 years right so we should not be ignoring the other 3.5 billion people of Asia the two and a half billion of South and Southeast Asia while we only focus on China Asia as a whole is a much bigger story than just China and because of belton road because of new trade agreements because of the growing connectivity between Asian countries and because of the trade war which is incentivizing Asians to displace their dependence to extent that they were dependent on trade with the US with trade with each other that's actually been going on since the Asian financial crisis you now have an acceleration of the complementarities between Asian economies here you can see that every sub region of Asia is trading more with every other sub region whether it's from the GCC which is actually weak some people called the Middle East most people called the Middle East I call it West Asia because that's actually what it is and West Asia trading more with East Asia that's what we've called the energy super cycle for the last 20 years and the complementarities they in industry in finance and food commodities are all intensifying right and I include Russia within Asia Russia's greatest trading partners are now are now China and other Asian countries more so than more so than Europe even so I expect this to continue as a result of all of those factors I just mentioned so the Asian ization of Asia is really what we should be looking at and that's obviously going to big implications in financial services as well now this has shifted the geopolitical and geo-economic calculus for for Europe sitting right there in the middle we've grown up in this transatlantic era right where the transatlantic trade relationship was the real anchor the real center of world trade but as you can see Europe already trades more with Asia than it does with the United States and that's why Europe's decisions about joining the belton Road when America urged it not to right and in a way competing now to enhance exports to Asia and especially to China for every for every product category whose marginal cost has risen as a result of reciprocal tariffs imposed by China you don't see your Europe shares America's concerns about IP protection and market access in your in in China but in the meantime whether it's semiconductors or food you name it Europe is saying if the cost of an American import is going to rise as a result of trade tensions let us sell it to you right and that's that's why Europe is leaning more towards this belt and road picture than towards the Atlantic so to me connectivity is this you know what I call the currency of power right you are powerful not based just on your size but the extent to which you are connected to others and leveraging that connectivity it is intensely geopolitical to build connectivity and to try and use that connectivity to enhance your position in global supply chains right just being big doesn't mean you're important being connected is what makes you important that's why China has been investing it's made itself the largest trading partner of 124 countries the United States is the largest trading partner of only about 56 countries right now those numbers may change over time but fundamentally all countries are realizing that connectivity is how you go about enhancing your influence and that has a big impact on some of the intense sort of you know geopolitical questions of today North Korea Iran the u.s. is trying to isolate those countries Europe Russia China is trying to engage with them right the forces of engagement connectivity ultimately are going to win out one party on the other side of the world is not going to be able to sanction and isolate a country or countries that sit in the heart of the ancient and future Silk Roads one way or the other whether it's in five years or ten years the Iranian market which people consider to be the last great emerging market 80 million mostly young population mostly urbanized right its commodities are gonna reach global markets it's taken so much inward investment from China and other countries to build that new infrastructure it will be connected the same is happening with North Korea as we speak they're moving military forces away from the DMZ now the two countries may or may not ever unify but you can clearly see the infrastructure and the supply chain integration accelerating and I think that's going to happen for all such countries there's a risk some people believe of nearshoring right of retrenching I call this the longitudinal scenario right and if you think about it the United States has more autarky than any other major power in the world it's trade dependency is less than 10% of its GDP right far less than other countries North America as a continent the Western Hemisphere as a region has all of the food all of fuel all the industry technology manpower it needs to survive and to sort of power itself without much dependence on the rest of the world Europe actually has Africa as its third largest trading partner behind Asia and North America and also is increasing its connectivity with Africa in a post-colonial way and Asia as I've just sketched out to use becoming a pan region as well so we could move into this scenario I call this the live and let live scenario right why do powers have to fight with each other on the other side of the world over what are you know really negligible Rafi's went in a way they depend on each other less and less than a very of less reason to be interpolation to be intervening each other's affairs there's good and there's bad sides to that right you could have less political conflict as a result but you could also have more and the reason is because this is a scenario where those supply chains in that connectivity that I mentioned at the beginning as being a barrier to conflict an escalation because leaders say wait a minute you know we can't fight a war with them we have all of our all of our Walmart production is in China all our iPhones are made in China if everything is near shored well then it seems like there's less risk involved in conflict less economic risk in conflict and that may be something that Trump is aiming towards right towards this near showing I don't think it will work because if you made every iPhone in Texas right how would you then compete in Asian markets to sell it by putting it on a ship and sailing it for 20 days across the Pacific Ocean and you expect that customers are gonna wait for that phone to arrive right so because for most multinationals their sales are greater outside their home countries than in them right they still need to be present in those in those markets even if technology allows you to make everything at home it doesn't mean that economics makes it sensible to make everything at home so I think we will continue to expand heavily invest heavily in connectivity every country does so for its own selfish reasons China's building Belton Road not to help to bridge this infrastructure gap and just to be generous it's building it to avoid the Malacca trap right to avoid that red dot on the lower right side of your screen the Straits of Malacca through which most of China's goods imports and energy imports and goods exports flow right up to 80 percent and to build resilience for itself it says we need to diversify our physical connectivity we need this belt in Road we need the Arctic anything to avoid that one choke point and in traditionally in geopolitics there's two other major choke points or three others the Straits of Hormuz Suez Canal Panama Canal right historically you thought in a world of just traditional goods and commodities trade we worry that any disruption to connectivity in any of these choke points would be disastrous even just in recent memory when Saddam invaded Kuwait but in 1990 all prices spiked right today you can have tensions in Iraq and Ukraine with Iran Libya South China Sea and oil prices I mean they live they've trended a little bit back upwards but generally speaking they're coming down as a result of supply diversification the United States has come on stream is the largest oil and gas producer and because of growing connectivity fungibility of resources a global LNG markets and so forth so it's very hard to shut down you know global energy distribution supply will need meet demand prices will trend downwards investments in renewables also will do that and so we've gone from this peak oil to gas glut if you will there's also if you think about it stability in the global financial system now we worry about the cascading effects of a massive global indebtedness we worry about a new financial crisis but in terms of the liquidity being available now not just in US dollar but in other major reserve currencies as well as the increasing bilateral lending networks and financial integration that is linking countries together and you know crypto currencies and other instruments there is the world is awash if you will in capital even in a rising interest rate environment to fuel this development in connectivity that gives each of us that gives every country resilience so if you're familiar with the work of Nassim Taleb he wrote the coin the term Black Swan and wrote the book with that title is most recent one of his most recent book it's called anti fragile his anti fragile is something that's not just resilient if you break it it doesn't just go grow back to what it was it actually becomes better it becomes stronger these great examples of these anti fragile systems in human history human evolution is one of them right we've suffered great plagues and maladies but we get taller stronger over time right the human physiology is an anti fragile system the same is true of the Internet right the Internet is not just one system not just one layer it's many and every year we're laying down more cables having more servers there's maybe ten or so redundant layers to the internet even those who created it no one military power can shut down the internet and globalization itself which rests on all of this connectivity that we're building is also an anti fragile system I began going back seventy thousand years and I think we can safely predict well into the future we continue to make all these investments in connectivity again for our own individual purposes but collectively all of that connectivity connects to the other connectivity and it creates more pathways more resilience more antifragility because globalization fundamentally is about supply meeting demand right and the more connectivity we have the more it becomes possible for the supply of any good resource Reserve idea a marginal currency increment to reach the demand I think that's where you come into this picture you are agents of making the world more anti fragile your agents of making sure that the markets the customers the banks the individuals who seek to be connected to seek liquidity are going to be able to access it right you are part of that story of connectivity of globalization of anti fragility so even though connectivity is something that we fight over it's intensely part of the geopolitics of the world today in the end I come out relatively optimistic because even though we are inadvertently making all of these investments it does make the world a more stable system on the whole so with that thank you very much for having me here I look forward to our conversation thank you thank you well done mate thank you that was brilliant those brewery did we enjoy that good now guys we are going to touch on one pertinent question before we go to the next session which I really want to oppose to paragrah was also the most popular question that you guys voted if the US pulling out of TPP is a big mistake what do you make of brexit oh my god biggest biggest mistake since Hitler invading Russia I don't really really dumb I mean I think you know the UK is whether or not the buyer's remorse sufficiently kicks in to have another referendum or not there's obviously I would like to thank some growing appreciation that had they measured the value of connectivity if you will you know the costs done this boss cost-benefit analysis around connectivity to the largest market you know and largest trading partner and so forth they would probably have not made this decision again the reason I mapped connectivity so that we appreciate it and Britain you know is actually one of the top five most connected economies in the world very trade dependent so to do anything to rupture that connectivity is absolutely shooting yourself in the foot so yeah and you know it's up to them whether it turn around the point I want to make though in because I don't have a dog in that fight so I want to be obviously brutally clear about something because if you go back a couple of years to after the referendum people said you know if brexit happens it's gonna lead you know plunge the world economy no tails tailspin right the lesson in connectivity and this is effectively mathematical principle more or less is that if you cut yourself off you suffer the system doesn't suffer the world economy continues to grow right it's a self-inflicted wound I want everyone to understand that because it applies to what the US is doing the trade as well because you cut yourself off you lose its your exporters it's your companies that wind up being the losers the system will carry on without you globalization is bigger than any country in any power power I think I speak on behalf the audience when I say that discussion was insightful confronting and exciting thank you very much appreciate it thank you ladies and gentlemen thank you you

Channel: SibosTV

Views: 3,233

Rating: 5 out of 5

Keywords: Sibos, Sibos 2018 Sydney, Sibos conference

Id: WmEA7uc5H3s

Length: 58min 44sec (3524 seconds)

Published: Mon Oct 22 2018