Futures and Scenario Planning
Any glance into the future is necessarily tied to imponderables; there is always more than one possible development path – because there is so much that simply cannot be foreseen and because the future will also be shaped by decisions that we still have to be taken. Today, context is changing much faster than in previous times. Who could have forecast, even one year before they happened, the fundamental changes in the Arab World, Fukushima, or the serious problems that have befallen the euro? The future is not an extension of present trends – it is full of surprises. We do not know what the future will look like; we know only that it will be different from today. Moreover, whether we are speaking of the financial and economic crisis, of the depletion of fossil fuels and other non-renewable resources, of global warming, the loss of biodiversity or the increasing lack of drinking water in many regions, the challenges facing humankind are considerable and the prospects often represent cause for concern. Scenario-building has proven to be particularly helpful in situations of great uncertainty and discontinuity. Instead of neglecting these areas of uncertainty, scenarios make them explicit and offer a framework for exploring them with others.
In a previous blog entry of this series we introduced scenario planning as a key element of the methodology in projects that we are developing. Our aim is to conduct a series of workshops based on the principles of co-design and ethical innovation in scenario building – drawing on scenario building frameworks such as the following from Sascha Meinert:
- Approaching the question and the time horizon of the scenario project;
- Identifying and ranking of uncertainties and givens;
- Describing the fundamental future alternatives;
- Calibrating a ‘future compass’ out of the elaborated results;
- Plotting scenario narratives for each quadrant of the compass (basic dynamics, actors, conflicts, story lines and titles);
- Reflecting on the outcomes: implications and room for manoeuvre
In a later blog we will review a number of approaches to scenario planning as a means to build a ‘tool-box’ of useful methods that might be used in different places, with different stakeholders, in relation to different problems, and with different purposes and impacts in mind.
Some of the inputs into scenario planning can include the projections, modelling, provocations and propositions of others. In this post I want to briefly engage with some indicative ‘worst case scenarios’ that are emerging in the midst of what might prove to be the ‘first wave’ of the pandemic. These commentaries are focussed on the emerging challenges and opportunities that accompany the social, cultural and economic responses to the public health crisis.
In this post this engagement is at the more ‘macro—level’ of globalised economies and policy discussions. At this level there is very little sense of how these challenges and opportunities might play out in different places and for different individuals, communities, populations. We will start to look at these other levels in future posts.
The View from the Australian Commonwealth Government’s Treasury Department.
Dr Steven Kennedy is the Secretary to the Australian Commonwealth government’s Treasury Department. On April 28, 2020 he delivered an opening statement to the Australian parliament’s Senate Select Committee on COVID-19. In that statement Dr Kennedy noted that:
The COVID-19 pandemic is having an unprecedented impact on economies worldwide. Chinese GDP fell by 9.8 per cent in the March quarter. A record fall by a wide margin.
US jobless claims have risen by 26 million people over the past few weeks.
In April, the Eurozone experienced its sharpest monthly fall in surveyed business activity and employment on record.
To put these outcomes in context, GDP in advanced economies fell by around 4 per cent in 2009 during the global financial crisis.In Australia, new real-time ABS data show that in accommodation and food, and arts and recreation services, the number of jobs fell by 25.6 per cent and 18.7 per cent respectively, over the three weeks between 14 March and 4 April.
In the June quarter we expect to see the unemployment rate rise to around 10 per cent.
Unemployment rose to higher levels in the Great Depression but it did that over the course of a couple of years, these movements are happening in just a couple of months.
We have never seen an economic shock of this speed, magnitude and shape, reflecting that this is both a significant supply and demand shock.
The supply of goods and services has been badly disrupted by the necessary social distancing measures. Demand, in turn, is being reduced by the associated loss in incomes and profits and loss of confidence.
As a senior public servant charged with providing economic policy advice to political leaders of governing parties, Kennedy proceeds in this opening statement to outline the policy responses that have been put in place to that point. At this time my interest is not so much in analysing these policy responses but in recording them as being indicative of the scale of the challenges that policy advisors and politicians imagine that the Australia economy and social life are facing.
Australian Governments have substantially lessened the economic impact of the social distancing measures by acting decisively and early. They have collectively taken a balanced approach to preventing activities likely to spread the virus while allowing other activities to continue where possible.
This has meant that in Australia we have been able to continue a wider range of economic activities, such as construction, manufacturing and mining. For some countries, they have not had a choice but to act more aggressively.
In addition, Australia has benefited from a strong starting point including highly effective federal and state public services and institutions, a well-capitalised banking sector, and a sound fiscal position.
The Government has announced $320 billion in fiscal and balance sheet support designed to:
- support the community through an enhanced safety net,
- preserve the relationship between employers and employees,
- support employment,
- maintain organisational capital through support for cash flow and the availability of credit,
- enhance firm survival by modifying business and labour regulations,
- unblock disrupted supply chains,
- and importantly, enhance business and consumer confidence.
The direct fiscal measures are equivalent to around 10 per cent of GDP – and are larger than any support package provided by Government in the past 50 years. Around $10 billion of support has been distributed over the past 3 weeks, with around 3 times that amount expected over the next month.
This support has already had a material impact on confidence. And it has significantly improved our prospects of recovering well from this pandemic.
The final shape of this shock remains hard to predict because it depends on how the virus’ transmission unfolds in the face of efforts to suppress it – both in Australia and overseas.
Over time, the uncertainty around the progression of the virus will diminish and more economic activity will return. But new challenges will have emerged. Some jobs and businesses will have been lost permanently.
The Treasury will increasingly turn to these challenges, continuing to advise on policy settings and reforms that will enable our country to prosper in a world that in many ways will look largely the same, but may have also changed in some important and sustained ways.
Nouriel Roubini is professor of economics at New York University’s Stern School of Business. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.
Drawing on this extensive experience and knowledge of the recent history of the global economy, and his sense of the more immediate and longer terms possibilities of the pandemic, he identifies, in an article in The Guardian on Wednesday April 29, 2020, what he calls ‘10 ominous and risky trends’ that portend an L-shaped “Greater Depression” for the decade of the 2020s
After the 2007-09 financial crisis, the imbalances and risks pervading the global economy were exacerbated by policy mistakes. So, rather than address the structural problems that the financial collapse and ensuing recession revealed, governments mostly kicked the can down the road, creating major downside risks that made another crisis inevitable. And now that it has arrived, the risks are growing even more acute. Unfortunately, even if the Greater Recession leads to a lacklustre U-shaped recovery this year, an L-shaped “Greater Depression” will follow later in this decade, owing to 10 ominous and risky trends.
The 10 risks are:
1. Deficits and debt
The first trend concerns deficits and their corollary risks: debts and defaults. The policy response to the Covid-19 crisis entails a massive increase in fiscal deficits – on the order of 10% of GDP or more – at a time when public debt levels in many countries were already high, if not unsustainable.
Worse, the loss of income for many households and firms means that private-sector debt levels will become unsustainable, too, potentially leading to mass defaults and bankruptcies. Together with soaring levels of public debt, this all but ensures a more anaemic recovery than the one that followed the Great Recession a decade ago.
A second factor is the demographic timebomb in advanced economies. The Covid-19 crisis shows that much more public spending must be allocated to health systems, and that universal healthcare and other relevant public goods are necessities, not luxuries. Yet, because most developed countries have ageing societies, funding such outlays in the future will make the implicit debts from today’s unfunded healthcare and social security systems even larger.
A third issue is the growing risk of deflation. In addition to causing a deep recession, the crisis is also creating a massive slack in goods (unused machines and capacity) and labour markets (mass unemployment), as well as driving a price collapse in commodities such as oil and industrial metals. That makes debt deflation likely, increasing the risk of insolvency.
4. Currency debasement
A fourth (related) factor will be currency debasement. As central banks try to fight deflation and head off the risk of surging interest rates (following from the massive debt build-up), monetary policies will become even more unconventional and far-reaching. In the short run, governments will need to run monetised fiscal deficits to avoid depression and deflation. Yet, over time, the permanent negative supply shocks from accelerated de-globalisation and renewed protectionism will make stagflation all but inevitable.
5. Digital Disruption and Employment Replacement
A fifth issue is the broader digital disruption of the economy. With millions of people losing their jobs or working and earning less, the income and wealth gaps of the 21st-century economy will widen further. To guard against future supply-chain shocks, companies in advanced economies will re-shore production from low-cost regions to higher-cost domestic markets. But rather than helping workers at home, this trend will accelerate the pace of automation, putting downward pressure on wages and further fanning the flames of populism, nationalism, and xenophobia.
The pandemic is accelerating trends toward balkanisation and fragmentation that were already well underway. The US and China will decouple faster, and most countries will respond by adopting still more protectionist policies to shield domestic firms and workers from global disruptions. The post-pandemic world will be marked by tighter restrictions on the movement of goods, services, capital, labour, technology, data, and information. This is already happening in the pharmaceutical, medical-equipment, and food sectors, where governments are imposing export restrictions and other protectionist measures in response to the crisis.
7. Backlash against democracy
The backlash against democracy will reinforce this trend. Populist leaders often benefit from economic weakness, mass unemployment, and rising inequality. Under conditions of heightened economic insecurity, there will be a strong impulse to scapegoat foreigners for the crisis. Blue-collar workers and broad cohorts of the middle class will become more susceptible to populist rhetoric, particularly proposals to restrict migration and trade.
8. The US vs China
This points to an eighth factor: the geostrategic standoff between the US and China. With the Trump administration making every effort to blame China for the pandemic, Chinese President Xi Jinping’s regime will double down on its claim that the US is conspiring to prevent China’s peaceful rise. The Sino-American decoupling in trade, technology, investment, data, and monetary arrangements will intensify.
9. New Cold War
Worse, this diplomatic breakup will set the stage for a new cold war between the US and its rivals – not just China, but also Russia, Iran, and North Korea. With a US presidential election approaching, there is every reason to expect an upsurge in clandestine cyber warfare, potentially leading even to conventional military clashes. And because technology is the key weapon in the fight for control of the industries of the future and in combating pandemics, the US private tech sector will become increasingly integrated into the national-security-industrial complex.
10. Environmental Crises
A final risk that cannot be ignored is environmental disruption, which, as the Covid-19 crisis has shown, can wreak far more economic havoc than a financial crisis. Recurring epidemics (HIV since the 1980s, SARS in 2003, H1N1 in 2009, MERS in 2011, Ebola in 2014-16) are, like climate change, essentially manmade disasters, born of poor health and sanitary standards, the abuse of natural systems, and the growing interconnectivity of a globalised world. Pandemics and the many morbid symptoms of climate change will become more frequent, severe, and costly in the years ahead.
In summing up, Roubini reinforces the sense of the world that COVID-19 emerged into, and the ways in which these histories and presents are entangled with the possible, probable futures that we all face – the more than likely, if not inevitable, worst case scenarios:
These 10 risks, already looming large before Covid-19 struck, now threaten to fuel a perfect storm that sweeps the entire global economy into a decade of despair. By the 2030s, technology and more competent political leadership may be able to reduce, resolve, or minimise many of these problems, giving rise to a more inclusive, cooperative, and stable international order. But any happy ending assumes that we find a way to survive the coming Greater Depression.
The challenges, the opportunities, the hopes of developing sustainable futures for ourselves, and for coming generations, in times of crisis and disruption, are not to be found in business-as-usual scenarios.
Rosi Braidotti , a leading philosopher of the posthuman, identifies an ‘affirmative politics’ that is informed by a ‘posthuman ethics’ that provides a means to think about designing hoped for futures:
The pursuit of collective projects aimed at the affirmation of hope, rooted in the ordinary micro-practices of everyday life, is a strategy to set up, sustain and map out sustainable transformations. The motivation for the social construction of hope is grounded in a sense of responsibility and inter-generational accountability…Hope is a way of dreaming up possible futures: an anticipatory virtue that permeates our lives and activates them. It is a powerful motivating force grounded not only in projects that aim at reconstructing the social imaginary, but also in the political economy of desires, affects and creativity that underscore it.
 Rickards, L. and Steele, W. (2019) Towards a Sustainable Development Goals Transformation Platform at RMIT, p.17