What now? Prepare for the next crisis
PREDICTING the future can be a notoriously tricky business. If people declare with certainty that things will happen, they often don’t. While things that no one saw coming have a horrible habit of actually happening.
The Asian financial crisis in 1997 came as everyone was talking about an “Asian economic miracle”, while the most recent economic crisis came as some in the West were predicting an end to economic “boom and bust”.
Predicting the future may be hard, but at least it can prepare us for a tomorrow that is different from today. The financial crises in the past decade-and-a-half have hurt so much because nobody was prepared; financial crises just didn’t seem possible while everything was going so well. We have seen the effects of not being prepared, and it must not happen again.
A look back only 20 years ago demonstrates this perfectly. In 1990, South Africa was still afflicted by apartheid; the USSR was still around, and the internet was only an academic’s play thing. Just imagine what the next twenty years will look like.
Predicting the future means challenging some of the basic assumptions of the present.
THE WORLD IN 2030
This is precisely what the Association of Chartered Certified Accountants (ACCA) has tried to do with its latest report, Where Next for the Global Economy: A View of the World in 2030. The report collates the opinions of 15 global experts, including CNN’s John Defterios, KPMG’s global head of tax Loughlin Hickey, the World Bank’s Tony Hegarty, and PricewaterhouseCooper’s managing director for Malaysia Chin Kwai Fatt.
So, what will the world look like in twenty years time?
The world in 2030 will have a flatter distribution of global power. We’re already seeing this process take place with the G7 becoming the G8, and most recently with the G20 coming to the fore. By 2030, a reduction or even removal of trade barriers and the wider dispersion of influence will see regional competition and suspicion be replaced by a genuine desire amongst countries to work together. The East and emerging markets will no longer be spoken of as “the next big thing”. They will be the big thing.
PwC’s Chin Kwai Fatt predicts that “if the resulting landscape is such that… emerging economies will have a greater role there will be a higher degree of mutual dependence – to the extent that we will not just be relying on the US domestic market. Hopefully emerging economies will create new market clusters which, in turn, will promote two-way economic potential between the US and other trading nations. It will therefore become a two-way flow, rather than a parallel universe, where goods are shipped to the US while capital is shifted to the East”.
The world in 2030 will be in the midst of an eco-crunch. While countries may well see the world’s wealth as shared, there will be serious tensions over the dwindling supply of natural resources. Oil may be one of the world’s biggest commodities today, but in 2030 fresh water will be the big one. Declining resources will be put under pressure by a global population heading towards 9bn by 2050, according to UN predictions. Sustainability will be a burning issue for every stakeholder in the global economy.
The world in 2030 will have globalised regulation. Agreement on harmonised standards will be a positive development – especially the global acceptance of International Financial Reporting Standards – and regulatory arbitrage will be minimised. There will be more voluntary and self-regulation as businesses around the world recognise the need for stricter controls in the aftermath of the 2008-2010 financial crisis and react to pressure to demonstrate to stakeholders that they are pursuing responsible and sustainable commercial practices.
The world in 2030 will be a world of shopkeepers. The corporate ecosystem will be more diverse and far more complex. Increasingly virtual ties will connect specialist and remote businesses, located in increasingly specialised regions and cities. Small businesses will act like shoals of fish, becoming a strong global force. The corporations of 2030 will be an amalgam of specialist businesses, connected through looser agreements and employing a more intuitive form of outsourcing. Today’s biggest companies will de-conglomerate, outsourcing almost all central functions to achieve efficiency. Federations of businesses will be the corporations of tomorrow.
CLIMATE CHANGE IS THE NEXT CRISIS
What does this mean for finance professionals? These changes will affect every business, every sector, and every government. As head of ACCA UK, what interests me personally is how this future will affect accountants. While accountants will have a role to play in all of these changes, the one in particular that leaps out as an area of opportunity is the future of the earth’s resources.
What will be the point of making grand predictions and plans for the future if the natural environment, upon which everything is based, is crumbling?
Carbon and sustainability accounting is one of the most crucial issues facing the profession in both the short and the long term. While the immediate financial crisis will eventually pass, the climate change crisis will remain. The accountancy profession recognises that if we have not already reached the point of irreversible climate change, we soon will. Either way, both scenarios contain inevitable tough choices and costs for business and society.
A GREEN-COLLAR ECONOMY
ACCA believes that the creation of a genuine global green-collar economy will therefore not only be vital, but will also bring with it exciting possibilities for smarter technologies and businesses.
Accountants will have a key role to play in bringing about a low carbon world through leading on the disclosure of companies’ carbon emissions and the auditing of these disclosures to quantify and promote the financial consequences of climate change. To drive this, what’s needed is a common, internationally-accepted carbon accounting standard.
By adopting relevant principles and objectives of financial reporting, we can construct a workable reporting method to enable companies and investors to identify the major trends and significant events related to resource availability and climate change that affect a company’s current or future financial condition.
Yes, there will be some increased costs of implementing new reporting mechanisms, but these costs will be vastly outweighed by the benefits.
Some of the predictions made by our panel won’t come true. There will be other things that will happen that our panel haven’t thought of. But at least by considering the possibility that the future will be a different place, we can begin to prepare now, especially for the challenges presented by our changing environment.
We have to be ready for “different” and we have to begin preparing now.
Andrew Leck is head of ACCA UK