As the various political events of the past six months have unfolded, a number of economic indicators have jumped around, whether the stock markets or the value of various currencies. These have typically been accompanied by reminders that business doesn’t tend to like uncertainty.
It’s a message that is no doubt familiar to many readers of this thought piece, and indeed much of innovation is the attempt to master uncertainty so that we are in control of disruptive forces rather than on the receiving end of them.
Of course, most of the dialogue around disruption focuses on technological disruption, or maybe social disruption. As the last few months have shown us however, there is also significant potential for political disruption. What’s more, evidence from across Europe suggest that we are only at the beginning of a quite tumultuous time politically speaking.
Dealing with political disruption
This can manifest itself in any number of ways, whether through more onerous regulations or difficulties recruiting the talent you require, more stringent taxation or increases in costs associated with importing and exporting.
By and large, the last few decades have seen a relatively stable environment in this sense, with various trade deals lowering and simplifying barriers, and inflation kept relatively low and stable. Standards have begun to converge around the world, whether on environmental issues or labour standards.
The current climate offers none of that stability, in large part because no one really knows what the Trump administration will do, or what Brexit really means.
To try and help guide us in the right direction, Scott Baker of Northwestern University’s Kellogg School of Management, Nick Bloom of Stanford University, and Steven Davis of the University of Chicago Booth School of Business, have developed a tool to help us understand the economic and policy factors concerning our world.
They attempt to couple the certainty levels in the economy with the levels of business investment, and subsequently with economic growth. It’s perhaps no surprise, and in keeping with the Zeitgeist, that big investment decisions tend to be put off in uncertain times, whether that’s investing in plant or expanding the workforce.
Of course, this disincentive to invest is strongest in industries that don’t tend to change a great deal. A recent paper set out to explore the investment environment during periods of economic and political uncertainty, and found that fast moving industries tend to maintain investment levels, but slower moving sectors don’t.
That analysis focuses on the rather passive responses to uncertainty however. There is, of course, a more proactive response, as companies resort to lobbying to try and ensure they and their industry are treated well.
A second study made the understandable connection between the levels of uncertainty in an economy and the levels of spending on lobbying. As you might expect, the more concerned a company is that it might be on the receiving end of a politicians whims, the more they invest to try and influence those outcomes. All of which creates a rather paradoxical situation, as politicians such as Donald Trump made hay out of his apparent desire to ‘drain the swamp’ of influencers and hangers-on, yet the uncertainty their stance provides only serves to increase activity in that swamp.
So, with uncertain times upon us, I thought it would be interesting to kick-start the conversation around how we can look to manage that political uncertainty. We have an awful lot of discussions around technological uncertainty, competitive uncertainty and so on, but very little is really said about managing the political environment we find ourselves in.